EX-99.1 2 tm2034284d1_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

 

 

Antero Resources Reports Third Quarter 2020 Financial and Operational Results

 

Denver, Colorado, October 28, 2020— Antero Resources Corporation (NYSE: AR) (“Antero Resources”, “Antero”, or the “Company”) today announced its third quarter 2020 financial and operational results. The relevant unaudited condensed consolidated financial statements are included in Antero’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.

 

Third Quarter Highlights Include:

 

·Net production averaged 3,772 MMcfe/d, including 220,000 Bbl/d of liquids (65% natural gas by volume)
·Realized natural gas equivalent price including hedges averaged $2.92 per Mcfe, a $0.94 premium to NYMEX pricing
·Net loss was $536 million, due to a $749 million unrealized commodity hedge movement in fair value driven by the impact of a 10% increase in the natural gas strip during the quarter
·Adjusted EBITDAX was $272 million (Non-GAAP); net cash provided by operating activities was $176 million
·Free Cash Flow before changes in working capital was $88 million (Non-GAAP)
·Drilling and completion capital expenditures were $161 million, down 11% sequentially and 44% from the year ago period
·Well costs were $640 per lateral foot including roads, pad and facility costs with an average lateral length of 15,900 feet
·Net marketing expense was $0.11 per Mcfe, the lowest since Antero gained access to its full firm transportation portfolio
oRealized a $38 million benefit in September by using long-haul firm transportation portfolio relative to selling gas in-basin, net of utilized transportation expense and unutilized marketing expense
·Released 300 MMcf/d of firm transportation commitments effective in 2021, reducing expected 2021 costs by $25 million
oA total of 810 MMcf/d of firm transportation is set to expire by year end 2024, reducing annual net marketing expense by $100 million
·Repurchased $461 million of senior notes principal, inclusive of the previously announced tender offers, at a 13% weighted average discount during the quarter
oRepurchasing at a discount since 4Q 2019 has reduced total debt by $220 million and annual interest expense by $34 million
·Borrowing base under the credit facility was reaffirmed at $2.85 billion, $210 million above the $2.64 billion of lender commitments
·Published annual Corporate Sustainability Report citing industry-low greenhouse gas intensity, methane leak loss rate, no gas flaring and set environmental reduction goals for 2025

 

Paul Rady, Chairman and Chief Executive Officer of Antero Resources commented, “Our third quarter results highlight the exceptional operational momentum that continues at Antero. Our development program and well results continue to exceed expectations, which drove the quarterly production outperformance. Antero’s long-haul firm transportation portfolio allowed for no shut-ins or curtailments and delivered gas sales at just $0.05 per Mcf below NYMEX prices during a period of wide regional basis differentials. Our operational and strategic advantages combined with an improving backdrop for natural gas and NGLs support our expectation of significant free cash flow generation during the second half of 2020.

 

Mr. Rady continued “Earlier this month we published our annual Corporate Sustainability Report, which highlights our outstanding environmental, social, and governance (“ESG”) performance and unwavering commitment to being an industry leader in ESG metrics. We believe that natural gas will be key to the energy transition over the coming decades as it compliments renewable energy growth. As the third largest natural gas producer in the U.S., we are well positioned to maintain our peer-leading ESG position and be a natural gas provider of choice. Finally, we are committed to improving our already low greenhouse gas metrics even further as we work to achieve our 2025 environmental goals.”

 

Glen Warren, CFO and President of Antero Resources said, “We have delivered on our commitment to reduce debt through a combination of $751 million of asset sales and debt repurchases at a discount. Our debt repurchase program which we launched in late 2019, has resulted in a $1.3 billion reduction in near-term maturities and the elimination of $220 million of total debt due to the realized discount. During the second half of 2020, we expect to generate $175 to $200 million in free cash flow, based on today’s strip prices, and to receive the first of two $51 million contingency payments from our overriding royalty holder, Sixth Street Partners, providing additional funds for debt retirement. By year-end 2020 we estimate that Antero will have reduced total debt by over $800 million. Longer term, we are committed to maximizing free cash flow and further reducing total debt and financial leverage.”

 

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For a discussion of the non-GAAP financial measures including Adjusted EBITDAX and Free Cash Flow please see “Non-GAAP Financial Measures.”

 

Asset Sale Program Update

 

Since the announcement of the Company’s $750 million to $1 billion asset sale target in December 2019, Antero has closed $751 million of transactions as detailed in the table below. Proceeds received to date have been used to repurchase debt at a discount. The Company intends to continue to evaluate other opportunities for asset monetizations with the proceeds earmarked for further debt reduction.

 

   $M 
Antero Midstream Common Stock Sale (December 2019)  $100,000 
ORRI Transaction (June 2020)(1)  $402,000 
Hedge Monetization (July 2020)(2)  $29,000 
VPP Transaction (August 2020)  $220,000 
Total Asset Sale Proceeds to Date  $751,000 

 

(1)Includes $102 million of contingent payments, $51 million of which was earned based on volume thresholds met during the third quarter of 2020. The remainder may be earned based on achieving volume thresholds through the first quarter of 2021.
(2)Includes hedge monetization related to the ORRI transaction that resulted in Antero being over-hedged on natural gas.

 

Debt Repurchases

 

Antero repurchased $461 million principal amount of senior notes during the third quarter of 2020 at a 13% weighted average discount price. The total includes the results of the completed tender offer for Antero’s senior notes maturing in 2021, 2022 and 2023. The repurchase discount during the third quarter reduced total indebtedness by $59 million. Since the commencement of the debt repurchase program in the fourth quarter of 2019, Antero has repurchased $1.3 billion of debt principal at a 17% weighted average discount. This discount alone reduced total indebtedness by $220 million, while interest expense has been reduced by $34 million on an annualized basis.

 

The table below shows the principal amount of our senior notes repurchased between September 30, 2019 and 2020.

