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Leases

9 Months Ended

Sep. 30, 2023

(12) Leases

The Company leases certain office space, processing plants, drilling rigs and completion services, gas gathering lines, compressor stations, and other office and field equipment. Leases with an initial term of 12 months or less are considered short-term and are not recorded on the balance sheet. Instead, the short-term leases are recognized in expense on a straight-line basis over the lease term.

Most leases include one or more options to renew, with renewal terms that can extend the lease from one to 20 years or more. The exercise of the lease renewal options is at the Company’s sole discretion. The depreciable lives of the leased assets are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Certain of the Company’s lease agreements include minimum payments based on a percentage of produced volumes over contractual levels and others include rental payments adjusted periodically for inflation.

The Company considers all contracts that have assets specified in the contract, either explicitly or implicitly, that the Company has substantially all of the capacity of the asset, and has the right to obtain substantially all of the economic benefits of that asset, without the lessor’s ability to have a substantive right to substitute that asset, as leased assets. For any contract deemed to include a leased asset, that asset is capitalized on the balance sheet as a right-of-use asset and a corresponding lease liability is recorded at the present value of the known future minimum payments of the contract using a discount rate on the date of commencement. The leased asset classification is determined at the date of recording as either operating or financing, depending upon certain criteria of the contract.

The discount rate used for present value calculations is the discount rate implicit in the contract. If an implicit rate is not determinable, a collateralized incremental borrowing rate is used at the date of commencement. As new leases commence or previous leases are modified the discount rate used in the present value calculation is the current period applicable discount rate.

The Company has made an accounting policy election to adopt the practical expedient for combining lease and non-lease components on an asset class basis. This expedient allows the Company to combine non-lease components such as real estate taxes, insurance, maintenance and other operating expenses associated with the leased premises with the lease component of a lease agreement on an asset class basis when the non-lease components of the agreement cannot be easily bifurcated from the lease payment. Currently, the Company is only applying this expedient to certain office space agreements.

(a)	Supplemental Balance Sheet Information Related to Leases

The Company’s lease assets and liabilities consisted of the following items (in thousands):


				(Unaudited)
		December 31,		September 30,
Leases	Balance Sheet Classification	2022		2023
Operating Leases
Operating lease right-of-use assets:
Processing plants	Operating lease right-of-use assets	$	1,849,116		1,672,429
Drilling rigs and completion services	Operating lease right-of-use assets		85,405		45,406
Gas gathering lines and compressor stations ⁽¹⁾	Operating lease right-of-use assets		1,463,756		1,371,508
Office space	Operating lease right-of-use assets		41,822		38,736
Vehicles	Operating lease right-of-use assets		756		—
Other office and field equipment	Operating lease right-of-use assets		3,476		505
Total operating lease right-of-use assets		$	3,444,331		3,128,584
Operating lease liabilities:
Short-term operating lease liabilities	Short-term lease liabilities	$	556,137		550,028
Long-term operating lease liabilities	Long-term lease liabilities		2,888,194		2,578,556
Total operating lease liabilities		$	3,444,331		3,128,584

Finance Leases
Finance lease right-of-use assets:
Vehicles	Other property and equipment	$	2,159		3,776
Total finance lease right-of-use assets ⁽²⁾		$	2,159		3,776
Finance lease liabilities:
Short-term finance lease liabilities	Short-term lease liabilities	$	499		1,009
Long-term finance lease liabilities	Long-term lease liabilities		1,660		2,767
Total finance lease liabilities		$	2,159		3,776

(1)	Gas gathering lines and compressor stations includes $1.4 billion and $1.3 billion related to Antero Midstream as of December 31, 2022 and September 30, 2023, respectively. See “—Related party lease disclosure” for additional discussion.

(2)	Financing lease assets are recorded net of accumulated amortization of $1 million as of December 31, 2022 and September 30, 2023.

The processing plants, gathering lines and compressor stations that are classified as lease liabilities are classified as such under ASC 842, Leases, because Antero (i) is the sole customer of the assets and (ii) makes the decisions that most impact the economic performance of the assets.

(b)	Supplemental Information Related to Leases

Costs associated with operating and finance leases were included in the unaudited condensed consolidated statement of operations and comprehensive loss (in thousands):


			Three Months Ended September 30,				Nine Months Ended September 30,
Cost	Classification	Location	2022		2023		2022		2023
Operating lease cost	Statement of operations	Gathering, compression, processing and transportation	$	378,246		418,005		1,109,422		1,206,733
Operating lease cost	Statement of operations	General and administrative		2,855		3,105		8,509		9,072
Operating lease cost	Statement of operations	Contract termination		12,000		297		12,000		4,227
Operating lease cost	Statement of operations	Lease operating		44		21		133		63
Operating lease cost	Balance sheet	Proved properties ⁽¹⁾		34,288		40,543		83,146		111,915
Total operating lease cost			$	427,433		461,971		1,213,210		1,332,010

Finance lease cost:
Amortization of right-of-use assets	Statement of operations	Depletion, depreciation and amortization	$	94		464		319		1,102
Interest on lease liabilities	Statement of operations	Interest expense		44		165		78		441
Total finance lease cost			$	138		629		397		1,543

Short-term lease payments			$	38,690		31,324		115,798		103,732

(1)	Capitalized costs related to drilling and completion activities.

