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Leases

3 Months Ended

Mar. 31, 2024

(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,		March 31,
Leases	Balance Sheet Classification	2023		2024
Operating Leases
Operating lease right-of-use assets:
Processing plants	Operating lease right-of-use assets	$	1,611,903		1,550,542
Drilling rigs and completion services	Operating lease right-of-use assets		32,187		24,567
Gas gathering lines and compressor stations ⁽¹⁾	Operating lease right-of-use assets		1,283,668		1,320,473
Office space	Operating lease right-of-use assets		37,706		36,592
Other office and field equipment	Operating lease right-of-use assets		416		327
Total operating lease right-of-use assets		$	2,965,880		2,932,501
Operating lease liabilities:
Short-term operating lease liabilities	Short-term lease liabilities	$	538,954		534,463
Long-term operating lease liabilities	Long-term lease liabilities		2,425,785		2,396,916
Total operating lease liabilities		$	2,964,739		2,931,379

Finance Leases
Finance lease right-of-use assets:
Vehicles	Other property and equipment	$	3,771		3,512
Total finance lease right-of-use assets ⁽²⁾		$	3,771		3,512
Finance lease liabilities:
Short-term finance lease liabilities	Short-term lease liabilities	$	1,106		1,154
Long-term finance lease liabilities	Long-term lease liabilities		2,665		2,358
Total finance lease liabilities		$	3,771		3,512

(1)	Gas gathering lines and compressor stations includes $1.3 billion related to Antero Midstream as of December 31, 2023 and March 31, 2024. See “—Related party lease disclosure” for additional discussion.

(2)	Financing lease assets are recorded net of accumulated amortization of $1 million and $2 million as of December 31, 2023 and March 31, 2024, respectively.

The processing plants, gathering lines and compressor stations that are classified as lease liabilities are classified as such under FASB ASC Topic 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 income (in thousands):


			Three Months Ended March 31,
Cost	Classification	Location	2023		2024
Operating lease cost	Statement of operations	Gathering, compression, processing and transportation	$	381,283		422,068
Operating lease cost	Statement of operations	General and administrative		2,937		3,083
Operating lease cost	Statement of operations	Contract termination		1,122		—
Operating lease cost	Statement of operations	Lease operating		21		21
Operating lease cost	Balance sheet	Proved properties ⁽¹⁾		39,770		33,412
Total operating lease cost			$	425,133		458,584

Finance lease cost:
Amortization of right-of-use assets	Statement of operations	Depletion, depreciation and amortization	$	92		430
Interest on lease liabilities	Statement of operations	Interest expense		114		148
Total finance lease cost			$	206		578

Short-term lease payments			$	37,701		29,443

(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):


	Three Months Ended March 31,
	2023		2024
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	315,665		350,925
Operating cash flows from finance leases		114		148
Investing cash flows from operating leases		32,880		27,976
Financing cash flows from finance leases		158		259

Noncash activities:
Right-of-use assets obtained in exchange for new operating lease obligations	$	51,208		97,137
Increase to existing right-of-use assets and lease obligations from operating lease modifications, net ⁽¹⁾	$	40,130		4,511

(1)

During the three months ended March 31, 2023, the weighted average discount rate for remeasured operating leases increased from 5.2% as of December 31, 2022 to 5.8% as of March 31, 2023. During the three months ended March 31, 2024, the weighted average discount rate for remeasured operating leases decreased from 6.5% as of December 31, 2023 to 5.9% as of March 31, 2024.

(d)	Maturities of Lease Liabilities

The table below is a schedule of future minimum payments for operating and financing lease liabilities as of March 31, 2024 (in thousands):


	Operating Leases		Financing Leases		Total
Remainder of 2024	$	529,813		1,221		531,034
2025		617,055		1,585		618,640
2026		564,617		1,229		565,846
2027		465,509		197		465,706
2028		388,720		23		388,743
Thereafter		943,220		10		943,230
Total lease payments		3,508,934		4,265		3,513,199
Less: imputed interest		(577,555)		(753)		(578,308)
Total	$	2,931,379		3,512		2,934,891

(e)	Lease Term and Discount Rate

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


	December 31, 2023				March 31, 2024
	Operating Leases		Finance Leases		Operating Leases		Finance Leases
Weighted average remaining lease term	6.5 years		3.0 years		6.5 years		2.7 years
Weighted average discount rate	5.9	%	8.3	%	5.7	%	8.3	%

(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) a gathering and compression agreement from Antero Midstream’s acquisition of certain Marcellus gathering and compression assets (the “Marcellus gathering and compression agreement”) 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 agreement, 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 agreement expires in 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 agreement 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 Consumer Price Index (“CPI”)-based adjustments. 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, the Marcellus gathering and compression agreement provides for a minimum volume commitment that requires the Company to utilize or pay for 25% of the compression capacity for a period of 10 years from the in-service date.

The 2019 gathering and compression agreement includes a growth incentive fee program that expired on December 31, 2023 whereby low pressure gathering fees were reduced during the three months ended March 31, 2023 to the extent the Company achieved certain quarterly volumetric targets. The Company’s throughput gathered under the Marcellus gathering and compression assets acquired by the Company was not considered in the 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 notice from either the Company or Antero Midstream to the other party on or before the 180th day prior to the anniversary of such agreement. The Company earned fee rebates for the three months ended March 31, 2023 of $12 million.

Gathering and compression fees paid by Antero related to these agreements were $176 million and $199 million for the three months ended March 31, 2023 and 2024, respectively. As of December 31, 2023 and March 31, 2024, $65 million and $78 million, respectively, was included within Accounts payable, related parties on the condensed consolidated balance sheet as due to Antero Midstream related to these agreements.