Antero Resources Reports Second Quarter 2020 Financial and Operating Results

Source Company Press Release
Company Antero Resources Corporation
Tags Corporate: Corporate Results, Guidance, Overview/Strategy, Country: United States, Financial - Costs & Metrics: Capital Expenditures, Hedging, Operating Area: Marcellus, Segment: Shale/Tight News, Upstream: Upstream News
Date July 29, 2020

Antero Resources Corporation (NYSE: AR) ("Antero Resources" or the "Company") today announced its second quarter 2020 financial and operational results.  The relevant condensed consolidated financial statements are included in Antero's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.  

Highlights Include:

  • Net production averaged 3,521 MMcfe/d (67% natural gas by volume) during the second quarter, a 9% increase over the prior year period
  • Realized natural gas equivalent price including hedges averaged $2.81 per Mcfe during the second quarter
  • Drilling and completion capital spend was $180 million, the lowest quarterly spend since Antero's IPO in 2013
    • Well costs are expected to average $675 per foot during the second half of 2020, 6% below the prior target
    • Established a new U.S. horizontal well record drilling 11,253' lateral feet during a 24 hour period
  • Monetized 100 MMBtu/d of 2021 natural gas hedges in July for $29 million to align hedges and 2021 projected net volumes, adjusting for the volumes associated with the previously announced ORRI transaction
    • 2021 projected natural gas volumes are approximately 100% hedged at $2.77 per MMBtu
  • Asset sales announced to date total $531 million, relative to the $750 to $1 billion asset sale target for 2020
  • Repurchased an additional $279 million notional amount of senior notes through July 24th at an 18% weighted average discount
    • Repurchases included $228 million notional amount of the 2021 senior notes, $5 million notional amount of the 2022 senior notes, $36 million notional amount of the 2023 senior notes and $10 million notional amount of the 2025 senior notes
    • Since the start of the debt repurchase program in the fourth quarter of 2019, Antero has purchased $888 million of senior notes at a 19% weighted average discount
      • Reducing total debt by $171 million and annualized interest expense by $24 million
  • Liquidity was $1.0 billion as of June 30, 2020 pro forma for the hedge monetization and senior note repurchases

Paul Rady, Chairman and Chief Executive Officer of Antero Resources commented, "We have made considerable progress towards our $750 to $1 billion asset sale target having closed $531 million of transactions to date.  The asset sale proceeds received to date have enabled Antero to reduce total debt by $365 million since the start of the bond repurchase program in the fourth quarter of 2019, capturing a meaningful discount on our outstanding senior notes and significantly addressing our upcoming debt maturities.  On the operating front, we continue to see momentum on well cost savings, setting a new quarterly record with an average of 8.7 completion stages per day.  We also set a U.S. horizontal well record during the quarter, drilling 11,253 lateral feet in a 24-hour period.  These well cost savings helped to deliver our lowest quarterly drilling and completion capital spend since the company's IPO in 2013 and drove well costs to below $700 per lateral foot in May and June.  We are incredibly proud of all of our employees who have safely delivered these results despite the ongoing uncertainty and challenges surrounding the COVID-19 pandemic.  The combination of a successful asset sale program with repurchasing debt at a discount and significant capital efficiencies have materially improved Antero's credit profile and outlook."

Glen Warren, CFO and President of Antero Resources said, "Over the last nine months we have delivered on our commitment to reduce debt through a combination of asset sales and debt repurchased at a discount.  This successful debt repurchase program has resulted in an $888 million reduction in near-term maturities.  Further, we have completed 69 of our 105 projected wells for the year and expect drilling and completion capital spend to be substantially lower during the second half of the year.  The low capital spend projected for the second half of 2020 is expected to result in over $175 million in Free Cash Flow based on today's strip prices, providing additional liquidity for debt retirement.  Longer term, we are committed to maximizing Free Cash Flow and further reducing total debt."

For a discussion of the non-GAAP financial measures including Adjusted EBITDA, Adjusted Net Income, and Free Cash Flow presented on an actual and pro forma basis, please see "Non-GAAP Financial Measures."

Asset Sale Program Update

Since the announcement of the Company's $750 million to $1 billion asset sale target in December 2019, Antero has closed $531 million of transactions.  This total includes the sale of $100 million of Antero Midstream common stock in December 2019, the $402 million ORRI transaction announced in June 2020, which includes $102 million of contingent payments that may be earned based on volume thresholds in the third quarter of 2020 and the first quarter of 2021, and the $29 million hedge monetization announced today.  Proceeds received to date have been used to repurchase debt at a discount.  Pro forma for the hedge monetization and senior note repurchases, Antero had $1.0 billion in liquidity as of June 30, 2020.

Hedge Monetization

As a result of the ORRI transaction and the resulting excess hedges based on expected 2021 net natural gas production, Antero monetized 100,000 MMBtu/d of 2021 natural gas hedges in July for proceeds of $29 million.  Pro forma for the hedge monetization, Antero has 2,300,000 MMBtu/d of natural gas hedged in 2021 at $2.77 per MMBtu.  Assuming a maintenance level capital plan, approximately 100% of Antero's 2021 expected natural gas production is hedged.

