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Antero Resources Second Quarter 2021 Results

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   |    Monday,August 02,2021

Antero Resources Corp. reported its Q2 2021 results.

Q2 Highlights Include:

• Net production averaged 3,324 MMcfe/d, including 173,000 Bbl/d of liquids
• Realized natural gas equivalent price averaged $3.78 per Mcfe, a $0.95 per Mcfe premium to NYMEX pricing
• Realized C3+ NGL prices averaged $40.32 per barrel, or 61% of WTI, a 159% increase from the year ago period
• Net loss was $523 million, which included a $757 million unrealized hedging loss; Adjusted Net Income was $42 million (Non-GAAP)
• Adjusted EBITDAX was $319 million (Non-GAAP); net cash provided by operating activities was $309 million
• Free Cash Flow was $105 million (Non-GAAP)
• Net Debt at quarter end was $2.4 billion, a $158 million reduction from March 31, 2021 and a $591 million reduction from year end 2020 (Non-GAAP)
• Net Debt to last twelve months Adjusted EBITDAX declined to 1.7x
• Credit facility was undrawn and liquidity was $1.9 billion as of June 30, 2021
• Increased full year 2021 natural gas realization guidance by $0.05 per Mcf to a premium to NYMEX of $0.15 to $0.25 per Mcf
• Reduced full year 2021 net marketing expense guidance by 22% to a range of $0.06 to $0.08 per Mcfe
• Announced pilot with Project Canary to certify the Company's Responsibly Sourced Gas (RSG)
• Established company records for completion stages per day for the quarter and on a pad at 9.8 and 10.8 stages per day, respectively
• Drilled the Company's longest lateral to date in the Marcellus with a lateral length of 18,858 feet

Paul Rady, Chairman, President and Chief Executive Officer of Antero Resources commented, "Today's macro backdrop highlights Antero's core strengths, which include liquids rich development and a firm transportation portfolio that delivers natural gas and NGL realizations at a premium to benchmark prices. Driven by strong international demand and flat U.S. supply, C3+ NGL prices during the quarter were nearly triple the year ago period. In addition, at a time when tight takeaway capacity in the Appalachian Basin is resulting in wider differentials, our firm transportation enabled us to realize a pre-hedge natural gas price at an $0.18 per Mcf premium to NYMEX. The result of these competitive advantages was Free Cash Flow of $105 million during the quarter. Based on today's strip prices, we are targeting over $750 million in Free Cash Flow in 2021, which we intend to use for additional debt reduction."

Mr. Rady continued, "We are committed to maintaining our leadership position in ESG. Our pilot with Project Canary is expected to certify a portion of the Company's assets on the quality of the engineering design we utilize and the operational practices that we employ, while underscoring the high environmental standards by which Antero's natural gas is produced. Natural gas is key to the energy transition and will be critical in delivering a low carbon, affordable fuel to an expanding global economy."

Michael Kennedy, Chief Financial Officer and Senior Vice President of Finance of Antero Resources said, "Since the end of 2020, we have reduced absolute debt by nearly $600 million, resulting in a leverage profile of 1.7x. Based on today's NGL and natural gas future strips, we expect to achieve our goal of absolute debt under $2 billion in early 2022. Further, based on today's strip prices, we expect Free Cash Flow in 2022 to be higher than in 2021, driving leverage toward 1.0x by year end 2022. As we approach our balance sheet objectives, we will be opportunistic in further debt pay down and returning capital to our shareholders."

Guidance Update

Antero increased guidance for its realized natural gas price to a premium to NYMEX of $0.15 to $0.25 per Mcf from a range of $0.10 to $0.20 per Mcf previously, reflecting a 33% increase at the midpoint. The increase was driven primarily by tighter differentials in the NYMEX related markets where Antero's gas is sold.

Net marketing expense guidance was reduced by 22% at the midpoint, reflecting higher third party marketing volumes and the mitigation of excess firm transportation expense year-to-date.

Cash production expense guidance was increased by 2% to a range of $2.23 to $2.28 per Mcfe reflecting higher fuel and ad valorem costs due to the increase in commodity prices.

Antero increased its land capital budget by $22.5 million at the midpoint to reflect accelerated leasehold spend as the company continues to focus on organically expanding its core liquids rich inventory.

An outage at the Sherwood processing facility occurred on June 30, 2021 and lasted four days, resulting in 10 Bcfe of deferred production. The outage primarily impacted third quarter 2021 production volumes as the facility ramped back up over several days in early July. This downtime is expected to result in full year 2021 production at the lower end of the 3.3 to 3.4 Bcfe guidance range.

Project Canary

Antero has entered into a pilot to certify multiple pads utilizing Project Canary's TrustWell certification process. Antero's certification process is set to begin in the fourth quarter of 2021 and to be completed in the first quarter of 2022. The TrustWell certification also aligns with Antero's long-term goals to reduce methane leak loss rate by 50% to under 0.025%, reduce GHG intensity by 10% and to achieve Net Zero Scope 1 emissions by 2025.

