(1) Organization

(a) Business and Organization

Antero Resources Corporation (by itself referred to as “Antero”) and its consolidated subsidiaries (collectively referred to as the “Company”) are engaged in the exploitation, development, and acquisition of natural gas, natural gas liquids (“NGLs”) and oil properties in the Appalachian Basin in West Virginia, Ohio, and Pennsylvania. The Company targets large, repeatable resource plays where horizontal drilling and advanced fracture stimulation technologies provide the means to economically develop and produce natural gas, NGLs, and oil from unconventional formations. The Company has fresh water distribution operations in the Appalachian Basin, as well as gathering and compression operations through its consolidated subsidiary, Antero Midstream Partners LP (referred to as “Antero Midstream”), a publicly-traded limited partnership. During 2012, the Company sold its Oklahoma Arkoma Basin properties and its Colorado Piceance Basin properties. The Company’s corporate headquarters are in Denver, Colorado.

(b) Corporate Reorganization and Initial Public Offering

Prior to October 16, 2013, the Company’s predecessor, Antero Resources LLC, filed reports with the Securities and Exchange Commission. Antero Resources LLC was formed in October 2009 by members of the Company’s management team and its sponsor investors. Antero Resources LLC owned 100% of the outstanding shares of Antero Resources Appalachian Corporation, which was formed in March 2008 and renamed Antero Resources Corporation in June 2013. In connection with an initial public offering (“IPO”) completed on October 16, 2013, all of the ownership interests in Antero Resources LLC were exchanged for similar interests in a newly formed limited liability company, Antero Resources Investment LLC (“Antero Investment”), and Antero Resources LLC was merged into Antero Resources Corporation. As a result of this reorganization, Antero Investment owned 100% of the issued and outstanding 224,375,000 shares of common stock of Antero Resources Corporation prior to the IPO.

On October 16, 2013, Antero Resources Corporation issued 37,674,659 additional shares of its common stock at $44.00 per share in the IPO resulting in proceeds to the Company, net of underwriter discounts and expenses of the offering, of approximately $1.6 billion.

In connection with its formation in October 2009, Antero Resources LLC issued profits interests to Antero Resources Employee Holdings LLC (“Employee Holdings”), which is owned solely by certain of the Company’s officers and employees. These profits interests provide for the participation in distributions upon liquidation events meeting certain requisite financial return thresholds. In turn, Employee Holdings issued membership interests to certain of the Company’s officers and employees. The Employee Holdings interests in Antero Resources LLC were exchanged for similar interests in Antero Investment in connection with the corporate reorganization on October 16, 2013.

The limited liability company agreement of Antero Investment provides a mechanism that demonstrates how the shares of the Company’s common stock will be allocated among the members of Antero Investment, including Employee Holdings. As a result of the adoption of the Antero Investment Limited Liability Company agreement, the satisfaction of all performance and service conditions relative to the profits interests awards held by Employee Holdings in Antero Investment became probable. Accordingly, the Company recognized approximately $449 million of equity-based compensation expense for the vested profits interests through December 31, 2014 and will recognize approximately $37 million over the remaining service period. Equity-based compensation expense for the profits interests during the years ended December 31, 2013 and 2014 was $365.0 million and $83.6 million, respectively. Because consideration for the profits interests awards is deemed given by Antero Investment, the charge to equity-based compensation expense is accounted for as a capital contribution by Antero Investment to the Company and credited to additional paid‑in capital. All available profits interest awards were made prior to the date of the IPO, and no additional profits interest awards will be made.

(d) Antero Midstream Partners LP

In 2013, the Company formed a subsidiary, Antero Resources Midstream LLC (“ARM”). The Company owned all of the membership interests in ARM other than a special membership interest that was indirectly owned by Antero Investment. On November 10, 2014, ARM was converted to Antero Midstream, a limited partnership, in connection with its initial public offering (the “Antero Midstream IPO”) of 46,000,000 common units representing limited partner interests at a price of $25.00 per common unit. At the closing of the Antero Midstream IPO, the Company contributed its gathering and compression assets to Midstream Operating LLC (referred to as “Midstream Operating”), a wholly-owned subsidiary of Antero Midstream, and the ownership of Midstream Operating was contributed to Antero Midstream. Upon completion of the Antero Midstream IPO, the public owned approximately 30.3% of the outstanding limited partner interests in Antero Midstream, and the Company and its affiliates owned the remaining approximately 69.7% limited partner interests. Antero Resources Midstream Management LLC (referred to as “Midstream Management”), a wholly-owned subsidiary of Antero Investment, owns the general partnership interest in Antero Midstream, which allows Midstream Management to manage the business and affairs of Antero Midstream. Midstream Management also holds the incentive distribution rights in Antero Midstream. Antero Midstream is an unrestricted subsidiary as defined by Antero Resources Corporation’s bank credit facility and senior notes indentures and, as such, Antero Midstream is not a guarantor of Antero’s obligations, and Antero is not a guarantor of Antero Midstream’s obligations.

In conjunction with the closing of the Antero Midstream IPO, the following events occurred:

Antero and Antero Midstream entered into a services agreement, pursuant to which Antero agreed to provide administrative, management, and other services to Antero Midstream and its subsidiaries in exchange for reimbursemeknt of its direct expenses and an allocation of its indirect expenses attributable to the provision of such services.

Antero Midstream and its subsidiary entered into a new revolving credit facility (the “Midstream Facility”) with a syndicate of lenders. The Midstream Facility provides for lender commitments of $1.0 billion which may be used to fund the operations of Antero Midstream. The Midstream Facility also provides for a letter of credit sublimit of $150 million. Antero is not a guarantor of the obligations of Antero Midstream under the Midstream Facility.

Antero and Antero Midstream entered into a 20-year gas gathering and compression agreement. Pursuant to the agreement, Antero agreed to dedicate all of its current and future acreage in West Virginia, Ohio, and Pennsylvania to Antero Midstream for gathering and compression services, so long as production is not otherwise subject to a pre-existing dedication to third-party gathering systems. Antero Midstream is entitled to receive specific fees for the services it provides to Antero, each of which are subject to price adjustments based on the consumer price index. In addition, if Antero acquires any gathering facilities, it is required to offer such gathering facilities to Antero Midstream at Antero’s cost. Antero Midstream also has an option to gather and compress natural gas produced by Antero on any acreage it acquires in the future outside of West Virginia, Ohio, and Pennsylvania on the same terms and conditions.

Antero Midstream granted a total of 2,361,440 phantom units to employees and officers of Antero. Additionally, Antero Midstream granted a total of 20,000 restricted units to its directors. See additional information relating to the recognition of expense under these awards in note 7.

The gross proceeds to Antero Midstream from its IPO were approximately $1.2 billion. After subtracting underwriting discounts and offering expenses of approximately $63 million, net proceeds received by Antero Midstream from the sale of 46,000,000 Common Units were approximately $1.1 billion. Antero Midstream used approximately $843 million of the net proceeds to repay assumed indebtedness from Antero and reimburse Antero for certain capital expenditures incurred. Antero Midstream retained $250 million of the net proceeds for general partnership purposes.