 

   Par Value at September 30,   Principal   Repurchase   Discount 
($M)  2019   2020   Repurchased    Cost    Realized  
5.375% Senior Notes Due 2021  $1,000,000   $315,279   $(684,721)  $(596,648)  (13)%
5.375% Senior Notes Due 2022   1,100,000    660,516    (439,484)   (355,437)   (19)%
5.375% Senior Notes Due 2023   750,000    579,232    (170,768)   (127,485)   (25)%
5.375% Senior Notes Due 2025   600,000    590,000    (10,000)  $(6,364)   (36)%
Total  $3,450,000   $2,145,027   $(1,304,973)  (1,085,934)  (17)%

 

Borrowing Base Redetermination Completed

 

As a result of the recently completed October 2020 borrowing base redetermination, the borrowing base under Antero Resources’ credit facility was reaffirmed at $2.85 billion. Lender commitments under the credit facility remained at $2.64 billion, supported by 24 banks. Antero has $1.1 billion in available liquidity under its credit facility as of September 30, 2020.

 

Firm Transportation Commitments

 

Antero’s firm transportation commitments will decline by 810 MMcf/d by year end 2024 at Antero’s option. Of that, 300 MMcf/d of firm transportation commitments will expire during 2021 and notice has been given to the pipeline counterparties to that effect. If Antero elects to release the remaining 510 MMcf/d, the annual reduction in demand fees will total $100 million by 2024. The released commitment volumes are expected to reduce net marketing expense by approximately $25 million in 2021 and $60 million in 2022, as compared to 2020 levels, assuming maintenance level capital spending.

 

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Third quarter net marketing expense of $0.11 per Mcfe was the lowest since Antero’s full firm transportation portfolio was completed in 2018. As basis differentials widened during the third quarter of 2020, Antero’s firm transportation portfolio allowed for the flow of its production without any shut-ins or curtailments and shielded it from the wide regional basis to NYMEX prices. During the month of September, when the regional basis differential expanded to over $1.50 per Mcf, Antero’s firm transportation provided a $38 million benefit relative to selling gas in-basin, net of utilized transportation expense and unutilized marketing expense. The wide basis differentials continued during October and Antero experienced similar benefits from its firm transportation portfolio.

 

Third Quarter 2020 Free Cash Flow

 

Antero generated $88 million in Free Cash Flow before changes in working capital during the third quarter. After adjusting for working capital investments of $80 million during the quarter, Free Cash Flow was $7 million. Antero expects working capital adjustments to reverse during the fourth quarter of 2020 and continues to expect Free Cash Flow of $175 to $200 million during the second half of 2020, assuming strip pricing.

 

   Three Months Ended
September 30,
 
($MM)  2019   2020 
Net Cash Provided by Operating Activities  $198,410   $175,870 
Less: Capital Expenditures   (290,825)   (151,157)
Less: Distributions to Non-Controlling Interests       (17,249)
Free Cash Flow  $(92,415)  $7,464 
Changes in Working Capital   13,653    80,308 
Free Cash Flow before changes in working capital  $(78,762)  $87,772 

 

Corporate Sustainability Report

 

Antero published its 2019 Corporate Sustainability Report (“CSR”) in October detailing the Company’s ongoing commitment to environmental excellence, strong governance, safe operations and the communities in which it operates. The report highlights Antero’s leadership in greenhouse gas (GHG) intensity, methane leak loss rate and safety metrics. Within the report, Antero set in place year 2025 environmental goals which include a 50% reduction in its 2019 methane leak loss rate to under 0.025%, a 10% reduction in GHG intensity, alignment with TCFD and SASB reporting guidelines and endeavoring to achieve net zero carbon emissions through operational improvements and carbon offsets.

 

The Company believes that natural gas will be key to the energy transition and the ability to address the risks associated with climate change. As the lightest and least GHG intensive hydrocarbon, natural gas is as important as wind and solar in the energy mix that allows the U.S. and the globe to transition to a lower carbon energy future. The CSR press release and full report is available at www.anteroresources.com/sustainability/founders-message. Information on the Company’s website does not constitute a portion of, and is not incorporated by reference into, this press release.

 

COVID-19 Pandemic Developments

 

As a producer of natural gas, NGLs and oil, Antero Resources is recognized as an essential business under various federal, state and local regulations related to the COVID-19 pandemic and the communities in which it operates. The Company has continued to operate under these regulations, while taking steps to protect the health and safety of its workers. Antero has implemented protocols to reduce the risk of an outbreak within its field operations, and these protocols have not had an impact on production or performance. A substantial portion of the Company’s non-field level employees have transitioned to remote work from home arrangements. Antero has been able to maintain a consistent level of effectiveness, including maintaining day-to-day operations and decision making, and financial reporting systems and internal control over financial reporting. For more information, please see Antero’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.

 

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Third Quarter 2020 Financial Results

 

For the three months ended September 30, 2020, Antero reported a GAAP net loss of $536 million, or $1.99 per diluted share, compared to a GAAP net loss of $879 million, or $2.86 per diluted share, in the prior year period. The loss was driven by a $749 million unrealized commodity derivative fair value loss as a result of the 10% rise in the natural gas strip pricing during the quarter. Adjusted Net Income (non-GAAP measure) was $15 million, or $0.05 per diluted share, compared to Adjusted Net Loss of $150 million during the three months ended September 30, 2019, or $0.49 per diluted share.

 

Adjusted EBITDAX (non-GAAP measure) was $272 million, a 5% increase compared to the prior year period driven by lower operating costs and increased production. Antero’s average realized gas equivalent price after hedges declined by 7% from $3.13 per Mcfe in the third quarter of 2019 to $2.92 per Mcfe in the third quarter of 2020, a $0.94 per Mcf premium to NYMEX pricing.

