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Antero Keeps Production Flat at 1,484 MMcfe/d in 2Q; Financials

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   |    Wednesday,July 29,2015

Antero Resources Corporation reported its second quarter 2015 financial results.

Highlights for the Second Quarter of 2015:

• Net daily gas equivalent production averaged 1,484 MMcfe/d, a 67% increase compared to the prior year quarter and flat compared to the prior quarter
• Net daily liquids production, included in the above, averaged 45,906 Bbl/d, a 127% increase compared to the prior year quarter and a 15% increase sequentially
• Realized natural gas equivalent price including NGLs, oil and hedges averaged $3.85 per Mcfe
• On a per unit basis, cash production expense declined 9%, or $0.15 per Mcfe, and G&A expense declined 28%, or $0.09 per Mcfe, compared to the prior year quarter
• Adjusted net income of $17 million ($0.06 per share), a 77% decrease compared to the prior year quarter
• Adjusted EBITDAX of $268 million, a 1% increase compared to the prior year quarter
• Hedge portfolio was increased to 2.8 Tcfe of future natural gas equivalent production at an average index price of $4.08 per MMBtu

Recent Developments

2016 Production Growth Targets

As previously disclosed on July 15, 2015, Antero is preliminarily targeting 25% to 30% year-over-year net production growth in 2016, driven in part by the contribution early next year from the completion of 50 Marcellus Shale deferred completions.  While not yet board-approved and subject to change depending on the commodity price environment, this production growth target is expected to only require a modest increase in estimated 2016 drilling and completion costs, due to the operational improvements and cost savings currently being achieved.

Antero expects to continue reviewing this preliminary 2016 production target and capital budget throughout the year and anticipates finalizing the capital budget and receiving board approval in late 2015 or early 2016.

Second Quarter 2015 Capital Spending

Antero's drilling and completion costs for the three months ended June 30, 2015 were $440 million.  In addition, the Company invested $46 million for land, $12 million for water projects in the Marcellus and Utica Shale plays and $1 million in other capital projects.

As previously disclosed, the Company also invested $34 million during the quarter on a bolt-on acquisition in the core of the Marcellus Shale liquids rich window in Tyler County, West Virginia. Given the uncertainty surrounding potential transactions, Antero does not include acquisitions in its capital budget.

Hedge Position

Antero currently has hedged 2.8 Tcfe of future natural gas equivalent production using fixed price swaps covering the period from July 1, 2015 through December 31, 2021 at an average index price of $4.08 per MMBtu and a mark-to-market value at June 30, 2015 of $2.0 billion.

Approximately 66% of Antero's 2015 natural gas financial hedge portfolio is made up of Nymex Henry Hub hedges and 34% is tied to Appalachian Basin or Gulf Coast indices.  Antero has the ability to physically deliver a substantial portion of its natural gas production through direct firm transportation to the Columbia Gulf Coast Onshore index near Henry, Louisiana, the index for Nymex Henry Hub pricing, essentially eliminating basis risk on the Company's Nymex Henry Hub hedges.  Antero has 13 different counterparties to its hedge contracts, all of which are lenders in the Company's bank credit facility.

Additionally, Antero has hedged 140 Bcf of basis on future production using fixed price TCO basis swaps covering the period from July 1, 2015, through December 31, 2016, at an average basis differential of $(0.42) per MMBtu.

Second Quarter 2015 Financial Results

As of June 30, 2015, Antero owned a 69.7% limited partner interest in Antero Midstream Partners LP. Antero Midstream's results are consolidated with Antero's results.  

For the three months ended June 30, 2015, the Company reported a net loss attributable to common stockholders of $145 million, or $(0.52) per basic and diluted share, compared to a net loss of $42 million in the second quarter of 2014.  The GAAP net loss for the second quarter of 2015 included the following items:

• Non-cash losses on unsettled hedges of $198 million ($123 million net of tax)
• Non-cash equity-based stock compensation expense of $28 million ($22 million net of tax)
• Impairment of unproved properties of $26 million ($16 million net of tax)
• Contract termination and rig stacking expenses of $2 million ($1 million net of tax)

Without the effect of these non-cash or unusual items, the Company's results for the second quarter of 2015 were as follows:

• Adjusted net income attributable to common stockholders of $17 million, or $0.06 per basic and diluted share, a 77% decrease compared to the second quarter of 2014
• Adjusted EBITDAX of $268 million, a 1% increase compared to the second quarter of 2014
• Cash flow from operations before changes in working capital of $208 million, a 5% decrease compared to the second quarter of 2014

For a description of adjusted net income attributable to common stockholders, Adjusted EBITDAX and cash flow from operations before changes in working capital and reconciliations to their nearest comparable GAAP measures, please read "Non-GAAP Financial Measures."

