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Antero Resources Reports Second Quarter 2022 Financial and Operational Results

·19-min read

DENVER, July 27, 2022 /PRNewswire/ -- Antero Resources Corporation (NYSE: AR) ("Antero Resources", "Antero", or the "Company") today announced its second quarter 2022 financial and operating results. The relevant consolidated financial statements are included in Antero Resources' Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.

Antero Resources logo. (PRNewsFoto/Antero Resources Corporation)
Antero Resources logo. (PRNewsFoto/Antero Resources Corporation)

Second Quarter 2022 Highlights Include:

  • Net production averaged 3.2 Bcfe/d, including 166 MBbl/d of liquids

  • Realized pre-hedge natural gas equivalent price of $8.00 per Mcfe, an $0.83 per Mcfe premium to NYMEX pricing

  • Net income was $765 million, Adjusted Net Income was $563 million (Non-GAAP)

  • Adjusted EBITDAX was $953 million (Non-GAAP); net cash provided by operating activities was $923 million

  • Free Cash Flow was $664 million before Changes in Working Capital (Non-GAAP)

  • Reduced total debt by $383 million during the quarter

  • Purchased $247 million of shares during the quarter

  • Net Debt at quarter end was $1.58 billion (Non-GAAP)

  • Net Debt to trailing last twelve month Adjusted EBITDAX declined to 0.6x (Non-GAAP)

Paul Rady, Chairman, Chief Executive Officer and President of Antero Resources commented, "Antero's second quarter results benefited from outstanding operations that included higher premiums to benchmark pricing and excellent well performance. Strong demand for natural gas along the LNG fairway has led to as much as a $0.25 per MMBtu increase in positive basis pricing on the Gulf Coast since the beginning of 2022. As additional LNG facilities are placed in service we anticipate the premium in basis pricing relative to NYMEX Henry Hub to increase further. We are uniquely positioned to directly benefit from increasing NYMEX prices with 75% of our natural gas being sold at these premium priced hubs in the LNG corridor."

Mr. Rady continued, "Our strong well performance led to second quarter volumes above prior forecasts. Looking ahead, our five year development program remains focused on this liquids-rich regime. Our liquids-rich development plan, consistent well results and coordinated midstream buildout with Antero Midstream provide us with confidence that we will continue to execute on our maintenance capital plan. This allows us to deliver on our production targets and generate attractive Free Cash Flow for years to come."

Michael Kennedy, Chief Financial Officer of Antero Resources said, "During the second quarter, we accelerated our return of capital program by purchasing approximately $250 million of shares. At the same time, we reduced debt by nearly $400 million resulting in leverage of just 0.6x. As previously communicated, we intend to increase our return of capital during the second half of 2022 to greater than 50% of Free Cash Flow. Based on today's commodity prices, we anticipate full-year 2022 shareholder returns to be at the high end of our previously announced target of 25% to 50% of 2022 Free Cash Flow. We expect in excess of $2.5 billion of Free Cash Flow in 2022 and over $10 billion of Free Cash Flow through 2026, based on current backwardated commodity prices. Today's balance sheet strength and a strong Free Cash Flow outlook will allow us to deliver increasing capital returns to our shareholders."

For a discussion of the non-GAAP financial measures including Adjusted Net Income, Adjusted EBITDAX, Free Cash Flow and Net Debt please see "Non-GAAP Financial Measures."

Debt Reduction

As of June 30, 2022, Antero's total debt was $1.58 billion. Net Debt to trailing twelve month Adjusted EBITDAX was 0.6x. During the second quarter, Antero reduced total debt by $383 million, including a $317 million reduction in borrowings under the credit facility. During the quarter, Antero also repurchased $62 million aggregate principle amount of senior notes in the open market and reduced its convertible debt outstanding by $4 million.

Share Repurchase Program

During the second quarter of 2022, Antero purchased 6.7 million shares at an average weighted price of $36.66 per share for $247 million. For the first six months of 2022, Antero purchased 11 million shares at a weighted average price of $32.44 per share for $358 million. These purchases includes repurchases of $100 million in the first quarter of 2022 and $193 million in the second quarter of 2022 under the share repurchase program and results in $707 million remaining under the Board of Directors authorized share repurchase program. Based on current strip prices and market conditions, Antero anticipates repurchasing this remaining amount of $707 million under the plan in 2022.

Free Cash Flow

During the second quarter, Antero generated $664 million of Free Cash Flow before Changes in Working Capital. Free Cash Flow after Changes in Working Capital was $631 million.