 

The following table details the components of average net production and average realized prices for the three months ended September 30, 2020:

 

   Three months ended September 30, 2020 
                   Combined 
                   Natural 
   Natural Gas   Oil   C3+ NGLs   Ethane   Gas Equivalent 
   (MMcf/d)   (Bbl/d)   (Bbl/d)   (Bbl/d)   (MMcfe/d) 
Average Net Production   2,453    14,860    145,654    59,345    3,772 

 

                   Combined 
                   Natural 
   Natural Gas   Oil   C3+ NGLs   Ethane   Gas Equivalent 
Average Realized Prices  ($/Mcf)   ($/Bbl)   ($/Bbl)   ($/Bbl)   ($/Mcfe) 
Average realized prices before settled derivatives  $1.93   $25.07   $22.01   $5.94   $2.30 
Settled commodity derivatives   0.80    9.89    1.80    (0.27)   0.62 
Average realized prices after settled derivatives  $2.73   $34.96   $23.81   $5.67   $2.92 
                          
NYMEX average price  $1.98   $40.89             $1.98 
Premium / (Differential) to NYMEX  $0.75   $(5.93)            $0.94 

 

Net daily natural gas equivalent production in the third quarter averaged 3,772 MMcfe/d, including 219,859 Bbl/d of liquids (65% natural gas by volume), a new company record. Net production increased 12% from the prior year period. Throughput on Antero Midstream’s low pressure gathering system was in excess of the third quarter 2020 growth incentive fee threshold of 2,800 MMcf/d, resulting in a $12 million rebate to Antero Resources.

 

Antero’s average realized natural gas price before hedging was $1.93 per Mcf, representing a 23% decrease versus the prior year period. Despite a sharp widening in the regional basis differential during the quarter, Antero realized a $0.05 per Mcf discount to the average NYMEX Henry Hub price through the use of its premium firm transportation to NYMEX-based markets. Antero expects its pre-hedge natural gas differentials to return to a $0.00 to $0.10 premium to NYMEX in the fourth quarter of 2020. Including hedges, Antero’s average realized natural gas price was $2.73 per Mcf, a $0.75 premium to the average NYMEX price.

 

Antero’s average realized C3+ NGL price before hedging was $22.01 per barrel, a 47% sequential improvement and a 2% decrease versus the prior year period. Antero shipped 49% of its total C3+ NGL net production on Mariner East 2 for export and realized a $0.06 per gallon premium to Mont Belvieu pricing on these volumes at Marcus Hook, PA. Antero sold the remaining 51% of C3+ NGL net production at a $0.10 per gallon discount to Mont Belvieu pricing at Hopedale, OH. The resulting blended price on 145,654 Bbl/d of net C3+ NGL production was $22.01 per barrel, which was a $0.02 per gallon discount to Mont Belvieu pricing. Antero expects to sell at least 50% of its C3+ NGL production in 2020 at Marcus Hook for export at a premium to Mont Belvieu.

 

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    Three months ended September 30, 2020
    Pricing Point     Net C3+ NGL
Production
(Bbl/d)
      % by
Destination
      Premium (Discount)
To Mont Belvieu
($/Gal)
 
Propane / Butane exported on ME2   Marcus Hook, PA     71,426       49 %   $ 0.06  
Remaining C3+ NGL volume   Hopedale, OH     74,228       51 %   $ (0.10 )
Total C3+ NGLs/Blended Premium         145,654       100 %   $ (0.02 )

 

All-in cash expense, which includes lease operating, gathering, compression, processing and transportation, production and ad valorem taxes, net marketing, and general and administrative expense (excluding equity-based compensation) was $2.21 per Mcfe in the third quarter, a 10% decrease compared to $2.46 per Mcfe average during the third quarter of 2019. Lease operating expense was $0.06 per Mcfe in the third quarter, a 50% decline from $0.12 per Mcfe in the year ago period driven by a decrease in water handling costs as Antero increased water blending and reuse in completion operations. G&A expense was $0.07 per Mcfe, a 30% decrease from the third quarter of 2019 primarily due to a lower employee headcount and a 12% increase in production.

 

Per unit net marketing expense declined to $0.11 per Mcfe in the third quarter, compared to $0.20 per Mcfe reported in the prior year period. The decline was driven primarily by higher production volumes during the quarter and wide regional basis differentials resulting in less unutilized transportation capacity.

 

Third Quarter 2020 Operating Update

 

Marcellus Shale — Antero placed 27 horizontal Marcellus wells to sales during the third quarter with an average lateral length of 11,937 feet. Fifteen of the 27 new wells have been on-line for at least 60 days and the average 60-day rate per well was 24.5 MMcfe/d, including approximately 1,169 Bbl/d of liquids assuming 25% ethane recovery. Year-to-date, Antero has averaged over 6,000 feet per day drilling the lateral section of its wells. Additionally, Antero’s ongoing emphasis on completion efficiencies resulted in an improvement during the third quarter to 8.5 stages completed per day.

 

These efficiency gains led to average all-in well costs of $675 per lateral foot, normalized to a 12,000 foot lateral. This represents a 30% reduction in all-in well cost per lateral foot since the beginning of 2019. The vast majority of the improvement in well costs has been driven by operational efficiency and process changes. Actual well costs averaged $640 per lateral foot during the third quarter as the average lateral length drilled was 15,900 feet. All-in well costs are expected to average $675 per lateral during the fourth quarter for a 12,000 foot lateral. Antero currently has one drilling rig and one completion crew running.

 

Third Quarter 2020 Capital Investment

 

Antero’s drilling and completion capital expenditures for the three months ended September 30, 2020, were $161 million. Through the first nine months of 2020, Antero has turned in line 96 of the projected 105 well completions planned for the year. Antero anticipates a decline in capital spending during the fourth quarter of 2020, reflecting reduced drilling and completion activity with full year drilling and capital spend of $750 million, unchanged from prior guidance. In addition to capital invested in drilling and completion costs, the Company invested $10 million in land during the third quarter. For a reconciliation of accrued capital expenditures to cash capital expenditures see the table on page 11.

 

Balance Sheet and Liquidity

 

As of September 30, 2020, Antero’s total debt was $3.2 billion, of which $827 million were borrowings outstanding under the Company’s revolving credit facility. Antero has a borrowing base of $2.85 billion with lender commitments that total $2.64 billion. After deducting letters of credit outstanding of $730 million, the Company had $1.1 billion in available liquidity at September 30, 2020. Net debt to trailing twelve month Adjusted EBITDA ratio was 3.2x as of September 30, 2020, down from the prior quarter’s ratio of 3.6x.

 

Commodity Derivative Positions

 

Antero had realized hedge gains of $234 million during the third quarter and $759 million during the first nine months of 2020. The Company has hedged 1.3 Tcf of natural gas at a weighted average index price of $2.68 per MMBtu through 2023 with fixed price swap positions. Antero also has oil, NGL and ethane fixed price swap positions, including oil positions that total 26,000 Bbl/d, NGL positions that total 10,315 Bbl/d and ethane positions that total 24,500 Bbl/d during the fourth quarter of 2020.

