Antero Resources Corporation (NYSE: AR) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing was signed February 14, 2024. Antero is an Appalachian Basin natural gas, NGL and oil producer, with approximately 515,000 net acres, primarily in West Virginia and Ohio. It also markets third-party products and excess transportation capacity, and owns 29.0% of Antero Midstream.
Financial and operating performance
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $4.682 billion | $7.138 billion |
| Operating income | $453 million | $2.574 billion |
| Net income attributable to Antero | $243 million | $1.899 billion |
| Diluted earnings per share | $0.78 | $5.78 |
| Cash from operating activities | $995 million | $3.051 billion |
| Cash used in investing activities | $1.141 billion | $944 million |
| Long-term debt, net of issuance costs | $1.538 billion | $1.183 billion |
- Production rose 6% to 1.238 Tcfe, averaging 3.392 Bcfe per day. Natural gas volume increased 2%; NGLs and oil volumes increased 7% and 20%, respectively.
- Average combined realized price before derivative settlements fell 51% to $3.45/Mcfe; after settlements it fell 37% to $3.43/Mcfe. Natural gas, ethane, C3+ NGL and oil realized prices were each lower than in 2022.
- Total operating expenses declined to $4.229 billion from $4.565 billion. Gathering, compression, processing and transportation costs were $2.642 billion. Impairment expense fell to $51 million from $150 million; 2022 included a $48 million sand-mine impairment.
- Operating margin was approximately 9.7% of reported revenue, versus 36.1% in 2022. Reported revenue and earnings include derivative fair-value effects, so these margins are sensitive to noncash mark-to-market changes.
- Capital expenditures were approximately $1.1 billion; operating cash flow was below investing cash outflows by approximately $146 million. The company reported no cash and cash equivalents at year-end.
- At year-end, current assets were $476 million and current liabilities $1.452 billion. Credit Facility borrowing base was $3.5 billion, lender commitments $1.6 billion, outstanding borrowings $417 million and letters of credit $501 million; stated available borrowing capacity was $692 million. The company reported compliance with its debt covenants.
- Debt principal totaled approximately $1.548 billion: $417 million under the revolving facility, $1.104 billion of senior notes and $26 million of convertible notes. In addition, balance-sheet operating lease liabilities were approximately $2.965 billion, including $540 million current.
- Proved reserves increased 2% to 18.121 Tcfe; 24% were proved undeveloped. The SEC standardized measure fell to $5.095 billion from $23.564 billion, chiefly reflecting lower year-end reserve pricing assumptions.
Material changes and notable items
- Revenue decreased 34% and attributable net income decreased 87% year over year, principally as commodity prices fell sharply; production growth partly offset lower realized prices.
- Operating cash flow declined by $2.057 billion. The filing attributes the drop mainly to lower commodity prices and includes a $202 million cash payment to settle a swaption early.
- Derivative results shifted from a $1.616 billion fair-value loss in 2022 to a $166 million gain in 2023. The 2023 result included the early-settlement payment noted above; derivative fair-value changes may reverse and are not necessarily current-period cash flows.
- Debt increased from $1.2 billion to $1.5 billion, largely alongside higher Credit Facility borrowings. No senior-note redemptions or repurchases occurred in 2023.
- Antero repurchased $75 million of shares in 2023 and had $1.1 billion remaining under its $2.0 billion repurchase authorization at year-end. It has not declared or paid common-stock dividends.
- A $24 million payment terminated a 200,000 MMBtu/day Equitrans transportation commitment. The company also reported early termination costs for drilling and completion contracts and a loss contingency within operating expenses.
Outlook, risks and contingencies
- 2024 plan: Net capital budget of $725 million to $800 million, including $650 million to $700 million for drilling and completion and $75 million to $100 million for leasehold spending. Antero plans to complete 45 to 50 net horizontal wells, versus 70 in 2023. The budget excludes acquisitions other than leasehold acquisitions.
- Management said that, using December 31, 2023 strip prices, operating cash flow and available Credit Facility borrowings were expected to cover normal operating needs, debt service, capital expenditures, commitments and contingencies for at least the next 12 months. This outlook depends on commodity prices, production, costs, liquidity and credit availability.
- Commodity exposure is substantial: Antero reported no fixed-price swap positions at year-end and said substantially all production was unhedged for 2024 and beyond, though basis swaps and options remained. A $0.10/MMBtu gas-price decline and $1/Bbl oil and NGL price decline together were estimated to reduce revenue by $148 million, excluding changes in fair value of open derivatives.
- Long-term minimum-volume commitments are significant: the filing cites $10.4 billion under agreements with minimum volume commitments over their terms. Total scheduled contractual obligations, including transportation, processing, service and lease commitments, were approximately $14.0 billion. Underused capacity and lower production could increase costs.
- Key risks include Appalachian price differentials and commodity volatility; development and renewal of undeveloped acreage; reliance on regional pipelines and processing facilities; water availability; environmental and methane regulation; and access to capital. The company estimates $1.8 billion of future development costs for proved undeveloped reserves over five years.
- The company is negotiating with regulators over Clean Air Act and state-plan notices of violation related to combustion devices. Management does not expect these matters to materially adversely affect financial condition, results or cash flows. The filing also describes royalty litigation involving post-production cost deductions; potential damages could not be estimated, and no material accrual was recorded for pending litigation.
- Antero has a 2025 net-zero goal for Scope 1 and Scope 2 emissions, but says achieving it, including through carbon offsets, is uncertain and could entail material costs. New methane rules and the IRA methane fee may also affect operating costs.
Important facts for investors to verify
- How lower commodity prices and regional basis differentials affect realized prices, operating cash flow and the 2024 capital plan.
- The company’s liquidity after capital spending, share repurchases, debt maturities and required payments under transportation, processing and lease agreements.
- Whether the $692 million of stated Credit Facility availability and the borrowing base remain available after the next redetermination, and whether covenant compliance is maintained.
- Reserve assumptions and development economics, especially the five-year schedule and funding needs for proved undeveloped reserves, and the sharp decline in standardized measure.
- Updates on regulatory notices, royalty litigation, methane compliance costs, and Antero’s progress toward its Scope 1 and Scope 2 emissions goal.