Debt Repurchases

Antero repurchased $279 million notional amount of senior debt from April 1, 2020 through July 24, 2020 at an 18% weighted average discount price.  The repurchases were comprised primarily of the 2021 and 2023 senior notes, but also included the 2022 and 2025 senior notes. The repurchases over this time period reduced our total indebtedness by $51 million.  Since the commencement of the debt repurchase program in the fourth quarter of 2019, Antero has repurchased $888 million of notional debt at a 19% weighted average discount, reducing our total indebtedness by $171 million and interest expense by $24 million on an annualized basis. 

The par value of the 2021 senior notes outstanding have been reduced from $1.0 billion initially to $503 million and the par value of the 2022 senior notes outstanding has been reduced from $1.1 billion to $756 million. The par value of the 2023 and 2025 senior notes outstanding have been reduced from $750 million to $714 million and $600 million to $590 million, respectively. In total, debt repurchases have reduced the total par value of Antero's senior notes outstanding by $888 million as of July 24, 2020. 

Second Quarter 2020 Financial Results

For the three months ended June 30, 2020, Antero reported a GAAP net loss of $463 million, or $1.73 per diluted share, compared to a GAAP net income of $42 million, or $0.14 per diluted share, in the prior year period.  The decrease compared to the year ago period is attributable to lower commodity pricing.  Adjusted Net Loss (non-GAAP measure) was $99 million, or $0.37 per diluted share, compared to Adjusted Net Loss of $76 million during the three months ended June 30, 2019, or $0.25 per diluted share. 

Adjusted EBITDAX (non-GAAP measure) was $186 million, a 26% decrease compared to $252 million in the prior year period due to lower commodity pricing.  Antero's average realized price after hedges declined 13% from $3.24 per Mcfe in the second quarter of 2019 to $2.81 per Mcfe in the second quarter of 2020.

The following table details the components of average net production and average realized prices for the three months ended June 30, 2020:

                                 
    Three months ended June 30, 2020     
    Natural Gas
(MMcf/d) 
  Oil (Bbl/d)    C3+ NGLs
(Bbl/d) 
  Ethane (Bbl/d)    Combined Natural Gas
Equivalent (MMcfe/d) 
   
Average Net Production      2,364      11,029      131,150      50,796      3,521   
                                 
Average Realized Prices    Natural Gas
($/Mcf) 
  Oil ($/Bbl)    C3+ NGLs
($/Bbl) 
  Ethane ($/Bbl)    Combined Natural Gas
Equivalent ($/Mcfe) 
   
Average realized prices before settled derivatives    1.71    8.29    15.55    5.76    1.83   
Settled commodity derivatives      1.08      25.18      4.68      (0.10)      0.98   
Average realized prices after settled derivatives    2.79    33.47    20.23    5.66    2.81   
                                 
NYMEX average price    1.72    27.84                1.72   
Premium / (Differential) to NYMEX    1.07    5.63                1.09   

Net daily natural gas equivalent production in the second quarter averaged 3,521 MMcfe/d, including 192,975 Bbl/d of liquids (67% natural gas by volume).  Net production increased 9% from the year ago period and 4% from the prior period. 

Antero's average realized C3+ NGL price before hedging was $15.55 per barrel, representing a 46% decrease versus the prior year period.  Antero shipped 54% of its total C3+ NGL net production on Mariner East 2 for export and realized a $0.04 per gallon premium to Mont Belvieu pricing on these volumes at Marcus Hook, PA.  Antero sold the remaining 46% of C3+ NGL net production at a $0.12 per gallon discount to Mont Belvieu pricing at Hopedale, OH.  The resulting blended price on 131,150 Bbl/d of net C3+ NGL production was $15.55 per barrel, which was a $0.04 per gallon discount to Mont Belvieu pricing.  Based on current strip prices at Mont Belvieu and in the international markets, Antero expects its blended realized C3+ NGL prices in 2020 to average a $0.00 to a $0.05 per gallon premium to Mont Belvieu.  Antero expects to sell at least 50% of its C3+ NGL production in 2020 at Marcus Hook for export at a premium to Mont Belvieu.    

