Antero Resources Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparative period is Q1 2021. Antero develops and produces natural gas, NGLs and oil in the Appalachian Basin. It reported approximately 501,000 net acres in West Virginia and Ohio. Unless noted otherwise, financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $786.8 million | $1,204.2 million |
| Natural gas, NGL and oil sales | $1,719.4 million | $1,205.4 million |
| Commodity derivative fair value losses | $1,011.4 million | $177.8 million |
| Operating income (loss) | $(204.6) million | $94.5 million |
| Net loss attributable to Antero | $(156.4) million | $(15.5) million |
| Loss per share, basic and diluted | $(0.50) | $(0.05) |
| Cash provided by operating activities | $565.7 million | $563.7 million |
| Cash used in investing activities | $215.1 million | $123.0 million |
| Cash used in financing activities | $350.6 million | $440.8 million |
- Total revenue includes derivative fair value losses; product sales increased substantially, while the mark-to-market loss widened. The company states that unrealized derivative fair value changes do not affect cash until contracts settle or are monetized.
- Operating margin was approximately negative 26% of reported revenue, versus positive 8% in Q1 2021; the comparison is heavily affected by derivative accounting. Q1 2022 net loss margin was approximately negative 20%.
- Production was 285 Bcfe, down 5% year over year; daily combined production averaged 3.165 Bcfe. Weighted average realized price after derivative settlements rose 24% to $5.03 per Mcfe.
- Operating cash flow was broadly flat year over year. Investing outflows increased, primarily with higher capital spending. Operating cash flow less investing outflows was approximately $350.6 million; this is a simple calculation, not a company-defined free-cash-flow measure.
Balance sheet, debt and liquidity
- At March 31, 2022, total assets were $13.80 billion, total liabilities $8.07 billion and total equity $5.73 billion. Current assets were $724.8 million and current liabilities $2.55 billion.
- Long-term debt carrying value was $1.96 billion; reported principal was $1.98 billion, including $387.7 million drawn on the revolving credit facility. The company redeemed the remaining $585 million of 5.00% notes due 2025 during the quarter.
- The credit facility had $581 million of available borrowing capacity and $531 million of outstanding letters of credit. Its $3.5 billion borrowing base was reaffirmed in April 2022. The company reported compliance with financial covenants at quarter end.
- Cash and cash equivalents were reported as zero at both the beginning and end of the quarter. The filing explains that book overdrafts may be classified in accounts payable and revenue distributions payable.
- Net derivative liabilities on the balance sheet were approximately $1.45 billion, compared with $726.5 million at year-end 2021. The filing cites an approximately $1.5 billion net liability for commodity derivatives in its market-risk discussion.
- Operating lease liabilities were $3.29 billion. The commitments schedule lists approximately $15.4 billion of future gross payments across firm transportation, gathering and processing, land obligations and leases; amounts include commitments that may be recorded based on the company’s working interests.
Material changes and unusual items
- Product sales rose from approximately $1.21 billion to $1.72 billion, led by higher realized commodity prices, while total reported revenue fell because derivative fair value losses increased to $1.01 billion. Q1 2021 natural gas revenue included $85 million of litigation proceeds, an additional comparability factor.
- Production declined 5%; natural gas volume fell 4%, NGL volumes fell 3% and oil volumes fell 25% year over year.
- Marketing segment results shifted from approximately $3 million of net income to $30 million of net expense, principally because of lower marketing volumes and margins.
- Capital expenditures were approximately $206 million in Q1 2022. The company repurchased 3.7 million shares for approximately $100 million under a newly authorized $1.0 billion repurchase program.
- Effective January 1, 2022, Antero adopted a convertible-debt accounting standard. It reclassified the remaining convertible-note equity component into debt and reported a lower effective interest rate for those notes.
Outlook, risks and contingencies
- Management’s 2022 net capital budget was $740 million to $775 million, including $675 million to $700 million for drilling and completion and $65 million to $75 million for leasehold spending. It planned to complete 60 to 65 net horizontal wells. The filing does not provide a specific production or earnings forecast.
- Based on March 31 strip prices, management expected operating cash flow, distributions from its unconsolidated affiliate and available credit-facility borrowings to cover expected cash requirements for at least the next 12 months.
- Hedges covered 313 Bcf of 2022 natural gas at a weighted average $2.49 per MMBtu, plus basis swaps and additional positions described in the filing. These contracts reduce some downside exposure but also limit gains if market prices exceed hedge prices. Q1 settled derivative losses included $285.4 million of cash payments.
- Management cited commodity-price volatility, inflation, labor and service availability, transportation commitments, credit-market access, regulatory matters and uncertainty in reserves and production as risks. It noted U.S. CPI inflation of 9% year over year in March 2022.
- The company continued negotiations with environmental regulators over alleged Clean Air Act and state permitting violations; operations were not suspended, and management did not expect a material adverse effect. Other ordinary-course legal matters were also disclosed. The prior WGL contract dispute had been resolved with a payment in 2021.
- Management reported effective disclosure controls as of March 31, 2022 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of the reported loss reflects noncash derivative remeasurement versus realized hedge settlements, and how current hedge positions compare with expected production.
- Whether cash generation and available borrowing capacity remain sufficient for the capital program, debt service, commitments and share repurchases under lower commodity prices or higher costs.
- Production trends, realized prices and per-unit gathering, processing, transportation and marketing costs, including the impact of inflation and firm transportation commitments.
- The implications of the $1.0 billion repurchase authorization for liquidity and capital allocation, alongside planned capital spending and debt repayment.
- Developments in environmental matters, reserve estimates and other contingencies, and whether any change would materially affect operations or financial results.