Deals - On The Market | Deals - Acquisition, Mergers, Divestitures
Antero Targeting Up to $1.0B in Asset Sales for 2020; Cuts Midstream Costs
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Antero Resources Corp. has announced commencement of an asset sale program targeting $750 million to $1 billion in proceeds to be completed in 2020.
Antero has entered into agreements with Antero Midstream, which are expected to reduce its gathering, processing and transportation costs by approximately $350 million over the next four years.
Highlights Include:
- $350 million of midstream fee reductions expected between 2020 and 2023
- Announced asset sale program target of $750 million to $1 billion to be completed in 2020 to reduce debt
- Asset sales could consist of lease acreage, minerals, producing properties, hedge restructuring or sale of AM shares to Antero Midstream
- Initiated asset sales with the sale of $100 million of AM shares to Antero Midstream, with proceeds used to repurchase senior notes at a discount to par
- Repurchased $215 million notional amount of unsecured notes due in 2021 and 2022 during the fourth quarter of 2019 at a 17% weighted average discount
- Reduced absolute debt by $37 million and annualized interest expense by over $5 million
- As a result of the midstream fee reductions and the previously announced well and operating cost savings, Antero expects a $0.15 per Mcfe reduction in its 2020 all-in cash operating costs as compared to 2019
- By 2022 the Company is targeting a $0.35 per Mcfe reduction in all-in cash operating costs compared to 2019, reflecting further reductions in gathering, processing and transportation expense, lease operating expense, general and administrative and net marketing expense
- Revised 2020 free cash flow target to positive free cash flow from a previous forecast outspend of $100 to $150 million, driven by the announced reductions in cost structure and improved NGL pricing outlook
Asset Sale Summary
Antero Resources is targeting $750 million to $1 billion of asset sales to be completed in 2020. Assets under consideration include lease acreage, minerals, producing properties, hedge portfolio restructuring and Antero Midstream shares. Antero Resources has 584,000 net acres of leasehold in the Appalachian Basin with an 84% average net revenue interest. The Company also holds 5,000 net mineral acres with an average royalty of 16%. The company had net production of 3.4 Bcfe/d in the third quarter of 2019 and had 10.4 Tcfe of proved developed producing reserves as of December 31, 2018. The Company's mark-to-market hedge value was $780 million as of December 6, 2019.
The company initiated the asset sale program through the agreed sale of $100 million of Antero Midstream common stock to Antero Midstream. The number of shares sold will be based on a formulaic pricing mechanism taking into account both historical and future market pricing of Antero Midstream shares. Prior to the $100 million sale, the market value of Antero Resources' ownership of Antero Midstream was $715 million, based on the December 6, 2019 closing price. Proceeds from the sale of the Antero Midstream shares will be used to reduce borrowings under the Company's revolver that were incurred in recent senior note repurchases. Antero Midstream also announced that it has $175 million of capacity remaining under its share repurchase program that could be used to repurchase additional Antero Midstream shares held by the Company.
Gathering, Processing and Transportation Costs
Through negotiations with Antero Midstream and other third party midstream providers, Antero Resources has entered into agreements expected to reduce its gathering, processing and transportation costs "GP&T" and net marketing expense by a combined $350 million in aggregate in the 2020 through 2023 period. As a result of these reductions and production growth into a portion of its unutilized firm transportation, Antero expects its GP&T and net marketing expense to be reduced by a combined $0.10 per Mcfe in 2020.
Under the new amendment to the gathering agreement with Antero Midstream, low pressure gathering fees from January 1, 2020 through December 31, 2023 will be reduced based on Antero Resources achieving increasing volumetric targets on low pressure volumes gathered by Antero Midstream. The growth incentive thresholds were structured in a manner that aligns with Antero Resources' plan to grow 8% to 10% through 2021 in order to fill its premium firm transportation portfolio and invest at maintenance capital levels thereafter. The amendment also extended the term of the agreement by an additional four years to 2038. There are no incremental minimum volume commitments associated with this agreement.
Debt Repurchase
Antero repurchased $215 million notional amount of debt during the fourth quarter at a 17% weighted average discount price. The debt repurchase program occurred under a 10b5-1 plan and included the 2021 senior notes, but focused primarily on the 2022 senior notes. Following the repurchases, Antero's pro forma debt was reduced by $37 million and net interest expense was reduced by over $5 million on an annualized basis.
Glen Warren, CFO and President of Antero Resources said, "The midstream fee reductions announced today combined with the improvement in NGL prices and outlook during the quarter has resulted in a free cash flow neutral profile through 2021 and positions Antero to generate positive free cash flow on a sustained basis beginning in 2022. The asset sale program is expected to meaningfully reduce debt and result in low 2-times leverage by the end of 2020. Today's announcement significantly enhances our credit profile which remains strong with $1.6 billion of liquidity following the bond repurchases and a $1.9 billion borrowing base cushion above the $2.6 billion of lender commitments."
Financial and Legal Advisors
Goldman Sachs and Co. LLC and Richards, Layton, and Finger acted as financial and legal advisors, respectively, to the Conflicts Committee of Antero Midstream. Baird and Potter, Anderson, and Corroon acted as financial and legal advisors, respectively, to the Conflicts Committee of Antero Resources.
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