                 
    Three months ended June 30, 2020 
    Pricing Point    Net C3+ NGL Production
(Bbl/d) 
  % by
Destination 
  Premium (Discount) To Mont Belvieu
($/Gal) 
Propane / Butane exported on ME2  Marcus Hook, PA    70,369    54%    $0.04 
Remaining C3+ NGL volume  Hopedale, OH    60,781    46%    ($0.12) 
Total C3+ NGLs/Blended Premium          131,150    100%    ($0.04) 

All-in cash expense, which includes lease operating, gathering, compression, processing and transportation, production and ad valorem taxes, net marketing, and general and administrative expense (excluding equity-based compensation) was $2.35 per Mcfe in the second quarter, an 8% decrease compared to $2.56 per Mcfe average during the second quarter of 2019.  Lease operating expense was $0.08 per Mcfe in the second quarter, a 43% decline from $0.14 per Mcfe in the year ago period driven by a decrease in water handling costs as Antero increased water blending and reuse in completion operations.  G&A expense was $0.09 per Mcfe, a 25% decrease from the second quarter of 2019 primarily due to reduced employee headcount and a 9% increase in production.  Antero expects all-in cash expense to average $2.25 to $2.35 per Mcfe in 2020 driven by a decrease in net marketing expense during the second half of the year.  

Per unit net marketing expense declined to $0.15 per Mcfe in the second quarter compared to $0.25 per Mcfe reported in the prior year period.  The decline was driven primarily by higher production volumes during the quarter resulting in less unutilized transportation capacity.  Net marketing expense averaged $0.10 per Mcfe in June as production volumes increased significantly during the month.   Net marketing expense is expected to average $0.09 to $0.10 per Mcfe during the second half of 2020 as a result of Antero's increase in natural gas production volumes.  Full year guidance for net marketing expense remains $0.10 to $0.12 per Mcfe.

Liquids Pricing Update

NGL Prices

C3+ NGL prices during the second quarter were negatively impacted by weak demand for normal butane (nC4), isobutane (iC4), and pentane (C5), all of which are used for gasoline.  The demand destruction on gasoline caused by the COVID-19 pandemic forced C5 prices below propane prices for much of April to under $0.40 per gallon.  As gasoline demand rebounded in May and June, there has been a notable improvement in C5 pricing and therefore C3+ NGL pricing. The benchmark C5 price in July has been in the range of $0.60 to $0.70 per gallon.

The restart of economic activity in Asia and Europe, coupled with lower LPG production from refineries in the US, Europe, and Asia during the second quarter, provided support for international LPG prices relative to oil.  Further, reductions in OPEC+ and North American oil production and the associated NGL volumes are expected to have a supportive effect on propane and butane prices through the remainder of 2020 and into 2021.

Condensate Pricing

During the second quarter, condensate differentials to WTI were notably wider as a result of COVID-19 demand destruction at both the Appalachia regional level and national level.  To protect against production curtailments and shut-ins due to insufficient storage capacity, Antero expanded its customer base and its condensate storage capacity within the basin.  In addition, Antero entered into transactions that required buyers to transport product to more distant markets and storage, which coincided with substantially weakened crack spreads for refined products.  To date, Antero has not shut in or curtailed any production from its assets as a result of COVID-19 demand issues and does not expect to shut in any volumes during 2020. 

Condensate differentials to WTI expanded to nearly $20/Bbl during the second quarter, but have begun to return to pre-pandemic levels as gasoline demand improved through the summer months.  Pre-hedge oil realizations were negatively impacted during the quarter as Antero sold volumes at a material discount to WTI in order to keep from shutting in production volumes.  This period of weak condensate demand driven by the pandemic coincided with an active well completion quarter for Antero that brought on large condensate volumes.  The negative impact from wider oil differentials was more than offset by the benefit of maintaining full natural gas and NGL volumes.  Antero expects its full year 2020 realized oil price differential to be $10.00/Bbl to $12.00/Bbl, as the differential normalizes during the second half of 2020.

COVID-19 Pandemic Developments

As a producer of natural gas, NGLs and oil, Antero Resources is recognized as an essential business under various federal, state and local regulations related to the COVID-19 pandemic and the communities in which it operates.  Antero has continued to operate under these regulations, while taking steps to protect the health and safety of its workers.  Antero has implemented protocols to reduce the risk of an outbreak within its field operations, and these protocols have not had an impact on production.  A substantial portion of the Company's non-field level employees have transitioned to remote work from home arrangements.  Antero has been able to maintain a consistent level of effectiveness, including maintaining day-to-day operations and decision making, and financial reporting systems and internal control over financial reporting.  For more information, please see Antero's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.   

Second Quarter 2020 Operating Update

Marcellus Shale — Antero placed 44 horizontal Marcellus wells to sales during the second quarter with an average lateral length of 10,757 feet. Nineteen of the 44 new wells have had at least 60 days of reported production data to date and the average 60-day rate per well was 20.2 MMcfe/d, including approximately 922 Bbl/d of liquids, assuming 25% ethane recovery.  During the second quarter, Antero achieved a new U.S. horizontal record by drilling 11,253 lateral feet during a 24-hour period.  Additionally, Antero's ongoing emphasis on completion efficiencies resulted in a material improvement during the second quarter to 8.7 stages completed per day, a 23% increase from 7.1 stages per day in the prior period, also a company record.  During the quarter, Antero set a company record for an entire pad averaging 9.6 stages per day.