 

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Please see Antero’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, for more information on all commodity derivative positions, including basis swaps and natural gas calls.

 

The following tables summarize Antero’s hedge position as of September 30, 2020:

 

Fixed price natural gas positions from October 1, 2020 through December 31, 2023 were as follows:

 

   Natural gas
MMBtu/day
   Weighted
average index
price
 
Year ending December 31, 2020:          
NYMEX ($/MMBtu)   2,067,500   $2.84 
Year ending December 31, 2021:          
NYMEX ($/MMBtu)   2,160,000   $2.77 
Year ending December 31, 2022:          
NYMEX ($/MMBtu)   905,897   $2.43 
Year ending December 31, 2023:          
NYMEX ($/MMBtu)   43,000   $2.37 

 

C3+ NGL, ethane and oil derivative contract positions from October 1, 2020 through December 31, 2020 were as follows:

 

  

 

Derivative
Contract Type

  Liquids
Hedges (Bbl/d)
   Weighted
average
index price
($/Gal)
  Weighted
average basis
differential
$/Gal
  Weighted
average
index price
($/Bbl)
 
Year ending December 31, 2020:                               
Total Propane (C3) – ARA (Europe) (1)  Fixed swap   10,315   $0.55       $23.10 
                       
Total OPIS Ethane Mt Belvieu  Fixed swap   24,500   $0.20          
                       
Total NYMEX Crude Oil (2)      26,000            $55.63 

 

(1)Net of shipping. Assumes $0.10/gal shipping to ARA.
(2)Hedged 20,000 Bbl/d of pentane (C5) at 80% of WTI and hedged the resulting 26,000 Bbl/d of oil-equivalent volumes at $55.63/Bbl WTI on average (80% x $55.63 = $44.52/Bbl pentane).

 

Guidance

 

All guidance not discussed in this release is unchanged from previously stated guidance.

 

2020 Asset Sales Program Accounting Treatment

 

For the three months and nine months ended September 30, 2020, Martica Holdings, LLC (“Martica”), the entity associated with the previously announced ORRI transaction, is consolidated in the Company’s consolidated financial statements. All significant intercompany accounts and transactions have been eliminated in the Company’s unaudited condensed consolidated financial statements. The noncontrolling interest in the Company’s unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2020 represents the interest in Martica, which is the entity established with the overriding royalty sale, not owned by Antero.

 

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Under the VPP transaction entered into during the third quarter of 2020, all production volumes and reserves are treated as a divestiture and not included in the results. Net proceeds are recognized as deferred revenue as of September 30, 2020. Deferred revenue is recognized as volumes are delivered using the unit-of-production method over the term of the VPP.

 

For more information, please see Antero’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.

 

Conference Call

 

A conference call is scheduled on Thursday, October 29, 2020 at 9:00 am MT to discuss the financial and operational results. A brief Q&A session for security analysts will immediately follow the discussion of the results for the quarter. To participate in the call, dial in at 877-407-9079 (U.S.), or 201-493-6746 (International) and reference “Antero Resources”. A telephone replay of the call will be available until Thursday, November 5, 2020 at 9:00 am MT at 877-660-6853 (U.S.) or 201-612-7415 (International) using the conference ID: 13703919.

 

A simultaneous webcast of the call may be accessed over the internet at www.anteroresources.com. The webcast will be archived for replay on the Company’s website until Thursday, November 5, 2020 at 9:00 am MT.

 

Presentation

 

An updated presentation will be posted to the Company's website before the conference call. The presentation can be found at www.anteroresources.com on the homepage.

 

Non-GAAP Financial Measures

 

Adjusted Net Income (Loss)

 

Adjusted Net Income (Loss) as set forth in this release represents net income (loss), adjusted for certain items. Antero believes that Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per share is useful to investors in evaluating operational trends of the Company and its performance relative to other oil and gas producing companies. Adjusted Net Income (Loss) is not a measure of financial performance under GAAP and should not be considered in isolation or as a substitute for net income (loss) as an indicator of financial performance. The following tables reconcile net income (loss) to Adjusted Net Income (Loss) (in thousands):

 

   Three months ended September 30, 
   2019   2020 
Net loss attributable to Antero Resources Corp  $(878,864)  $(535,613)
Unrealized commodity derivative gains (losses)   (100,785)   748,791 
Amortization of deferred revenue, VPP       (5,175)
Impairment of oil and gas properties   1,041,469    29,392 
Impairment of midstream assets   7,800     
Equity-based compensation   3,875    5,699 
Gain on early extinguishment of debt       (55,633)
(Gain) loss on sale of assets        
Contract termination and rig stacking   62    1,246 
Tax effect of reconciling items (1)   (223,342)   (174,008)
Adjusted Net Income (Loss)  $(149,785)  $14,699 
           
Fully Diluted Shares Outstanding   307,781    268,511 

 

(1)Deferred taxes were approximately 23% for 2019 and 24% for 2020.

 

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Per Share Amounts

 

   Three months ended September 30, 
   2019   2020 
Net loss attributable to Antero Resources Corp  $(2.86)   (1.99)
Unrealized commodity derivative gains (losses)   (0.33)   2.79 
Amortization of deferred revenue       (0.02)
Impairment of oil and gas properties   3.38    0.11 
Impairment of midstream assets   0.03     
Equity-based compensation   0.02    0.02 
Gain on early extinguishment of debt       (0.21)
(Gain) loss on sale of assets        
Contract termination and rig stacking        
Tax effect of reconciling items (1)   (0.73)   (0.65)
Adjusted Net Income (Loss)  $(0.49)   0.05 

 

(1)Deferred taxes were approximately 23% for 2019 and 24% for 2020.

 

Net Debt

 

Net Debt is calculated as total debt less cash and cash equivalents. Management uses Net Debt to evaluate the Company’s financial position, including its ability to service its debt obligations.