Three Months Ended
June 30,




2021


2022


Net cash provided by operating activities


$

308,541



922,712


   Less: Net cash used in investing activities



(179,903)



(259,717)


   Less: Proceeds from sale of assets, net



(2,351)




   Less: Distributions to non-controlling interests in Martica



(21,329)



(31,541)


Free Cash Flow


$

104,958



631,454


   Changes in Working Capital (1)



(28,077)



32,279


Free Cash Flow before Changes in Working Capital


$

76,881



663,733




(1)

Working capital adjustments in the second quarter of 2022 include a decrease of $43 million in changes in current assets and liabilities and an increase of $11 million in accounts payable and accrued liabilities for additions to property and equipment.  In the second quarter of 2021, working capital adjustments include an increase of $21 million in changes in current assets and liabilities and an increase of $7 million in accounts payable and accrued liabilities for additions to property and equipment

Guidance Update 

Antero is increasing guidance for its realized natural gas price for full-year 2022 to a premium to NYMEX of $0.30 to $0.40 per Mcf from a previous range of $0.15 to $0.25 per Mcf, reflecting a 75% increase at the midpoint. The increase was driven primarily by higher premiums to NYMEX being realized at the Gulf Coast hubs where Antero sells a significant portion of its natural gas, as well as a greater BTU uplift on the Company's natural gas sales which average 1100 Btu gas in the sales stream.

Antero is revising its cash production expense guidance by 7% to a range of $2.40 to $2.50 per Mcfe reflecting higher fuel and ad valorem costs due to the increase in commodity prices.

Antero is also increasing its drilling and completion capital expenditure guidance by 7% reflecting incremental inflationary pressure primarily related to higher diesel and steel costs and development optimization through the retention of preferred crews through 2022.

Land capital guidance is increasing to a range of $100 to $110 million due to the successful organic leasing program that has allowed Antero to increase its premium drilling locations in its liquids-rich fairway. During the second quarter, Antero added approximately 6,000 net acres which hold approximately 25 incremental drilling locations at an average cost of under $1.0 million per location. Since 2019, through Antero's organic leasing efforts, the Company has added approximately 100 drilling locations in the liquids-rich fairway of Tyler and Wetzel Counties. This equates to approximately one and a half years of drilling inventory at an average of 65 wells per year under Antero's maintenance capital plan.




Full Year 2022 –
Prior


Full Year 2022 –
Revised


Midpoint





Low


High


Low


High


Variance













Natural Gas Realized Price vs. NYMEX Henry Hub ($/Mcf)

$0.15


$0.25


$0.30


$0.40


75 %

Cash Production Expense ($/Mcfe)

$2.25


$2.35


$2.40


$2.50


7 %











Drilling and Completion Capital ($MM) 

$675


$700


$725


$750


7 %

Land Capital ($MM)

$65


$75


$100


$110


50 %


Note: Any 2022 projections not discussed in this release are unchanged from previously stated guidance.

Second Quarter 2022 Operating Update

Marcellus - Antero placed 11 horizontal Marcellus wells to sales during the second quarter with an average lateral length of 13,714 feet. Well performance continues to be strong with several notable pads placed to sales during the first half of the year that helped drive second quarter volumes above prior forecasts. The payout periods at these three pads are projected to be four months from the turn in line date. These include:

  • A six well pad with an average 60-day rate per well of 32.1 MMcfe/d, including approximately 1,631 Bbl/d of liquids per well assuming 25% ethane recovery

  • A five well pad with an average 60-day rate per well of 30.1 MMcfe/d, including approximately 1,341 Bbl/d of liquids per well assuming 25% ethane recovery

  • A nine well pad with an average 60-day rate per well of 26.0 MMcfe/d, including approximately 1,387 Bbl/d of liquids per well assuming 25% ethane recovery

Utica - Antero placed six horizontal Utica wells to sales during the second quarter with an average lateral length of 15,272 feet. All six of these wells have been on line for at least 60 days and the average 60-day rate per well was 28.7 MMcfe/d, including an Antero record of approximately 1,749 Bbl/d of liquids per well assuming 0% ethane recovery. The payout period at this pad is projected to be five months from the turn in line date.

Second Quarter 2022 Financial Results

Net daily natural gas equivalent production in the second quarter averaged over 3.2 Bcfe/d, including 166 MBbl/d of liquids, as detailed in the table below. During the first half of 2022 production averaged approximately 3.2 Bcfe/d, at the high end of the guidance range of 3.1 to 3.2 Bcfe/d. Due to a later start up of the Shell Cracker than previously forecast, Antero anticipates third quarter production volumes will be 3.2 to 3.3 Bcfe/d and fourth quarter 2022 production volumes to be 3.3 to 3.4 Bcfe/d. Full year 2022 production guidance remains unchanged at a range of 3.2 to 3.3 Bcfe/d.