These efficiency gains led to average well costs below $700 per lateral foot during the months of May and June, despite only partial vendor cost savings being realized.  All-in well costs are expected to average $675 per lateral foot for the second half of 2020 for a 12,000' lateral.  Antero currently has one drilling rig and two completion crews running.            

Second Quarter 2020 Capital Investment

Antero's drilling and completion capital expenditures for the three months ended June 30, 2020 were $180 million.  Through the first half of 2020, Antero has completed 69 of the projected 105 well completions planned for the year.  Antero anticipates a decline in capital spending in each subsequent quarter of 2020, reflecting continued efficiencies, service cost deflation and the release of three rigs and two completion crews that occurred during the second quarter of 2020.  In addition to capital invested in drilling and completion costs, the Company invested $11 million in land during the second quarter.  For a reconciliation of accrued capital expenditures to cash capital expenditures see the table on page 10.

Balance Sheet and Liquidity

As of June 30, 2020, Antero's total debt was $3.5 billion, of which $926 million were borrowings outstanding under the Company's revolving credit facility.  Antero has a borrowing base of $2.85 billion with lender commitments that total $2.64 billion.  After deducting letters of credit outstanding of $730 million and pro forma for the subsequent hedge monetization and senior note repurchases, the Company had $1.0 billion in available liquidity at June 30, 2020.

Commodity Derivative Positions

Antero has hedged 1.7 Tcf of natural gas at a weighted average index price of $2.71 per MMBtu through 2023 with fixed price swap positions.  Antero also has oil and NGL and ethane fixed price swap positions, including oil positions that total 26,000 Bbl/d, NGL positions that total 10,315 Bbl/d and ethane positions that total 24,500 Bbl/d during 2020.  As of June 30, 2020, the Company's estimated fair value gain on remaining commodity derivative instruments was $618 million based on strip pricing, a portion of which was realized in the Company's hedge monetization described above.

Please see Antero's Annual Report on Form 10-Q for the quarter ended June 30, 2020, for more information on all commodity derivative positions, including basis swaps and natural gas calls.   

The following tables summarize Antero's hedge position as of June 30, 2020:

Fixed price natural gas positions from July 1, 2020 through December 31, 2023 were as follows:

             
    Natural gas
MMBtu/day 
  Weighted
average index
price 
 
Year ending December 31, 2020:             
NYMEX ($/MMBtu)    2,227,500      $2.87   
Year ending December 31, 2021:             
NYMEX ($/MMBtu) (1)    2,400,000      $2.80   
Year ending December 31, 2022:             
NYMEX ($/MMBtu)    1,307,500      $2.44   
Year ending December 31, 2023:             
NYMEX ($/MMBtu)    150,000      $2.38   
   
(1)   Pro forma for the recent hedge monetization, 2021 fixed price natural gas position is 2,300,000 MMBtu/d at $2.77/MMBtu 
C3+ NGL, ethane and oil derivative contract positions from July 1, 2020 through December 31, 2020 were as follows: 
             
  Derivative Contract Type  Liquids
Hedges (Bbl/d) 
  Weighted
average
index price
($/Gal) 
Weighted
average basis
differential
$/Gal 
Weighted
average
index price
($/Bbl) 
Year ending December 31, 2020:             
Total Propane (C3) – ARA (Europe) (1)  Fixed swap   10,315    $0.55    $23.10 
             
Total OPIS Ethane Mt Belvieu  Fixed swap   24,500    $0.20     
             
Total NYMEX Crude Oil (2)    26,000        $55.63 
(1)  Net of shipping. Assumes $0.10/gal shipping to ARA. (2)  Hedged 20,000 Bbl/d of pentane (C5) at 80% of WTI and hedged the resulting 26,000 Bbl/d of oil-
      equivalent volumes at $55.63/Bbl WTI on average (80% x $55.63 = $44.52/Bbl pentane). 
         

Guidance

All guidance not discussed in this release is unchanged from previously stated guidance.

Consolidation

For the three months and six months ended June 30, 2020, Martica Holdings, LLC ("Martica"), the entity associated with the ORRI transaction, is consolidated in the Company's consolidated financial statements.  All significant intercompany accounts and transactions have been eliminated in the Company's unaudited condensed consolidated financial statements.  The noncontrolling interest in the Company's unaudited condensed consolidated financial statements for the three and six months ended June 30, 2020 represents the interest in Martica owned by Sixth Street.  For more information, please see Antero's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.   

Conference Call

A conference call is scheduled on Thursday, July 30, 2020 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 for the quarter.  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 6, 2020 at 9:00 am MT at 877-660-6853 (U.S.) or 201-612-7415 (International) using the conference ID: 13703838.

A simultaneous webcast of the call may be accessed over the internet at anteroresources.com.  The webcast will be archived for replay on the Company's website until Thursday, August 6, 2020 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 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.

