Exploration & Production | Quarterly / Earnings Reports | First Quarter (1Q) Update | Financial Results | Forecast - Production | Capital Markets | Private Equity Activity
Antero Sees 89% Production Jump in 1Q; Cuts Completion Activity
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Antero Resources Corporation released its first quarter 2015 financial results. The relevant financial statements are included in Antero's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, which has been filed with the Securities and Exchange Commission.
Highlights for the First Quarter of 2015:
- Net daily gas equivalent production averaged 1,485 MMcfe/d, an 89% increase compared to the prior year quarter and a 17% increase sequentially
- Net daily liquids production, included in the above, averaged 40,074 Bbl/d, a 145% increase compared to the prior year quarter and a 32% increase sequentially
- Realized natural gas price before hedging averaged $2.81 per Mcf, a $0.17 negative differential to Nymex
- Realized natural gas equivalent price including NGLs, oil and hedges averaged $4.42 per Mcfe
- Adjusted net income of $71 million ($0.27 per share), a 20% decrease compared to the prior year quarter and a 9% decrease sequentially
- Adjusted EBITDAX of $355 million, a 30% increase compared to the prior year quarter and a 7% increase sequentially
- Hedge portfolio was increased to 2.5 Tcfe of future natural gas equivalent production at an average index price of $4.17 per MMBtu
Recent Developments
Antero Resources 2015 Guidance
As previously disclosed on April 15, 2015, Antero estimates its daily production will average 1,375 to 1,425 MMcfe/d for the remaining nine month period of 2015, resulting in full year 2015 average net daily production in excess of 1.4 Bcfe/d including average net daily liquids production of over 37,000 Bbl/d. The remainder of year production guidance reflects the Company's previously announced drilling and capital budget, includes reduced completion activity in the second and third quarters in the Marcellus, and results in the deferral of 50 well completions into 2016. The objective of the completion deferrals is to access currently more favorable pricing markets for incremental Marcellus gas production upon the completion of a regional gathering pipeline that is now under construction. Additionally, during the first quarter Antero spent 36% of its 2015 drilling and completion capital budget of $1.6 billion. Antero expects the remaining 64% to be spent ratably for the remainder of the year after reducing its drilling rig count from 21 to 11 rigs and completion crews from 10 to seven crews. Antero reaffirms the remaining aspects of its guidance initially announced on January 20, 2015.
Capital Markets Activity
On March 31, 2015, Antero closed an upsized underwritten public offering of 14,700,000 shares of the Company's common stock, including shares the company issued to the underwriter under a 30-day option to purchase additional shares. The Company received net proceeds of approximately $538 million after underwriter's discounts and commissions, which was used to repay a portion of the outstanding borrowings under its credit facility.
On March 17, 2015, Antero closed a private placement of $750 million of 5.625% senior unsecured notes due June 2023 at par. Antero received net proceeds of approximately $739 million after deducting the initial purchasers' discounts and estimated expenses, which were used to repay a portion of the outstanding borrowings under its credit facility.
First Quarter 2015 Financial Results
As of March 31, 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 March 31, 2015, the Company reported net income attributable to common stockholders of $394 million, or $1.49 per basic and diluted share, compared to a net loss of $95 million in the first quarter of 2014. The GAAP net income for the first quarter of 2015 included the following items:
- Non-cash gains on unsettled hedges of $575 million ($358 million net of tax)
- Non-cash equity-based stock compensation expense of $28 million ($23 million net of tax)
- Impairment of unproved properties of $9 million ($5 million net of tax)
- Contract termination and rig stacking expenses of $9 million ($6 million net of tax)
Without the effect of these non-cash or unusual items, the Company's results for the first quarter of 2015 were as follows:
- Adjusted net income attributable to common stockholders of $71 million, or $0.27 per basic and diluted share, a 20% decrease compared to the first quarter of 2014
- Adjusted EBITDAX of $355 million, a 30% increase compared to the first quarter of 2014
- Cash flow from operations before changes in working capital of $292 million, a 23% increase compared to the first quarter of 2014
Net daily production for the first quarter of 2015 averaged 1,485 MMcfe/d, an 89% increase as compared to the first quarter of 2014 and a 17% increase from the fourth quarter of 2014. Net daily production was comprised of 1,245 MMcf/d of natural gas (84%), 36,006 Bbl/d of natural gas liquids (14%) and 4,068 Bbl/d of crude oil (2%). First quarter 2015 net liquids daily production (NGLs and oil) of 40,074 Bbl/d increased 145% as compared to the first quarter of 2014 and 32% from the fourth quarter of 2014.