Antero's average realized natural gas price before hedging was $8.00 per Mcf, representing a 112% increase compared to the prior year period. Antero realized a $0.50 per Mcf premium to the average NYMEX Henry Hub. The realized natural gas price benefited from higher premiums to NYMEX at the price hubs where Antero sells its natural gas in the LNG fairway of the Gulf Coast. Antero sells approximately 75% of its natural gas into these premium priced NYMEX-related hubs.

The following table details average net production and average realized prices for the three months ended June 30, 2022:



Three Months Ended June 30, 2022












Combined












Natural




Natural
Gas


Oil


C3+ NGLs


Ethane


Gas
Equivalent




(MMcf/d)


(Bbl/d)


(Bbl/d)


(Bbl/d)


(MMcfe/d)


Average Net Production



2,233



9,951



111,603



44,229



3,228

































Combined
















Natural




Natural
Gas


Oil


C3+ NGLs


Ethane


Gas
Equivalent


Average Realized Prices


($/Mcf)


($/Bbl)


($/Bbl)


($/Bbl)


($/Mcfe)


Average realized prices before settled derivatives


$

7.67


$

98.49


$

60.28


$

22.42


$

8.00


NYMEX average price


$

7.17


$

108.72








$

7.17


Premium / (Discount) to NYMEX


$

0.50


$

(10.23)








$

0.83



















Settled commodity derivatives


$

(2.73)


$

 (0.76)(1)


$

 (0.44) (1)


$


$

(1.90)


Average realized prices after settled derivatives


$

4.94


$

97.73


$

59.84


$

22.42


$

6.10


Premium / (Discount) to NYMEX


$

(2.23)


$

(10.99)








$

(1.07)




(1)

These commodity derivative instruments include contracts attributable to Martica Holdings LLC ("Martica"), Antero's consolidated variable interest entity.  All gains or losses from Martica's derivative instruments are fully attributable to the noncontrolling interests in Martica, which includes portions of the natural gas and all oil and C3+ NGL derivative instruments during the three months ended June 30, 2022.

Antero's average realized C3+ NGL price was $60.28 per barrel, a 50% increase versus the prior year period. Antero shipped 58% of its total C3+ NGL net production on Mariner East 2 for export and realized a $0.09 per gallon premium to Mont Belvieu pricing on these volumes at Marcus Hook, PA.  Antero sold the remaining 42% of C3+ NGL net production at a $0.08 per gallon discount to Mont Belvieu pricing at Hopedale, OH. The resulting blended price on 111,603 Bbl/d of net C3+ NGL production was a $0.02 per gallon premium to Mont Belvieu pricing.



Three Months Ended June 30, 2022



Pricing Point


Net C3+ NGL

Production
(Bbl/d)


% by
Destination


Premium (Discount)

To Mont Belvieu
($/Gal)

Propane / Butane exported on ME2

Marcus Hook, PA


65,246


58 %


$0.09

Remaining C3+ NGL volume

Hopedale, OH


46,357


42 %


($0.08)

Total C3+ NGLs/Blended Premium  




111,603


100 %


$0.02

All-in cash expense, which includes lease operating, gathering, compression, processing and transportation, production and ad valorem taxes was $2.61 per Mcfe in the second quarter, a 13% increase compared to $2.30 per Mcfe average during the second quarter of 2021. The increase was due primarily to higher natural gas and diesel fuel costs that impacted gathering, processing and transportation costs and an increase in production taxes as a result of higher commodity prices during the quarter.

Net marketing expense was $0.09 per Mcfe in the second quarter, a decrease from $0.11 per Mcfe during the second quarter of 2021 due to higher gas marketing margins from the year ago period.

Second Quarter 2022 Capital Investment

Antero's accrued drilling and completion capital expenditures for the three months ended June 30, 2022, were $217 million. For a reconciliation of accrued capital expenditures to cash capital expenditures, see the table in the Non-GAAP Financial Measures section.

In addition to capital invested in drilling and completion costs, the Company invested $49 million in land during the second quarter. A portion of the land capital was used to acquire approximately 6,000 net acres which hold approximately 25 incremental drilling locations at an average cost of under $1.0 million per location. In addition to the incremental locations added, Antero also acquired minerals in its Marcellus area of development to increase its net revenue interest in future drilling locations.

