Antero Resources Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Comparisons are with the three months ended March 31, 2022 unless noted. Antero develops and produces natural gas, NGLs and oil in the Appalachian Basin and reported approximately 512,000 net acres.
Key financial metrics
Amounts are in millions of dollars except per-share data, percentages and production metrics.
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $1,408.3 | $786.8 |
| Operating income (loss) | $331.5 | $(204.6) |
| Operating margin | 23.5% | (26.0%) |
| Net income (loss) attributable to Antero | $213.4 | $(156.4) |
| Diluted earnings (loss) per share | $0.69 | $(0.50) |
| Cash from operating activities | $343.9 | $565.7 |
| Cash used in investing activities | $(350.8) | $(215.1) |
| Cash from (used in) financing activities | $6.9 | $(350.6) |
| Long-term debt, carrying value, at March 31 | $1,312.0 | $1,183.5 at December 31, 2022 |
| Current assets / current liabilities, at March 31 | $437.6 / $1,497.5 | $787.5 / $1,774.9 at December 31, 2022 |
- Revenue included a $126.2 million commodity-derivative fair-value gain in Q1 2023, versus a $1,011.4 million loss in Q1 2022. These noncash mark-to-market movements materially affect reported revenue and earnings; total revenue from customer contracts was $1,274.3 million in Q1 2023 versus $1,788.4 million in Q1 2022.
- Sales of natural gas, NGLs and oil were $668.3 million, $495.4 million and $51.8 million, respectively. Combined production was 295 Bcfe, up 4%; daily production averaged 3,274 MMcfe, up 3%.
- Average combined realized price after derivative settlements fell 19% to $4.08/Mcfe. Before derivative settlements, it fell 32% to $4.13/Mcfe. Benchmark Henry Hub gas and WTI prices also declined year over year.
- Operating expenses rose to $1,076.9 million from $991.4 million. Gathering, processing and transportation expense increased to $645.2 million; general and administrative expense increased to $57.3 million, including $13.0 million of equity compensation; contract termination expense was $29.6 million.
- Cash from operations declined about 39%. Investing cash use rose with higher drilling, completion and leasehold spending. Operating cash flow less reported capital expenditures of $342 million was approximately breakeven for the quarter.
Liquidity, debt and capital
- At March 31, long-term debt had a carrying value of $1.312 billion and principal of $1.324 billion. Antero borrowed a net $145.3 million under its revolving credit facility during the quarter. The facility had $180.1 million drawn, $816 million of available borrowing capacity, a $3.5 billion borrowing base and $1.5 billion of lender commitments. The borrowing base was reaffirmed in April 2023.
- The company reported no cash or cash equivalents at quarter-end. Current liabilities exceeded current assets by approximately $1.060 billion. Antero stated that, based on March 31 strip prices, operating cash flow and available facility borrowings should cover operating needs, debt service, capital expenditures and commitments for at least 12 months.
- Operating lease liabilities totaled $3.402 billion; total lease liabilities including finance leases were $3.405 billion. The filing also reports $15.300 billion of gross future contractual commitments, including firm transportation, processing/gathering, leases and other obligations. These are not all balance-sheet debt and include gross commitments.
- Quarterly share repurchases were $75.4 million; distributions to Martica noncontrolling interests were $51.3 million. Antero had 299.3 million shares outstanding at March 31 and reported 300.1 million shares outstanding on April 21.
Material changes and unusual items
- The improvement from a Q1 2022 loss to Q1 2023 profit primarily reflects the reversal from a large derivative fair-value loss to a gain, rather than growth in product sales. Product sales declined as commodity prices fell, partly offset by higher NGL and oil volumes.
- In January 2023, Antero paid $202 million to settle early a swaption covering the counterparty’s right to enter into a 2024 gas swap. The payment was funded with operating cash flow and credit-facility borrowings and is reflected in operating cash flows.
- Antero paid $24 million to terminate a 200,000 MMBtu/day Equitrans firm-transportation commitment; no remaining payment obligations for that cancelled commitment were reported at March 31.
- During the quarter, $18 million principal amount of 2026 convertible notes was converted or induced into conversion; Antero issued approximately 4 million shares and paid a $0.1 million cash inducement premium.
- Development override interests conveyed in an earlier transaction ceased to apply to wells turned to sales on or after April 1, 2023, under the terms described in the filing.
Outlook, management commentary and risks
- 2023 net capital budget: $1.025–$1.075 billion, comprising $875–$925 million for drilling and completion and $150 million for leasehold expenditures. Antero planned to complete 60–65 net horizontal wells in the Appalachian Basin. Q1 capital expenditures were $342 million.
- Management said commodity benchmarks had declined and remained volatile. It cited inflation, including approximately 10% service-cost inflation embedded in the 2023 capital budget, and noted potential cost pressure from CPI-linked contracts. The company reported no significant supply-chain interruptions to date.
- Hedging has been reduced: 2% of Q1 2023 production was hedged with fixed-price swaps, versus 36% a year earlier; assuming 2023 production equals 2022 production, about 1% of 2023 production was hedged through fixed-price swaps. Lower hedging increases exposure to commodity-price changes.
- Environmental matters include EPA and state notices alleging air-permitting violations at certain facilities. Operations were not suspended; management did not expect a material adverse financial effect. Other Appalachian Basin royalty litigation may affect post-production cost deductions; the company could not estimate potential damages.
- Key risks include commodity and basis-price volatility, production and reserve uncertainty, access to capital, operating and transportation commitments, inflation, regulation, environmental and legal matters, and counterparty/customer credit risk. The company said there were no material changes to the risk factors in its 2022 Form 10-K.
Important facts for investors to verify
- Separate operating performance from derivative accounting effects; review settled hedge cash flows, open positions and the $202 million swaption settlement.
- Track realized prices, production, and the extent of unhedged volumes against the 2023 capital plan and well-completion targets.
- Confirm borrowing capacity, credit-facility usage and covenant compliance, and assess liquidity given zero reported cash and negative working capital.
- Review the scale and duration of transportation, gathering and lease commitments, including the Equitrans termination and related-party Antero Midstream arrangements.
- Monitor environmental notices and royalty litigation for developments that could change management’s assessment of contingencies.