 

The following table reconciles consolidated total debt to Net Debt as used in this release (in thousands):

 

   December 31,   September 30, 
   2019   2020 
AR bank credit facility  $552,000    827,000 
5.375% AR senior notes due 2021   952,500    315,279 
5.125% AR senior notes due 2022   923,041    660,516 
5.625% AR senior notes due 2023   750,000    579,232 
5.000% AR senior notes due 2025   600,000    590,000 
4.250% AR convertible senior notes due 2026       287,500 
Net unamortized premium   791    (83,658)
Net unamortized debt issuance costs   (19,464)   (17,644)
Consolidated total debt  $3,758,868    3,158,225 
Less: AR cash and cash equivalents        
Net Debt  $3,758,868    3,158,225 

 

Free Cash Flow

 

Free Cash Flow is a measure of financial performance not calculated under GAAP and should not be considered in isolation or as a substitute for cash flow from operating, investing, or financing activities, as an indicator of cash flow, or as a measure of liquidity. The Company defines Free Cash Flow as net cash provided by operating activities, less drilling and completion capital and leasehold capital, less distributions to non-controlling interests in Martica.

 

The Company has not provided projected net cash provided by operating activities or a reconciliation of Free Cash Flow to projected net cash provided by operating activities, the most comparable financial measure calculated in accordance with GAAP. The Company is unable to project net cash provided by operating activities for any future period because this metric includes the impact of changes in operating assets and liabilities related to the timing of cash receipts and disbursements that may not relate to the period in which the operating activities occurred. The Company is unable to project these timing differences with any reasonable degree of accuracy without unreasonable efforts.

 

Free Cash Flow is a useful indicator of the Company’s ability to internally fund its activities and to service or incur additional debt. There are significant limitations to using Free Cash Flow as a measure of performance, including the inability to analyze the effect of certain recurring and non-recurring items that materially affect the Company’s net income, the lack of comparability of results of operations of different companies and the different methods of calculating Free Cash Flow reported by different companies. Free Cash Flow does not represent funds available for discretionary use because those funds may be required for debt service, land acquisitions and lease renewals, other capital expenditures, working capital, income taxes, exploration expenses, and other commitments and obligations.

 

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Adjusted EBITDAX

 

Adjusted EBITDAX is a non-GAAP financial measure that we define as net income (loss), adjusted for certain items detailed below.

 

Through March 12, 2019, the financial results of Antero Midstream Partners were included in our consolidated results. Effective March 13, 2019, we no longer consolidate Antero Midstream Partners and account for our interest in Antero Midstream using the equity method of accounting. Adjusted EBITDAX includes distributions received with respect to limited partner interests in Antero Midstream Partners common units through March 12, 2019.

 

Adjusted EBITDAX as used and defined by us, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with GAAP. Adjusted EBITDAX should not be considered in isolation or as a substitute for operating income or loss, net income or loss, cash flows provided by operating, investing, and financing activities, or other income or cash flow statement data prepared in accordance with GAAP. Adjusted EBITDAX provides no information regarding our capital structure, borrowings, interest costs, capital expenditures, working capital movement, or tax position. Adjusted EBITDAX does not represent funds available for discretionary use because those funds may be required for debt service, capital expenditures, working capital, income taxes, exploration expenses, and other commitments and obligations. However, our management team believes Adjusted EBITDAX is useful to an investor in evaluating our financial performance because this measure:

 

·is widely used by investors in the oil and natural gas industry to measure operating performance without regard to items excluded from the calculation of such term, which may vary substantially from company to company depending upon accounting methods and the book value of assets, capital structure and the method by which assets were acquired, among other factors;
·helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital and legal structure from our operating structure;
·is used by our management team for various purposes, including as a measure of our operating performance, in presentations to our Board of Directors, and as a basis for strategic planning and forecasting: and
·is used by our Board of Directors as a performance measure in determining executive compensation.

 

There are significant limitations to using Adjusted EBITDAX as a measure of performance, including the inability to analyze the effects of certain recurring and non-recurring items that materially affect our net income or loss, the lack of comparability of results of operations of different companies, and the different methods of calculating Adjusted EBITDAX reported by different companies.

 

The following table represents a reconciliation of our net income (loss), including noncontrolling interest, to Adjusted EBITDAX and a reconciliation of our Adjusted EBITDAX to net cash provided by operating activities per our unaudited condensed consolidated statements of cash flows, in each case, for the three and nine months ended September 30, 2019 and 2020. Adjusted EBITDAX also excludes the noncontrolling interests in Martica and these adjustments are disclosed in the table below as Martica related adjustments.

 

9

 

 

   Three months ended 
   September 30, 
(in thousands)  2019   2020 
Reconciliation of net income (loss) to Adjusted EBITDAX:          
Net income (loss) and comprehensive income (loss) attributable to Antero Resources Corporation  $(878,864)   (535,613)
Net income (loss) and comprehensive income (loss) attributable to noncontrolling interests       (18,233)
Depletion, depreciation, amortization, and accretion   242,430    239,533 
Impairment of oil and gas properties   1,041,469    29,392 
Impairment of midstream assets   7,800     
Unrealized commodity derivative gains (losses)   (100,785)   748,791 
Proceeds from derivative monetizations       (18,073)
Amortization of deferred revenue, VPP       (5,175)
Equity-based compensation expense   3,875    5,699 
Provision for income tax expense (benefit)   (272,627)   (168,778)
Gain on early extinguishment of debt       (55,633)
Equity in (earnings) loss of unconsolidated affiliates   117,859    (24,419)
Distributions/dividends from unconsolidated affiliates   48,714    42,755 
Interest expense, net   47,754    48,043 
Exploration expense   208    454 
Contract termination and rig stacking   62    1,246 
Transaction expense       524 
    257,895    290,513 
Antero Midstream Partners related adjustments (2)        
Martica related adjustments (2)       (18,072)
Adjusted EBITDAX  $257,895    272,441 
           
Reconciliation of our Adjusted EBITDAX to net cash provided by operating activities:          
Adjusted EBITDAX  $257,895    272,441 
Martica related adjustments (2)       18,072 
Interest expense, net   (47,754)   (48,043)
Exploration expense   (208)   (454)
Changes in current assets and liabilities   (13,653)   (86,618)
Transaction expense       (524)
Proceeds from derivative monetizations       18,073 
Other items   2,130    2,923 
Net cash provided by operating activities  $198,410    175,870 

 

(1)The adjustments for the derivative fair value gains and losses and gains on settled derivatives have the effect of adjusting net income (loss) from operations for changes in the fair value of unsettled derivatives, which are recognized at the end of each accounting period. As a result, derivative gains included in the calculation for Adjusted EBITDAX only reflect derivatives that settled during the period. Adjusted EBITDAX does not include proceeds from derivatives monetizations.
(2)Adjustments reflect noncontrolling interests in Martica not otherwise adjusted in amounts above.