(c)	Supplemental Cash Flow Information Related to Leases

The following table presents the Company’s supplemental cash flow information related to leases (in thousands):


	Nine Months Ended September 30,
	2022		2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,067,786		1,023,385
Operating cash flows from finance leases		—		441
Investing cash flows from operating leases		70,654		95,480
Financing cash flows from finance leases		441		580

Noncash activities:
Right-of-use assets obtained in exchange for new operating lease obligations	$	366,194		80,969
Increase to existing right-of-use assets and lease obligations from operating lease modifications, net ⁽¹⁾	$	119,290		12,640

(1)

During the nine months ended September 30, 2022, the weighted average discount rate for remeasured operating leases decreased from 5.6% as of December 31, 2021 to 5.2% as of September 30, 2022. During the nine months ended September 30, 2023, the weighted average discount rate for remeasured operating leases increased from 5.1% as of December 31, 2022 to 5.8% as of September 30, 2023.

(d)	Maturities of Lease Liabilities

The table below is a schedule of future minimum payments for operating and financing lease liabilities as of September 30, 2023 (in thousands):


	Operating Leases		Financing Leases		Total
Remainder of 2023	$	178,611		386		178,997
2024		703,136		1,546		704,682
2025		609,747		1,504		611,251
2026		556,196		1,148		557,344
2027		457,972		128		458,100
Thereafter		1,252,713		33		1,252,746
Total lease payments		3,758,375		4,745		3,763,120
Less: imputed interest		(629,791)		(969)		(630,760)
Total	$	3,128,584		3,776		3,132,360

(e)	Lease Term and Discount Rate

The following table sets forth the Company’s weighted average remaining lease term and discount rate:


	December 31, 2022				September 30, 2023
	Operating Leases		Finance Leases		Operating Leases		Finance Leases
Weighted average remaining lease term	7.2 years		3.5 years		6.7 years		3.2 years
Weighted average discount rate	5.3	%	7.4	%	5.6	%	8.2	%

(f)	Related Party Lease Disclosure

The Company has gathering and compression service agreements with Antero Midstream that include: (i) the second amended and restated gathering and compression agreement dated December 8, 2019 (the “2019 gathering and compression agreement”), (ii) gathering and compression agreements from Antero Midstream’s acquisition of certain Marcellus gathering and compression assets (the “Marcellus gathering and compression agreements”) and (iii) a compression agreement from Antero Midstream’s acquisition of certain Utica compressors (the “Utica compression agreement” and, together with the 2019 gathering and compression agreement and the Marcellus gathering and compression agreements, the “gathering and compression agreements”). Pursuant to the gathering and compression agreements with Antero Midstream, the Company has dedicated substantially all of its current and future acreage in West Virginia, Ohio and Pennsylvania to Antero Midstream for gathering and compression services. The 2019 gathering and compression agreement has an initial term through 2038, the Marcellus gathering and compression agreements expire between 2024 and 2031, and the Utica compression agreement has two dedicated areas that expire in 2024 and 2030. Upon expiration of each of the Marcellus gathering and compression agreements and the Utica compression agreement, Antero Midstream will continue to provide gathering and compression services under the 2019 gathering and compression agreement.

Under the gathering and compression agreements, Antero Midstream receives a low-pressure gathering fee per Mcf, a high-pressure gathering fee per Mcf and a compression fee per Mcf, as applicable, subject to annual adjustments based on the consumer price index. If and to the extent the Company requests that Antero Midstream construct new low pressure lines, high pressure lines and compressor stations, the 2019 gathering and compression agreement contains options at Antero Midstream’s election for either (i) minimum volume commitments that require Antero Resources to utilize or pay for 75% of the high pressure gathering capacity and 70% of the compression capacity of the requested capacity of such new construction for 10 years or (ii) a cost of service fee that allows the Antero Midstream to earn a 13% rate of return on such new construction over seven years. In addition, certain of the Marcellus gathering and compression agreements provide for a minimum volume commitment that requires the Company to utilize or pay for 25% of the capacity of new compressor station construction for 10 years.

The 2019 gathering and compression agreement includes a growth incentive fee program whereby low-pressure gathering fees will be reduced from 2020 through 2023 to the extent the Company achieves certain quarterly volumetric targets. The Company’s throughput gathered under the Marcellus gathering and compression agreements is not considered in low pressure gathering volume targets. Upon completion of the initial contract term, the 2019 gathering and compression agreement will continue in effect from year to year until such time as the agreement is terminated, effective upon an

anniversary of the effective date of the agreement, by either the Company or Antero Midstream on or before the 180th day prior to the anniversary of such effective date. The Company achieved the first threshold volumetric target during each of the first, second and third quarters of 2022 and 2023, and earned fee rebates of $12 million for the three months ended September 30, 2022 and 2023 and $36 million for the nine months ended September 30, 2022 and 2023.

Gathering and compression fees paid by Antero related to these agreements were $164 million and $189 million for the three months ended September 30, 2022 and 2023, respectively. For the nine months ended September 30, 2022 and 2023, gathering and compression fees paid by Antero related to this agreement were $492 million and $550 million, respectively. As of December 31, 2022 and September 30, 2023, $59 million and $63 million, respectively, was included within Accounts payable, related parties on the condensed consolidated balance sheet as due to Antero Midstream related to these agreements.