Antero Resources Corporation — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; comparative period is Q1 2013. Antero explores and produces natural gas, NGLs and oil in the Appalachian Basin, and operates gathering, compression and fresh-water distribution businesses.
Financial and operating performance
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Total revenue, including derivative fair-value changes | $165.0 million | $61.5 million |
| Net loss | $94.8 million | $48.0 million |
| Operating loss | $104.1 million | $48.5 million |
| Adjusted EBITDAX, non-GAAP | $273.7 million | $118.7 million |
| Cash from operations | $274.3 million | $110.2 million |
| Cash used in investing | $735.5 million | $547.9 million |
| Cash from financing | $456.3 million | $423.5 million |
- Production increased 105% to 71 Bcfe, or 786 MMcfe per day. Average realized price before hedges rose to $5.80/Mcfe from $3.87; after cash-settled hedge effects, it was $5.79/Mcfe versus $5.26.
- Natural gas, NGL and oil sales totaled approximately $410 million before derivative fair-value losses. A $248.9 million derivative fair-value loss reduced reported revenue; only about $1.1 million was paid on settled derivatives during the quarter. The mark-to-market loss is not itself a current-period cash outflow.
- Operating expenses were $269.1 million, including $91.2 million of DD&A and $29.1 million of stock compensation. Gathering, processing and transportation costs were $1.30/Mcfe; lease operating costs were $0.07/Mcfe.
- At March 31, cash was $12.6 million, current assets $321.9 million and current liabilities $760.8 million. Long-term debt was $2.536 billion; total assets were $7.134 billion and stockholders’ equity $3.533 billion.
- Capital expenditures were approximately $732 million. Cash and equivalents declined $4.9 million during the quarter.
Changes versus Q1 2013
- Production more than doubled, with commodity sales growth reflecting both higher volumes and improved prices. Production revenues before derivative fair-value changes rose approximately 208%.
- Cash from operations increased to $274 million, while investing outlays also rose, to $736 million.
- Reported net loss widened, principally amid substantially larger derivative fair-value losses, higher DD&A and a $29.1 million noncash stock-compensation charge. The charge included $28.7 million related to profits interests following the 2013 IPO reorganization.
- Debt increased from $2.079 billion at year-end 2013, primarily as credit-facility borrowings rose from $288 million to $745 million.
Outlook, financing and risks
- The revised 2014 capital budget is $2.85 billion: $1.8 billion for drilling and completion, $750 million for midstream expansion (including $200 million for fresh-water infrastructure), and $300 million for core leasehold acquisitions. Management may adjust spending in response to prices, liquidity, drilling results and other conditions. No full-year production or earnings guidance is provided in the filing.
- Management said operating cash flow and available credit-facility borrowings should meet cash requirements for at least the next 12 months. At March 31, borrowings and letters of credit totaled $818 million, with $682 million of available capacity against lender commitments then in effect. The company was in compliance with credit covenants.
- After quarter-end, the revolving facility was amended to a $3.5 billion maximum, a $3.0 billion borrowing base, $2.0 billion in lender commitments and a May 2019 maturity; the next borrowing-base redetermination was scheduled for October 2014. On May 6, the company issued $600 million of 5.125% notes due 2022, intending to redeem the remaining 2019 notes and repay part of its revolver borrowings.
- As of March 31, hedges covered projected natural-gas and oil production through 2019. Hedges reduce exposure to falling prices but also limit benefit from rising prices; fair-value changes can make reported earnings volatile. Derivative assets were $612 million net, creating counterparty exposure, while production and accrued revenue also create customer and collection risks.
- The company planned an IPO of its midstream business and intended to contribute substantially all midstream assets and development rights; completion was not assured.
- Material risks include commodity-price volatility, reserve and production-estimate uncertainty, access to capital, drilling and service costs, transportation and processing commitments, regulation and environmental matters. EPA compliance orders concern alleged unpermitted discharges at West Virginia well sites; the company expects monetary sanctions exceeding $100,000 but cannot estimate total sanctions or remediation costs. Separate Colorado and Pennsylvania lawsuits seek unspecified damages; outcomes are not estimable from the filing.
Investor verification checklist
- Confirm the cash versus noncash components of the $248.9 million derivative loss and the terms, counterparties and coverage of the hedge portfolio.
- Review capital-spending pace and funding needs against the $2.85 billion budget, low quarter-end cash and substantial transportation and processing commitments.
- Verify post-quarter-end completion and use of proceeds from the $600 million notes offering, the planned 2019-note redemption, and the amended credit-facility availability and covenants.
- Track the proposed midstream IPO, the timing and terms of any asset contribution, and the potential effect on Antero’s cash flows and control structure.
- Monitor EPA matters and the two lawsuits, for which potential total costs or damages are not clear from the filing.