 

   Twelve months ended 
(in thousands)  September 30, 2020 
Reconciliation of net loss to Adjusted EBITDAX:     
Net loss and comprehensive loss attributable to Antero Resources Corporation  $      (1,819,923)
Net loss and comprehensive loss attributable to noncontrolling interests   (17,997)
Depletion, depreciation, amortization, and accretion   847,262 
Impairment of oil and gas properties   202,694 
Unrealized commodity derivative gains (losses)   946,982 
Proceeds from derivative monetizations   (18,073)
Amortization of deferred revenue, VPP   (5,175)
Equity-based compensation expense   21,233 
Provision for income tax benefit   (528,609)
Gain on early extinguishment of debt   (211,784)
Equity in loss of unconsolidated affiliates   136,431 
Impairment of equity investment   1,078,222 
Distributions/dividends from unconsolidated affiliates   176,982 
Loss on sale of equity investments   108,745 
Water earnout   (125,000)
Interest expense, net   207,199 
Exploration expense   1,131 
Contract termination and rig stacking   12,317 
Transaction fees   6,662 
Martica Holdings, LLC related adjustments   (21,172)
Adjusted EBITDAX  $998,127 

 

10

 

 

 

Drilling and Completion Capital Expenditures

 

For a reconciliation between cash paid for drilling and completion capital expenditures and drilling and completion accrued capital expenditures during the period, please see the capital expenditures section below (in thousands):

 

   Three months ended
September 30,
 
   2019   2020 
Drilling and completion capital expenditures (as reported; cash basis)  $277,843    141,693 
Change in accrued capital costs   12,102    19,373 
Accrued drilling and completion capital expenditures (accrual basis)  $289,945    161,066 

 

Notwithstanding their use for comparative purposes, the Company’s non-GAAP financial measures may not be comparable to similarly titled measures employed by other companies.

 

Antero Resources is an independent natural gas and natural gas liquids company engaged in the acquisition, development and production of unconventional properties located in the Appalachian Basin in West Virginia and Ohio. In conjunction with its affiliate, Antero Midstream (NYSE: AM), Antero is one of the most integrated natural gas producers in the U.S. The Company’s website is located at www.anteroresources.com.

 

This release includes "forward-looking statements." Such forward-looking statements are subject to a number of risks and uncertainties, many of which are not under Antero Resources’ control. All statements, except for statements of historical fact, made in this release regarding activities, events or developments Antero Resources expects, believes or anticipates will or may occur in the future, such as those regarding expected results, future commodity prices, future production targets, realizing potential future fee rebates or reductions, including those related to certain levels of production, future earnings, leverage targets and debt repayment, future capital spending plans, asset monetization opportunities and pricing, improved and/or increasing capital efficiency, estimated realized natural gas, NGL and oil prices, expected drilling and development plans, projected well costs and cost savings initiatives, future financial position, the amount and timing of any litigation settlements or awards, future marketing opportunities and Antero Resources’ environmental goals are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All forward-looking statements speak only as of the date of this release. Although Antero Resources believes that the plans, intentions and expectations reflected in or suggested by the forward-looking statements are reasonable, there is no assurance that these plans, intentions or expectations will be achieved. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements. Except as required by law, Antero Resources expressly disclaims any obligation to and does not intend to publicly update or revise any forward-looking statements.

 

Antero Resources cautions you that these forward-looking statements are subject to all of the risks and uncertainties, incident to the exploration for and development, production, gathering and sale of natural gas, NGLs and oil most of which are difficult to predict and many of which are beyond the Antero Resources’ control. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating natural gas and oil reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, impacts of world health event, including the COVID-19 pandemic, potential shut-ins of production due to lack of downstream demand or storage capacity and the other risks described under the heading "Item 1A. Risk Factors" in Antero Resources’ Annual Report on Form 10-K for the year ended December 31, 2019 and in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.

 

For more information, contact Michael Kennedy – SVP – Finance, at (303) 357-6782 or mkennedy@anteroresources.com.

 

11

 

 

ANTERO RESOURCES CORPORATION

Consolidated Balance Sheets

December 31, 2019 and September 30, 2020

(In thousands, except per share amounts)

 

       (Unaudited) 
   December 31,   September 30, 
   2019   2020 
Assets
Current assets:          
Accounts receivable  $46,419    88,062 
Accounts receivable, related parties   125,000     
Accrued revenue   317,886    338,729 
Derivative instruments   422,849    83,057 
Other current assets   10,731    11,934 
Total current assets   922,885    521,782 
Property and equipment:          
Oil and gas properties, at cost (successful efforts method):          
Unproved properties   1,368,854    1,265,255 
Proved properties   11,859,817    12,149,941 
Gathering systems and facilities   5,802    5,802 
Other property and equipment   71,895    72,936 
    13,306,368    13,493,934 
Less accumulated depletion, depreciation, and amortization   (3,327,629)   (3,659,376)
Property and equipment, net   9,978,739    9,834,558 
Operating leases right-of-use assets   2,886,500    2,660,188 
Derivative instruments   333,174    44,070 
Investment in unconsolidated affiliate   1,055,177    272,926 
Other assets   21,094    16,215 
Total assets  $15,197,569    13,349,739 
           