Average natural gas price before hedging decreased 44% from the prior year quarter to $2.81 per Mcf, a $0.17 per Mcf negative differential to Nymex, as Nymex natural gas prices decreased 40% from the prior year quarter. Approximately 64% of Antero's first quarter 2015 natural gas revenue was realized at favorable price indices, including Columbia Gas Transmission (TCO), Chicago, MichCon and Nymex. The remaining 36% 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 first quarter of 2015 was $4.37 per Mcf, a $1.39 positive differential to the Nymex average price for the period. This represents a 13% decrease compared to the prior year quarter. During the quarter, Antero realized a cash settled natural gas hedge gain of $175 million, or $1.56 per Mcf.
Antero's average realized C3+ NGL price before hedging for the first quarter of 2015 was $24.31 per barrel, or approximately 50% of the WTI oil price average for the period. This represents a 61% decrease for NGL prices compared to the prior year quarter as WTI oil prices decreased 51% from the prior year quarter. The Company's average realized NGL price after hedging represented a 57% decrease from the prior year quarter NGL price to $26.23 per barrel, or 54% of the WTI oil price average for the period. For the first quarter of 2015, Antero realized a cash settled NGL hedge gain of $6 million, or $1.92 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 first quarter of 2015 was $34.03 per barrel, a $14.51 per barrel negative differential to the WTI price. This represents a 62% decrease compared to the prior year quarter. The Company's average realized oil price after hedging decreased 50% from the prior year quarter to $45.08 per barrel, a $3.46 per barrel negative differential to the WTI price. For the first quarter of 2015, Antero realized a cash settled oil hedge gain of $4 million, or $11.05 per barrel.
Antero's liquids production and realizations for the first quarter of 2015 added an incremental $0.23 per Mcfe to the average gas equivalent price per unit, increasing the average natural gas realized price before hedging from $2.81 per Mcf to $3.04 per Mcfe on a gas equivalent basis. Including $185 million of total cash settled realized hedge gains for all products, the average all-in natural gas equivalent price, including NGLs, oil and hedge settlements, was $4.42 per Mcfe for the first quarter of 2015.
Total revenues for the first quarter of 2015 were $1.2 billion as compared to $168 million for the first quarter of 2014. Revenue for the first quarter of 2015 included a $575 million non-cash gain on unsettled hedges while the first quarter of 2014 included a $248 million non-cash loss on unsettled hedges. Liquids production contributed 22% of combined natural gas, NGLs and oil revenue before hedging in the first quarter of 2015. Adjusted net revenue increased 57% to $655 million compared to the first quarter of 2014 (including cash-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 first quarter of 2015 was $58 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 capture the positive spread between Tetco M2 pricing and Chicago/MichCon pricing. Marketing expense for the first quarter of 2015 was $73 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 $15 million or $0.12 per Mcfe for the first quarter of 2015.
Per unit cash production expense (lease operating, gathering, compression, processing and transportation, and production tax) for the first quarter of 2015 was $1.46 per Mcfe which is a 6% decrease compared to $1.55 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 first quarter of 2015, excluding non-cash equity-based compensation expense, was $0.23 per Mcfe, a 26% decrease from the first 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 6% from the prior year quarter to $1.37 per Mcfe, primarily driven by higher depreciation on gathering and compression and water assets as Antero Midstream and Antero continued to build out these respective systems in the rich gas areas of the Marcellus and Utica Shale plays.
Adjusted EBITDAX of $355 million for the first quarter of 2015 was 30% higher than the prior year quarter due to increased production and revenue. EBITDAX margin for the quarter was $2.65 per Mcfe, representing a 32% decrease from the prior year quarter due to lower commodity prices. For the first quarter of 2015, cash flow from operations before changes in working capital increased 23% from the prior year to $292 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 first quarter of 2015 averaged 935 MMcf/d, a 182% increase from the prior year quarter and 27% sequentially. High pressure gathering and compression volumes for the first quarter of 2015 averaged 1,134 MMcf/d and 358 MMcf/d, respectively, representing 800% and 894% year over year growth from the first quarter of 2014. Condensate gathering volumes averaged 2 MBbl/d in the first quarter of 2015. The high growth in throughput volumes was driven by production growth from Antero.
Antero Midstream's revenue for the first quarter of 2015 was $52 million as compared to $12 million for the prior year quarter, primarily driven by increased throughput volumes across Antero Midstream's systems. Revenues in the first quarter of 2015 were comprised entirely of fixed fees per unit from Antero. Direct operating expenses totaled $12 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 first quarter of 2015 was $16 million as compared to $1 million in the prior year quarter, while net income was $16 million as compared to a $1 million for the prior year quarter.
Antero Midstream invested $126 million in gathering and compression projects in the first quarter of 2015, including $100 million in the Marcellus and $26 million in the Utica.
On April 15, 2015, Antero Midstream declared a cash distribution of $0.18 per unit ($0.72 per unit annualized) for the first quarter of 2015. The distribution represents a 6% increase compared to the Partnership's minimum quarterly distribution of $0.17 per unit ($0.68 per unit annualized). The distribution is payable on May 27, 2015 to unitholders of record as of May 13, 2015.
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