Net daily production for the second quarter of 2015 averaged 1,484 MMcfe/d, a 67% increase as compared to the second quarter of 2014 and was approximately the same as the first quarter of 2015.  Net daily production was comprised of 1,208 MMcf/d of natural gas (82%), 40,162 Bbl/d of natural gas liquids ("NGLs") (16%) and 5,744 Bbl/d of crude oil (2%).  Second quarter 2015 net liquids (NGLs and oil) daily production of 45,906 Bbl/d increased 127% as compared to the second quarter of 2014 and 15% from the first quarter of 2015.

Average natural gas price before hedging decreased 51% from the prior year quarter to $2.20 per Mcf, a $0.44 per Mcf negative differential to Nymex, as Nymex natural gas prices decreased 43% from the prior year quarter.  Approximately 62% of Antero's second quarter 2015 natural gas revenue was realized at favorable price indices, including Columbia Gas Transmission (TCO), Chicago and Nymex.  The remaining 38% of natural gas production was priced at various less favorable index pricing points, including Dominion South and Tetco M2.  Antero's average realized natural gas price after hedging for the second quarter of 2015 was $3.86 per Mcf, a $1.22 positive differential to the Nymex average price for the period, a 15% decrease compared to the prior year quarter.  During the quarter, Antero realized a settled natural gas hedge gain of $182 million, or $1.66 per Mcf.

Antero's average realized C3+ NGL price before hedging for the second quarter of 2015 was $16.29 per barrel, or approximately 28% of the WTI oil price average for the period.  This represents a 70% decrease for NGL prices compared to the prior year quarter as WTI oil prices decreased 44% from the prior year quarter.  The Company's average realized NGL price after hedging represented a 65% decrease from the prior year quarter NGL price to $19.51 per barrel, or 34% of the WTI oil price average for the period.  For the second quarter of 2015, Antero realized a settled NGL hedge gain of $12 million, or $3.22 per barrel. Antero's NGL barrels are comprised of propane, butane and heavier liquids, as ethane is rejected at the gas processing plant and sold in the natural gas stream. 

Antero's average realized oil price before hedging for the second quarter of 2015 was $44.06 per barrel, a $13.58 per barrel negative differential to the average WTI oil price for the period, and a 52% decrease compared to the prior year quarter.  The Company's average realized oil price after hedging decreased 46% from the prior year quarter to $47.33 per barrel, a $10.31 per barrel negative differential to the WTI price.  For the second quarter of 2015, Antero realized a settled oil hedge gain of $2 million, or $3.27 per barrel. 

Antero's liquids production and realizations for the second quarter of 2015 added an incremental $0.20 per Mcfe to the average gas equivalent price per unit, increasing the average natural gas realized price before hedging from $2.20 per Mcf to $2.40 per Mcfe on a gas equivalent basis.  Including $196 million of total settled realized hedge gains for all products, the average all-in natural gas equivalent price, including NGLs, oil and hedge settlements, was $3.85 per Mcfe for the second quarter of 2015.

Total revenues for the second quarter of 2015 were $377 million as compared to $311 million for the second quarter of 2014.  Revenue for the second quarter of 2015 included a $198 million non-cash loss on unsettled hedges while the second quarter of 2014 included a $125 million non-cash loss on unsettled hedges. Liquids production contributed 25% of combined natural gas, NGLs and oil revenue before hedging in the second quarter of 2015.  Adjusted net revenue increased 32% to $575 million compared to the second quarter of 2014 (including settled hedge gains and losses but excluding non-cash unsettled hedge gains and losses).  For a reconciliation of adjusted net revenue to operating revenue, the most comparable GAAP measure, please read "Non-GAAP Financial Measures."

Marketing revenue for the second quarter of 2015 was $50 million.  Antero's marketing revenue was primarily associated with the sale of third-party gas purchased to utilize the Company's excess firm transportation capacity on the Rockies Express Pipeline as well as to capture the positive spread between Tetco M2 pricing and Chicago pricing.  Marketing expense for the second quarter of 2015 was $79 million.  The largest components of marketing expense were the fixed transportation costs related to excess capacity, the cost of purchasing third-party gas and the fixed transportation costs associated with the Company's underutilized ATEX ethane pipeline capacity.  Net marketing expense was $29 million or $0.22 per Mcfe for the second quarter of 2015.