Liabilities and Equity
Current liabilities:          
Accounts payable  $14,498    55,173 
Accounts payable, related parties   97,883    81,519 
Accrued liabilities   400,850    344,606 
Revenue distributions payable   207,988    148,917 
Derivative instruments   6,721    107,933 
Short-term lease liabilities   305,320    251,568 
Deferred revenue, VPP       43,192 
Other current liabilities   6,879    2,467 
Total current liabilities   1,040,139    1,035,375 
Long-term liabilities:          
Long-term debt   3,758,868    3,158,225 
Deferred income tax liability   781,987    381,233 
Derivative instruments   3,519    149,222 
Long-term lease liabilities   2,583,678    2,410,114 
Deferred revenue, VPP       167,466 
Other liabilities   58,635    64,223 
Total liabilities   8,226,826    7,365,858 
Commitments and contingencies (Notes 14 and 15)          
Equity:          
Stockholders' equity:          
Preferred stock, $0.01 par value; authorized - 50,000 shares; none issued        
Common stock, $0.01 par value; authorized - 1,000,000 shares; 295,941 shares and 268,549 shares issued and outstanding at December 31, 2019 and September 30, 2020, respectively   2,959    2,685 
Additional paid-in capital   6,130,365    6,165,750 
Accumulated earnings (deficit)   837,419    (500,308)
Total stockholders' equity   6,970,743    5,668,127 
Noncontrolling interests       315,754 
Total equity   6,970,743    5,983,881 
Total liabilities and equity  $15,197,569    13,349,739 

 

12

 

 

ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended September 30, 2019 and 2020

(Unaudited)

(In thousands, except per share amounts)

 

   Three Months Ended
September 30,
 
   2019   2020 
Revenue and other:          
Natural gas sales  $524,448    436,304 
Natural gas liquids sales   284,958    327,426 
Oil sales   40,561    34,265 
Commodity derivative fair value gains (losses)   220,788    (514,751)
Marketing   46,645    91,497 
Amortization of deferred revenue, VPP       5,175 
Other income   1,481    675 
Total revenue   1,118,881    380,591 
Operating expenses:          
Lease operating   35,928    21,450 
Gathering, compression, processing, and transportation   603,860    656,615 
Production and ad valorem taxes   28,863    25,790 
Marketing   108,216    128,580 
Exploration   208    454 
Impairment of oil and gas properties   1,041,469    29,392 
Impairment of midstream assets   7,800     
Depletion, depreciation, and amortization   241,503    238,418 
Accretion of asset retirement obligations   927    1,115 
General and administrative (including equity-based compensation expense of $3,875 and $5,699 in 2019 and 2020, respectively)   35,923    31,640 
Contract termination and rig stacking   62    1,246 
Total operating expenses   2,104,759    1,134,700 
Operating loss   (985,878)   (754,109)
Other income (expense):          
Equity in earnings (loss) of unconsolidated affiliates   (117,859)   24,419 
Transaction expense       (524)
Interest expense, net   (47,754)   (48,043)
Gain on early extinguishment of debt       55,633 
Total other income (expense)   (165,613)   31,485 
Loss before income taxes   (1,151,491)   (722,624)
Provision for income tax benefit   272,627    168,778 
Net loss and comprehensive income loss including noncontrolling interests   (878,864)   (553,846)
Less: net loss and comprehensive loss attributable to noncontrolling interests       (18,233)
Net loss and comprehensive loss attributable to Antero Resources Corporation  $(878,864)   (535,613)
           
Loss per share—basic  $(2.86)   (1.99)
Loss per share—diluted  $(2.86)   (1.99)
           
Weighted average number of shares outstanding:          
Basic   307,781    268,511 
Diluted   307,781    268,511 

 

13

 

 

 

 

 

ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2019 and 2020

(Unaudited)

(In thousands)

   Nine Months Ended September 30, 
   2019   2020 
Cash flows provided by (used in) operating activities:          
Net income (loss) including noncontrolling interests  $189,060    (1,355,724)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Depletion, depreciation, amortization, and accretion   726,827    655,460 
Impairment of oil and gas properties   1,253,712    155,962 
Impairment of midstream assets   14,782     
Commodity derivative fair value (gains) losses   (471,847)   116,933 
Gains on settled commodity derivatives   261,794    740,805 
Proceeds from derivative monetizations       18,073 
Loss on sale of assets   951     
Equity-based compensation expense   19,327    17,001 
Deferred income tax expense (benefit)   32,019    (426,267)
Gain on early extinguishment of debt       (175,365)
Equity in loss of unconsolidated affiliates   90,193    83,408 
Impairment of equity investment       610,632 
Gain on deconsolidation of Antero Midstream Partners LP   (1,406,042)    
Distributions/dividends of earnings from unconsolidated affiliates   109,241    128,267 
Amortization of deferred revenue       (5,175)
Amortization of debt issuance costs, debt discount debt premium and other   8,179    7,391 
Changes in current assets and liabilities:          
Accounts receivable   14,236    (15,454)
Accrued revenue   193,650    (20,843)
Other current assets   2,365    (1,455)
Accounts payable including related parties   (971)   (2,198)
Accrued liabilities   (11,169)   15,522 
Revenue distributions payable   (72,176)   (54,403)
Other current liabilities   1,387    (60)
Net cash provided by operating activities   955,518    492,510 
Cash flows provided by (used in) investing activities:          
Additions to unproved properties   (69,796)   (31,136)
Drilling and completion costs   (957,931)   (693,920)
Additions to water handling and treatment systems   (24,416)    
Additions to gathering systems and facilities   (48,239)    
Additions to other property and equipment   (5,980)   (1,346)
Settlement of water earnout       125,000 
Investments in unconsolidated affiliates   (25,020)    
Proceeds from the Antero Midstream Partners LP Transactions   296,611     
Proceeds from asset sales   7,461     
Proceeds from VPP sale, net       215,833 
Change in other assets   1,983    1,506 
Net cash used in investing activities   (825,327)   (384,063)
Cash flows provided by (used in) financing activities:          
Repurchases of common stock   (17,924)   (43,443)
Issuance of senior notes   650,000     
Issuance of convertible notes       287,500 
Repayment of senior notes       (899,971)
Borrowings (repayments) on bank credit facilities, net   (45,000)   275,000 
Payments of deferred financing costs   (8,259)   (8,907)
Sale of noncontrolling interest       300,000 
Distributions to noncontrolling interests in Antero Midstream Partners LP   (85,076)    
Distributions to noncontrolling interests in Martica Holdings LLC       (17,249)
Employee tax withholding for settlement of equity compensation awards   (2,379)   (373)
Other   (2,021)   (1,004)
Net cash provided by (used in) financing activities   489,341    (108,447)
Effect of deconsolidation of Antero Midstream Partners LP   (619,532)    
Net decrease in cash and cash equivalents        
Cash and cash equivalents, beginning of period        
Cash and cash equivalents, end of period  $     
           