    Three months ended June 30, 
    2019    2020 
Net income (loss) attributable to Antero Resources Corp    42,168    (463,304) 
Commodity derivative fair value (gains) losses      (328,427)      168,015 
Gains on settled commodity derivatives      44,699      313,912 
Impairment of oil and gas properties      130,999      37,350 
Equity-based compensation      6,549      7,973 
Equity in earnings of unconsolidated - AMC      (13,585)      (20,228) 
Gain on early extinguishment of debt      —      (39,171) 
(Gain) loss on sale of assets      951      — 
Contract termination and rig stacking      5,604      11,071 
Tax effect of reconciling items (1)      34,914      (115,047) 
Adjusted Net Loss    (76,128)    (99,429) 
             
Fully Diluted Shares Outstanding      309,062      268,386 
   
(1)   Deferred taxes were approximately 23% for 2019 and 24% for 2020. 
Per Share Amounts               
               
    Three months ended June 30,   
    2019    2020   
Net income (loss) attributable to Antero Resources Corp    0.14      (1.73)   
Commodity derivative fair value (gains) losses      (1.06)      0.63   
Gains on settled commodity derivatives      0.14      1.17   
Impairment of oil and gas properties      0.42      0.14   
Equity-based compensation      0.02      0.03   
Equity in earnings of unconsolidated - AMC      (0.04)      (0.07)   
Gain on early extinguishment of debt      —      (0.15)   
(Gain) loss on sale of assets      —      —   
Contract termination and rig stacking      0.02      0.04   
Tax effect of reconciling items (1)      0.11      (0.43)   
Adjusted Net Loss    (0.25)      (0.37)   
   
(1)   Deferred taxes were approximately 23% for 2019 and 24% for 2020. 

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

               
    December 31,    June 30,   
    2019    2020   
AR bank credit facility    552,000      926,000   
5.375% AR senior notes due 2021      952,500      516,202   
5.125% AR senior notes due 2022      923,041      756,030   
5.625% AR senior notes due 2023      750,000      743,690   
5.000% AR senior notes due 2025      600,000      590,000   
Net unamortized premium      791      542   
Net unamortized debt issuance costs      (19,464)      (14,388)   
Consolidated total debt    3,758,868      3,518,076   
Less: AR cash and cash equivalents      —      —   
Net Debt    3,758,868      3,518,076   

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 Cash Flow from Operations, less drilling and completion capital and leasehold capital plus earnout payments.

The Company has not provided projected Cash Flow from Operations or a reconciliation of Free Cash Flow to projected Cash Flow from Operations, the most comparable financial measure calculated in accordance with GAAP.  The Company is unable to project Cash Flow from Operations 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.  Targeted 2020 Free Cash Flow is based on current strip pricing and assumes that dividends from Antero Midstream remain flat for the year for aggregate annual dividends from Antero Midstream of $171 million in 2020.  Antero Midstream previously announced that in light of the uncertain conditions impacting the energy industry, Antero Midstream will continue to evaluate its capital budget as well as the appropriate amount of capital that is returned to shareholders through dividends and share repurchases in order to maintain its financial profile.

Free Cash Flow is a useful indicator of the Company's ability to internally fund its activities and to service or incur additional debt. 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. 

Through March 12, 2019, the financial results of Antero Midstream Partners were included in our consolidated results.  Effective March 13, 2019, we no longer consolidate Antero Midstream Partners and account for our interest in Antero Midstream using the equity method of accounting.  Adjusted EBITDAX includes distributions received with respect to limited partner interests in Antero Midstream Partners common units through March 12, 2019.

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 following table represents a reconciliation of our net income (loss), including noncontrolling interest, to Adjusted EBITDAX and a reconciliation of our Adjusted EBITDAX to net cash provided by operating activities per our unaudited condensed consolidated statements of cash flows, in each case, for the three and six months ended June 30, 2019 and 2020.  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,   
(in thousands)    2019    2020   
Reconciliation of net income (loss) to Adjusted EBITDAX:               
Net income (loss) and comprehensive income (loss) attributable to Antero Resources Corporation    42,168      (463,304)   
Net loss and comprehensive loss attributable to noncontrolling interests      —      236   
Depletion, depreciation, amortization, and accretion      243,220      215,146   
Impairment of oil and gas properties      130,999      37,350   
Commodity derivative fair value (gains) losses (1)      (328,427)      168,015   
Gains on settled commodity derivatives (1)      44,699      313,912   
Equity-based compensation expense      6,549      7,973   
Provision for income tax expense (benefit)      17,249      (142,404)   
Gain on early extinguishment of debt      —      (39,171)   
Equity in (earnings) loss of unconsolidated affiliates      (13,585)      (20,228)   
Distributions/dividends from unconsolidated affiliates      47,922      42,755   
Interest expense, net      54,164      51,811   
Exploration expense      314      231   
(Gain) Loss on sale of assets      951      —   
Contract termination and rig stacking      5,604      11,071   
Transaction expense      —      6,138   
      251,827      189,531   
Martica related adjustments (2)      —      (3,100)   
Adjusted EBITDAX    251,827      186,431   
               