Per unit cash production expense (lease operating, gathering, compression, processing and transportation, and production tax) for the second quarter of 2015 was $1.45 per Mcfe which is a 9% decrease compared to $1.60 per Mcfe in the prior year quarter.  The decrease in cash production expense was driven by lower production taxes due to lower commodity prices.  Per unit general and administrative expense for the second quarter of 2015, excluding non-cash equity-based compensation expense, was $0.23 per Mcfe, a 28% decrease from the second quarter of 2014.  The decrease was primarily driven by the significant increase in net production which was somewhat offset by an increase in the Company's workforce.  Per unit depreciation, depletion and amortization expense increased 1% from the prior year quarter to $1.31 per Mcfe.

Adjusted EBITDAX of $268 million for the second quarter of 2015 was 1% higher than the prior year quarter due to increased production and revenue.  EBITDAX margin for the quarter was $1.99 per Mcfe, representing a 40% decrease from the prior year quarter due to lower commodity prices.  For the second quarter of 2015, cash flow from operations before changes in working capital decreased 5% from the prior year to $208 million.

For a description of Adjusted EBITDAX and EBITDAX margin, cash flow from operations before changes in working capital and adjusted net income attributable to common stockholders and reconciliations to their nearest comparable GAAP measures, please read "Non-GAAP Financial Measures."

Antero Midstream Financial Results

Antero Midstream's low pressure gathering volumes for the second quarter of 2015 averaged 965 MMcf/d, a 150% increase from the prior year quarter and 3% sequentially.  High pressure gathering and compression volumes for the second quarter of 2015 averaged 1,197 MMcf/d and 454 MMcf/d, respectively, representing 350% and 1,005% year over year growth from the second quarter of 2014 and 6% and 27% sequentially.  Condensate gathering volumes averaged 3 MBbl/d in the second quarter of 2015, representing no change from the second quarter of 2014 and 24% growth sequentially.  The high growth in throughput volumes was driven by production growth from Antero.

Antero Midstream's revenue for the second quarter of 2015 was $57 million as compared to $17 million for the prior year quarter, primarily driven by increased throughput volumes across Antero Midstream's systems.  Revenues in the second quarter of 2015 were comprised entirely of fixed fees from Antero.  Direct operating expenses totaled $11 million and general and administrative expenses totaled $10 million, including $5 million of non-cash equity-based compensation.  Total operating expenses were $36 million including $15 million of depreciation.  Operating income for the second quarter of 2015 was $21 million as compared to $0.3 million in the prior year quarter, while net income was $20 million as compared to a $0.3 million for the prior year quarter.

Antero Midstream invested $74 million in gathering and compression projects in the second quarter of 2015, including $52 million in the Marcellus and $22 million in the Utica.

On July 15, 2015, Antero Midstream declared a cash distribution of $0.19 per unit ($0.76 per unit annualized) for the second quarter of 2015. The distribution represents a 6% increase compared to the first quarter 2015 distribution and 12% increase compared to the Partnership's minimum quarterly distribution of $0.17 per unit ($0.68 per unit annualized). The distribution is payable on August 27, 2015 to unitholders of record as of August 13, 2015.

Balance Sheet and Liquidity

As of June 30, 2015, the Company's consolidated net debt was $4.36 billion, of which $1.1 billion were borrowings outstanding under the Company's $4.0 billion senior secured revolving credit facility, and no borrowings under the $1.0 billion senior secured credit facility for Antero Midstream.  Including the $475 million in letters of credit outstanding, the Company had $3.5 billion in available liquidity on a consolidated basis as of June 30, 2015.  For a reconciliation of consolidated net debt to consolidated total debt, the most comparable GAAP measure, please read "Non-GAAP Financial Measures."

2024 Development Plan

Category	2023	2024 Est. Initial	Updated 2024 Guidance	%Difference (2023 vs 2024)
Total Capital Expenditure($mm)

Frac / Completion Crew (s)
Wells Completed/Frac(net)

Production Daily Equivalent(mmcfe/d)
Production Natural Gas(Mmcf/d)

 Click here for More Planned 2024 Activity