Supplemental disclosure of cash flow information:          
Cash paid during the period for interest  $142,288    135,494 
Decrease in accounts payable and accrued liabilities for additions to property and equipment  $22,103    44,302 

 

14

 

 

The following table set forth selected operating data for the three months ended September 30, 2019 and 2020:

 

   Three months ended   Amount of     
   September 30,   Increase   Percent 
(in thousands)  2019   2020   (Decrease)   Change 
Revenue:                    
Natural gas sales  $524,448   $436,304   $(88,144)   (17)%
Natural gas liquids sales   284,958    327,426    42,468    15%
Oil sales   40,561    34,265    (6,296)   (16)%
Commodity derivative fair value gains (losses)   220,788    (514,751)   (735,539)   (333)%
Marketing   46,645    91,497    44,852    96%
Amortization of deferred revenue, VPP       5,175    5,175    * 
Other income   1,481    675    (806)   (54)%
Total revenue   1,118,881    380,591    (738,290)   (66)%
Operating expenses:                    
Lease operating   35,928    21,450    (14,478)   (40)%
Gathering and compression   209,751    221,004    11,253    5%
Processing   230,377    244,888    14,511    6%
Transportation   163,732    190,723    26,991    16%
Production and ad valorem taxes   28,863    25,790    (3,073)   (11)%
Marketing   108,216    128,580    20,364    19%
Exploration   208    454    246    118%
Impairment of oil and gas properties   1,041,469    29,392    (1,012,077)   (97)%
Impairment of midstream assets   7,800        (7,800)   * 
Depletion, depreciation, and amortization   241,503    238,418    (3,085)   (1)%
Accretion of asset retirement obligations   927    1,115    188    20%
General and administrative (excluding equity-based compensation)   32,048    25,941    (6,107)   (19)%
Equity-based compensation   3,875    5,699    1,824    47%
Contract termination and rig stacking   62    1,246    1,184    * 
Total operating expenses   2,104,759    1,134,700    (970,059)   (46)%
Operating loss   (985,878)   (754,109)   231,769    (24)%
Other earnings (expenses):                    
Equity in earnings (loss) of unconsolidated affiliates   (117,859)   24,419    142,278    (121)%
Transaction expense       (524)   (524)   * 
Interest expense, net   (47,754)   (48,043)   (289)   1%
Gain on early extinguishment of debt       55,633    55,633    * 
Total other income (expense)   (165,613)   31,485    197,098    (119)%
Loss before income taxes   (1,151,491)   (722,624)   428,867    (37)%
Provision for income tax benefit   272,627    168,778    (103,849)   (38)%
Net loss and comprehensive loss including noncontrolling interests   (878,864)   (553,846)   325,018    (37)%
Less: net loss and comprehensive loss attributable to noncontrolling interests       (18,233)   (18,233)   * 
Net loss and comprehensive loss attributable to Antero Resources Corporation   (878,864)   (535,613)   343,251    (39)%
                     
Adjusted EBITDAX  $257,895   $272,441   $14,578    6%

 

* Not meaningful

 

15

 

 

   Three months ended September 30,   Amount of
Increase
   Percent 
   2019   2020   (Decrease)   Change 
Production data (1):                    
Natural gas (Bcf)   210    226    16    8%
C2 Ethane (MBbl)   4,307    5,459    1,152    27%
C3+ NGLs (MBbl)   11,472    13,400    1,928    17%
Oil (MBbl)   865    1,367    502    58%
Combined (Bcfe)   310    347    37    12%
Daily combined production (MMcfe/d)   3,367    3,772    405    12%
Average prices before effects of derivative settlements (2):                    
Natural gas (per Mcf)  $2.50   $1.93   $(0.57)   (23)%
C2 Ethane (per Bbl)  $6.15   $5.94   $(0.21)   (3)%
C3+ NGLs (per Bbl)  $22.53   $22.01   $(0.52)   (2)%
Oil (per Bbl)  $46.86   $25.07   $(21.79)   (47)%
Weighted Average Combined (per Mcfe)  $2.74   $2.30   $(0.44)   (16)%
Average realized prices after effects of derivative settlements (2):                    
Natural gas (per Mcf)  $3.05   $2.73   $(0.32)   (10)%
C2 Ethane (per Bbl)  $6.15   $5.67   $(0.48)   (8)%
C3+ NGLs (per Bbl)  $22.67   $23.81   $1.14    5%
Oil (per Bbl)  $50.00   $34.96   $(15.04)   (30)%
Weighted Average Combined (per Mcfe)  $3.13   $2.92   $(0.21)   (7)%
Average costs (per Mcfe):                    
Lease operating  $0.12   $0.06   $(0.06)   (50)%
Gathering and compression  $0.68   $0.64   $(0.04)   (6)%
Processing  $0.74   $0.71   $(0.03)   (4)%
Transportation  $0.53   $0.55   $0.02    4%
Production taxes  $0.09   $0.07   $(0.02)   (22)%
Marketing, net  $0.20   $0.11   $(0.09)   (45)%
Depletion, depreciation, amortization and accretion  $0.78   $0.69   $(0.09)   (12)%
General and administrative (excluding equity-based compensation)  $0.10   $0.07   $(0.03)   (30)%

 

(1)Production volumes exclude volumes related to VPP transaction.
(2)Average sales prices shown in the table reflect both the before and after effects of our settled commodity derivatives. Our calculation of such after effects includes gains on settlements of commodity derivatives, which do not qualify for hedge accounting because we do not designate or document them as hedges for accounting purposes. Oil and NGLs production was converted at 6 Mcf per Bbl to calculate total Bcfe production and per Mcfe amounts. This ratio is an estimate of the equivalent energy content of the products and does not necessarily reflect their relative economic value.

 

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