Reconciliation of our Adjusted EBITDAX to net cash provided by operating activities:               
Adjusted EBITDAX    251,827      186,431   
Martica related adjustments (2)      —      3,100   
Interest expense, net      (54,164)      (51,811)   
Exploration expense      (314)      (231)   
Changes in current assets and liabilities      31,910      (6,310)   
Transaction expense      —      (6,138)   
Other items      (11,155)      (9,078)   
Net cash provided by operating activities    218,104      115,963   
   
(1)   The adjustments for the derivative fair value gains and losses and gains on settled derivatives have the effect of adjusting net income (loss) from operations for changes in the fair value of unsettled derivatives, which are recognized at the end of each accounting period.  As a result, derivative gains included in the calculation for Adjusted EBITDAX only reflect derivatives that settled during the period.  
(2)    Adjustments reflect noncontrolling interests in Martica not otherwise adjusted in amounts above. 

Drilling and Completion Capital Expenditures

For a reconciliation between cash paid for drilling and completion capital expenditures and drilling and completion accrued capital expenditures during the period, please see the capital expenditures section below. (in thousands):

                 
      Three months ended June 30,   
      2019    2020   
Drilling and completion costs (as reported; cash basis)      311,401      251,744   
Change in accrued capital costs        (8,624)      (71,793)   
Adjusted drilling and completion costs (accrual basis)      302,777      179,951   
ANTERO RESOURCES CORPORATION
Consolidated Balance Sheets
December 31, 2019 and June 30, 2020
(In thousands, except per share amounts) 
         
        (Unaudited) 
    December 31,    June 30, 
    2019    2020 
Assets             
Current assets:             
Accounts receivable    46,419      57,013 
Accounts receivable, related parties      125,000      — 
Accrued revenue      317,886      254,863 
Derivative instruments      422,849      521,459 
Other current assets      10,731      8,942 
Total current assets      922,885      842,277 
Property and equipment:             
Oil and gas properties, at cost (successful efforts method):             
Unproved properties      1,368,854      1,277,476 
Proved properties      11,859,817      11,989,302 
Gathering systems and facilities      5,802      5,802 
Other property and equipment      71,895      72,649 
      13,306,368      13,345,229 
Less accumulated depletion, depreciation, and amortization      (3,327,629)      (3,408,099) 
Property and equipment, net      9,978,739      9,937,130 
Operating leases right-of-use assets      2,886,500      2,562,945 
Derivative instruments      333,174      103,514 
Investment in unconsolidated affiliate      1,055,177      279,805 
Other assets      21,094      18,319 
Total assets    15,197,569      13,743,990 
             
Liabilities and Equity             
Current liabilities:             
Accounts payable    14,498      36,736 
Accounts payable, related parties      97,883      73,375 
Accrued liabilities      400,850      339,388 
Revenue distributions payable      207,988      173,759 
Derivative instruments      6,721      3,652 
Short-term lease liabilities      305,320      230,499 
Other current liabilities      6,879      6,831 
Total current liabilities      1,040,139      864,240 
Long-term liabilities:             
Long-term debt      3,758,868      3,518,076 
Deferred income tax liability      781,987      529,598 
Derivative instruments      3,519      2,558 
Long-term lease liabilities      2,583,678      2,334,227 
Other liabilities      58,635      62,312 
Total liabilities      8,226,826      7,311,011 
Commitments and contingencies (Notes 14 and 15)             
Equity:             
Stockholders' equity:             
Preferred stock, $0.01 par value; authorized - 50,000 shares; none issued      —      — 
Common stock, $0.01 par value; authorized - 1,000,000 shares; 295,941 shares and 268,390 shares issued
and outstanding at December 31, 2019 and June 30, 2020, respectively 
    2,959      2,684 
Additional paid-in capital      6,130,365      6,098,167 
Accumulated earnings      837,419      35,305 
Total stockholders' equity      6,970,743      6,136,156 
Noncontrolling interests      —      296,823 
Total equity      6,970,743      6,432,979 
Total liabilities and equity    15,197,569      13,743,990 
ANTERO RESOURCES CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Three Months Ended June 30, 2019 and 2020
(Unaudited)
(In thousands, except per share amounts) 
               