Commodity Derivative Positions

Antero did not enter into any new natural gas, NGL or oil hedges during the second quarter of 2022.

Please see Antero's Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, for more information on all commodity derivative positions.  For detail on current commodity positions, please see the Hedge Profile presentations at www.anteroresources.com.

Conference Call

A conference call is scheduled on Thursday, July 28, 2022 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.  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, August 4, 2022 at 9:00 am MT at 877-660-6853 (U.S.) or 201-612-7415 (International) using the conference ID: 13726239. To access the live webcast and view the related earnings conference call presentation, visit Antero's website at www.anteroresources.com.  The webcast will be archived for replay until Thursday, August 4, 2022 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. Information on the Company's website does not constitute a portion of, and is not incorporated by reference into this press release.

Non-GAAP Financial Measures

Adjusted Net Income

Adjusted Net Income as set forth in this release represents net income (loss), adjusted for certain items. Antero believes that Adjusted Net Income 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 is not a measure of financial performance under GAAP and should not be considered in isolation or as a substitute for net income as an indicator of financial performance. The GAAP measure most directly comparable to Adjusted Net Income is net income (loss). The following table reconciles net income (loss) to Adjusted Net Income (in thousands):



Three Months Ended June 30,




2021


2022


Net income (loss) and comprehensive income (loss) attributable to Antero Resources Corporation


$

(523,467)



765,135


Net income (loss) and comprehensive income (loss) attributable to noncontrolling interests



(10,984)



46,898


Unrealized commodity derivative (gains) losses



756,998



(293,665)


Amortization of deferred revenue, VPP



(11,279)



(9,375)


Loss (gain) on sale of assets



(2,288)



71


Impairment of oil and gas properties



9,303



23,363


Equity-based compensation



4,249



8,171


Loss on early extinguishment of debt



23,065



4,414


Loss on convertible note equitization



11,731




Equity in earnings of unconsolidated affiliate



(17,477)



(14,713)


Contract termination



844



2,096


Tax effect of reconciling items (1)



(187,629)



64,914





57,635



597,309


Martica adjustments (2)



(16,097)



(34,637)


Adjusted Net Income


$

41,538



562,672










Fully Diluted Shares Outstanding (3)



307,879



334,561




(1)

Deferred taxes were 24% and 23%  for 2021 and 2022, respectively.

(2)

Adjustments reflect noncontrolling interest in Martica not otherwise adjusted in amounts above.

(3)

Fully diluted shares outstanding does not include securities that would have had an anti-dilutive effect on the computation of diluted earnings (loss) per share.  Anti-dilutive weighted average shares outstanding for the three months ended June 30, 2021 and 2022 were 28.6 million and 0.4 million, respectively. 

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 long-term debt to Net Debt as used in this release (in thousands):



December 31,


June 30,




2021


2022


Credit Facility


$



70,800


5.000% senior notes due 2025



584,635




8.375% senior notes due 2026



325,000



311,767


7.625% senior notes due 2029



584,000



534,000


5.375% senior notes due 2030



600,000



600,000


4.250% convertible senior notes due 2026



81,570



77,570


Unamortized discount, net



(27,772)




Unamortized debt issuance costs



(21,989)



(16,924)


Total long-term debt


$

2,125,444



1,577,213


Less: Cash and cash equivalents






Net Debt


$

2,125,444



1,577,213


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 net cash used in investing activities, which includes drilling and completion capital and leasehold capital, less proceeds from asset sales and 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, service or incur additional debt and estimate return of capital. 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.

Adjusted EBITDAX

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

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 GAAP measures most directly comparable to Adjusted EBITDAX are net income (loss) and net cash provided by operating activities.  The following table represents a reconciliation of Antero's net income (loss), including noncontrolling interest, to Adjusted EBITDAX and a reconciliation of Antero's Adjusted EBITDAX to net cash provided by operating activities per our consolidated statements of cash flows, in each case, for the three months and years ended June 30, 2021 and 2022. Adjusted EBITDAX also excludes the noncontrolling interests in Martica and these adjustments are disclosed in the table below as Martica related adjustments.



Three Months Ended June 30,




2021


2022


Reconciliation of net income (loss) to Adjusted EBITDAX:








Net income (loss) and comprehensive income (loss) attributable to Antero Resources Corporation


$

(523,467)



765,135


Net income (loss) and comprehensive income (loss) attributable to noncontrolling interests



(10,984)



46,898


Unrealized commodity derivative (gains) losses



756,998



(293,665)


Payments for derivative monetizations



4,569