Debt Reduction

Antero reduced net debt by $158 million during the second quarter utilizing Free Cash Flow and the $51 million contingency earnout received from achieving volume thresholds related to the ORRI transaction. In May, Antero used proceeds from a $600 million offering of senior notes due 2030 to redeem all of its senior notes due in 2023. Following the offering, Antero's nearest maturity is 2025. Further, as of June 30, 2021, Antero has an undrawn credit facility. The company plans to continue to utilize Free Cash Flow to reduce debt, with the near-term goal of reducing debt to under $2.0 billion.

Q2 Free Cash Flow

During the second quarter, Antero generated $105 million in Free Cash Flow. Free Cash Flow before Changes in Working Capital was $77 million during the second quarter.

Q2 Financial Results

Net loss was $523 million, or $1.70 per diluted share, compared to a net loss of $463 million, or $1.73 per diluted share, in the prior year period. The net loss was driven by a $757 million unrealized commodity derivative fair value loss primarily as a result of the rise in the natural gas futures strip prices during the quarter. Adjusted Net Income (non-GAAP measure) was $42 million, or $0.13 per diluted share, compared to Adjusted Net Loss of $99 million, or $0.37 per diluted share, in the prior year period.

Adjusted EBITDAX was $319 million, a 71% increase compared to the prior year quarter, driven by higher realized natural gas and NGL prices.

Net daily natural gas equivalent production in the second quarter averaged 3.3 Bcfe/d, including 173,000 Bbl/d of liquids, as detailed in the table below.

Antero's average realized natural gas price before hedging was $3.01 per Mcf, representing a 76% increase compared to the prior year period. Despite Appalachian Basin differentials that widened significantly during the quarter, Antero realized an $0.18 per Mcf premium to the average NYMEX Henry Hub price by capitalizing on its premium firm transportation. Widening differentials that were experienced by others were driven by increasing supply and insufficient spare pipeline capacity that Antero expects to continue into the future.

The following table details the components of average net production and average realized prices for the three months ended June 30, 2021:

Antero's average realized C3+ NGL price before hedging was $40.32 per barrel, a 159% increase versus the prior year period. Antero shipped 55% of its total C3+ NGL net production on Mariner East 2 for export and realized a $0.07 per gallon premium to Mont Belvieu pricing on these volumes at Marcus Hook, PA. Antero sold the remaining 45% of C3+ NGL net production at a $0.10 per gallon discount to Mont Belvieu pricing at Hopedale, OH. The resulting blended price on 114,725 Bbl/d of net C3+ NGL production was $40.32 per barrel, which was a $0.01 per gallon discount to Mont Belvieu pricing. Antero expects to sell at least 50% of its C3+ NGL production in 2021 at Marcus Hook for export at a premium to Mont Belvieu. The average realized price for C3+ NGLs is forecasted to be in the range of $0.00 to a $0.05 per gallon premium relative to Mont Belvieu pricing in 2021, unchanged from prior guidance.

All-in cash expense, which includes lease operating, gathering, compression, processing and transportation, production and ad valorem taxes was $2.30 per Mcfe in the second quarter, a 9% increase compared to $2.11 per Mcfe average during the second quarter of 2020. The increase from a year ago was due primarily to an increase in gathering, processing and transportation expense driven by higher fuel costs as a result of higher natural gas prices and $12 million in incentive fee rebates earned in the second quarter of 2020 that were not earned in the second quarter of 2021. Transportation expense increased $0.06 per Mcfe due to increased utilization on higher tariff pipelines into the Midwest and Gulf Coast, which in turn led to higher natural gas price realizations. Lease operating expense was $0.07 per Mcfe in the second quarter, a decrease of $0.01 per Mcfe from the year ago period. Production and ad valorem expense increased $0.05 per Mcfe from the year ago period due to higher commodity prices.

G&A expense was $0.09 per Mcfe, flat from the second quarter of 2020. G&A expense is expected to be in the range of $0.08 to $0.10 per Mcfe for the remainder of 2021.

Net marketing loss was $0.11 per Mcfe in the second quarter, compared to a loss of $0.15 per Mcfe reported in the prior year period. The improvement was due to higher third party marketing volumes.

Q2 Operating Update

Antero placed 22 horizontal Marcellus wells to sales during the second quarter with an average lateral length of 11,740 feet. Nine of the 22 new wells have been on line for at least 60 days and the average 60-day rate per well was 23.2 MMcfe/d, including approximately 922 Bbl/d of liquids assuming 25% ethane recovery.

Antero set a company record for completion stages per day for a quarter at 9.8 stages per day, a 23% increase from the 8.0 stages per day average in 2020, as well as a new monthly record at 10.7 stages per day. Antero is currently operating three drilling rigs and two completion crews.

Capital Investment

Antero's accrued drilling and completion capital expenditures for the three months ended June 30, 2021 were $167 million. In addition to capital invested in drilling and completion costs, the Company invested $16 million in land during the second quarter. For a reconciliation of accrued capital expenditures to cash capital expenditures see the table in the Non-GAAP Financial Measures section.

Balance Sheet and Liquidity

As of June 30, 2021, Antero's total debt was $2.4 billion with no borrowings outstanding under the Company's revolving credit facility. After deducting letters of credit outstanding, the Company had approximately $1.9 billion in available liquidity at June 30, 2021. Net debt to trailing twelve month Adjusted EBITDA ratio (non-GAAP) was 1.7x as of June 30, 2021.

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