    Three Months Ended June 30,   
    2019    2020   
Revenue and other:               
Natural gas sales    553,372      367,415   
Natural gas liquids sales      303,963      212,197   
Oil sales      49,062      8,322   
Commodity derivative fair value gains (losses)      328,427      (168,015)   
Marketing      63,080      64,285   
Other income       1,760      707   
Total revenue      1,299,664      484,911   
Operating expenses:               
Lease operating      40,857      24,742   
Gathering, compression, processing, and transportation      566,834      631,845   
Production and ad valorem taxes      30,968      19,992   
Marketing      137,539      113,053   
Exploration      314      231   
Impairment of oil and gas properties      130,999      37,350   
Depletion, depreciation, and amortization      242,302      214,035   
Loss on sale of assets      951      —   
Accretion of asset retirement obligations      918      1,111   
General and administrative (including equity-based compensation expense of $6,549 and
$7,973 in 2019 and 2020, respectively) 
    42,382      38,403   
Contract termination and rig stacking      5,604      11,071   
Total operating expenses      1,199,668      1,091,833   
Operating income (loss)      99,996      (606,922)   
Other income (expenses):               
Equity in earnings of unconsolidated affiliates      13,585      20,228   
Transaction expense      —      (6,138)   
Interest expense, net      (54,164)      (51,811)   
Gain on early extinguishment of debt      —      39,171   
Total other income (expenses)      (40,579)      1,450   
Income (loss) before income taxes      59,417      (605,472)   
Provision for income tax (expense) benefit      (17,249)      142,404   
Net income (loss) and comprehensive income (loss) including noncontrolling interests      42,168      (463,068)   
Less:  Net income and comprehensive income attributable to noncontrolling interests      —      236   
Net income (loss) and comprehensive income (loss) attributable to Antero Resources
Corporation 
  42,168      (463,304)   
               
Income (loss) per share—basic    0.14      (1.73)   
Income (loss) per share—diluted    0.14      (1.73)   
               
Weighted average number of shares outstanding:               
Basic      309,062      268,386   
Diluted      309,137      268,386   
ANTERO RESOURCES CORPORATION
Condensed Consolidated Statements of Cash Flows
Three Months Ended June 30, 2019 and 2020
(Unaudited)
(In thousands) 
               
    Six Months Ended June 30,   
    2019    2020   
Cash flows provided by (used in) operating activities:               
Net income (loss) including noncontrolling interests    1,067,924      (801,878)   
Adjustments to reconcile net income (loss) to net cash provided by operating activities:               
Depletion, depreciation, amortization, and accretion      484,397      415,927   
Impairment of oil and gas properties      212,243      126,570   
Impairment of midstream assets      6,982      —   
Commodity derivative fair value gains      (251,059)      (397,818)   
Gains on settled commodity derivatives      141,791      524,838   
Loss on sale of assets      951      —   
Equity-based compensation expense      15,452      11,302   
Deferred income tax expense (benefit)      304,963      (252,389)   
Gain on early extinguishment of debt      —      (119,732)   
Equity in (earnings) loss of unconsolidated affiliates      (27,666)      107,827   
Impairment of equity investment      —      610,632   
Gain on deconsolidation of Antero Midstream Partners LP      (1,406,042)      —   
Distributions/dividends of earnings from unconsolidated affiliates      60,527      85,511   
Other      5,670      4,433   
Changes in current assets and liabilities:               
Accounts receivable      5,848      (27,329)   
Accrued revenue      166,066      63,023   
Other current assets      2,307      789   
Accounts payable including related parties      (2,424)      (21,182)   
Accrued liabilities      (22,146)      15,722   
Revenue distributions payable      (9,795)      (29,560)   
Other current liabilities      1,119      (46)   
Net cash provided by operating activities      757,108      316,640   
Cash flows provided by (used in) investing activities:               
Additions to unproved properties      (56,814)      (21,672)   
Drilling and completion costs      (680,088)      (552,227)   
Additions to water handling and treatment systems      (24,416)      —   
Additions to gathering systems and facilities      (48,239)      —   
Additions to other property and equipment      (4,629)      (1,234)   
Settlement of water earnout      —      125,000   
Investments in unconsolidated affiliates      (25,020)      —   
Proceeds from the Antero Midstream Partners LP Transactions      296,611      —   
Proceeds from asset sales      1,983      —   
Change in other assets      (4,974)      525   
Net cash used in investing activities      (545,586)      (449,608)   
Cash flows provided by (used in) financing activities:               
Repurchases of common stock      —      (43,443)   
Issuance of senior notes      650,000      —   
Repayment of senior notes      —      (496,541)   
Borrowings (repayments) on bank credit facilities, net      (145,000)      374,000   
Payments of deferred financing costs      (8,259)      —   
Sale of noncontrolling interest      —      300,000   
Distributions to noncontrolling interests in Antero Midstream Partners LP      (85,076)      —   
Employee tax withholding for settlement of equity compensation awards      (2,295)      (331)   
Other      (1,360)      (717)   
Net cash provided by financing activities      408,010      132,968   
Effect of deconsolidation of Antero Midstream Partners LP      (619,532)      —   
Net decrease in cash and cash equivalents      —      —   
Cash and cash equivalents, beginning of period      —      —   
Cash and cash equivalents, end of period    —      —   
               
Supplemental disclosure of cash flow information:               
Cash paid during the period for interest    119,180      101,885   
Decrease in accounts payable and accrued liabilities for additions to property and equipment    33,240      61,305   

The following table set forth selected operating data for the three months ended June 30, 2019 and 2020:

                         
                Amount of       
    Three months ended June 30,    Increase    Percent   
(in thousands)    2019    2020    (Decrease)    Change   
Revenue:                         
Natural gas sales    553,372    367,415    (185,957)    (34) 
Natural gas liquids sales      303,963      212,197      (91,766)    (30) 
Oil sales      49,062      8,322      (40,740)    (83) 
Commodity derivative fair value gains (losses)      328,427      (168,015)      (496,442)    (151) 
Marketing      63,080      64,285      1,205   
Other income       1,760      707      (1,053)    (60) 
Total revenue      1,299,664      484,911      (814,753)    (63) 
Operating expenses:                         
Lease operating      40,857      24,742      (16,115)    (39) 
Gathering and compression      210,149      202,773      (7,376)    (4) 
Processing      193,018      242,592      49,574    26 
Transportation      163,667      186,480      22,813    14 
Production and ad valorem taxes      30,968      19,992      (10,976)    (35) 
Marketing      137,539      113,053      (24,486)    (18) 
Exploration      314      231      (83)    (26) 
Impairment of oil and gas properties      130,999      37,350      (93,649)    (71) 
Depletion, depreciation, and amortization      242,302      214,035      (28,267)    (12) 
Loss on sale of assets      951      —      (951)    (100) 
Accretion of asset retirement obligations      918      1,111      193    21 
General and administrative (excluding equity-based compensation)      35,833      30,430      (5,403)    (15) 
Equity-based compensation      6,549      7,973      1,424    22 
Contract termination and rig stacking      5,604      11,071      5,467    98 
Total operating expenses      1,199,668      1,091,833      (107,835)    (9) 
Operating income (loss)      99,996      (606,922)      (706,918)    (707) 
Other earnings (expenses):                         
Equity in earnings of unconsolidated affiliates      13,585      20,228      6,643    49 
Transaction expense      —      (6,138)      (6,138)     
Interest expense, net      (54,164)      (51,811)      2,353    (4) 
Gain on early extinguishment of debt      —      39,171      39,171     
Total other income (expenses)      (40,579)      1,450      42,029    (104) 
Income (loss) before income taxes      59,417      (605,472)      (664,889)    (1,119) 
Provision for income tax (expense) benefit      (17,249)      142,404      159,653    (926) 
Net income (loss) and comprehensive income (loss) including
noncontrolling interests 
    42,168      (463,068)      (505,236)    (1,198) 
Less:  Net income and comprehensive income attributable to
noncontrolling interests 
    —      236      236     
Net income (loss) and comprehensive income (loss)
attributable to Antero Resources Corporation 
    42,168      (463,304)      (505,472)    (1,199) 
                         
Adjusted EBITDAX    251,827    186,431    (65,396)    (26) 
 
* Not meaningful 
                         
    Three months ended June 30,    Amount of
Increase 
  Percent   
    2019    2020    (Decrease)    Change   
Production data:                         
Natural gas (Bcf)      208      215       
C2 Ethane (MBbl)      3,720      4,622      902    24 
C3+ NGLs (MBbl)      9,576      11,935      2,359    25 
Oil (MBbl)      940      1,004      64   
Combined (Bcfe)      294      320      26   
Daily combined production (MMcfe/d)      3,226      3,521      295   
Average prices before effects of derivative settlements (1):                         
Natural gas (per Mcf)    2.66    1.71    (0.95)    (36) 
C2 Ethane (per Bbl)    8.16    5.76    (2.40)    (29) 
C3+ NGLs (per Bbl)    28.57    15.55    (13.02)    (46) 
Oil (per Bbl)    52.19    8.29    (43.90)    (84) 
Weighted Average Combined (per Mcfe)    3.09    1.83    (1.26)    (41) 
Average realized prices after effects of derivative settlements (1):                         
Natural gas (per Mcf)    2.86    2.79    (0.07)    (2) 
C2 Ethane (per Bbl)    8.16    5.66    (2.50)    (31) 
C3+ NGLs (per Bbl)    28.67    20.23    (8.44)    (29) 
Oil (per Bbl)    53.49    33.47    (20.02)    (37) 
Weighted Average Combined (per Mcfe)    3.24    2.81    (0.43)    (13) 
Average costs (per Mcfe):                         
Lease operating    0.14    0.08    (0.06)    (43) 
Gathering and compression    0.72    0.63    (0.09)    (13) 
Processing    0.66    0.76    0.10    15 
Transportation    0.56    0.58    0.02   
Production taxes    0.11    0.06    (0.05)    (45) 
Marketing, net    0.25    0.15    (0.10)    (40) 
General and administrative (excluding equity-based compensation)    0.12    0.09    (0.03)    (25) 
All-in cash expense    2.56    2.35    (0.21)    (8) 
Depletion, depreciation, amortization and accretion    0.83    0.67    (0.16)    (19) 
                         

Notwithstanding their use for comparative purposes, the Company's non-GAAP financial measures may not be comparable to similarly titled measures employed by other companies.

Source: EvaluateEnergy® ©2024 EvaluateEnergy Ltd