Antero Resources Corporation — Q2 2021 Form 10-Q
Business context and reporting period
Antero develops and produces natural gas, natural gas liquids (NGLs) and oil in the Appalachian Basin, principally in West Virginia and Ohio. It reported results for the three and six months ended June 30, 2021; financial statements are unaudited. Comparisons below are with the corresponding 2020 periods unless stated otherwise.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $489 million | $485 million | $1,694 million | $1,802 million |
| Operating loss | $(643) million | $(607) million | $(548) million | $(344) million |
| Net loss attributable to Antero | $(523) million | $(463) million | $(539) million | $(802) million |
| Loss per diluted share | $(1.70) | $(1.73) | $(1.78) | $(2.90) |
| Adjusted EBITDAX, non-GAAP | $319 million | $186 million | $839 million | $430 million |
Total revenue reflects large, non-cash commodity derivative fair-value losses: $832 million in Q2 2021 and $1.010 billion for the first half. These mark-to-market amounts can reverse and do not represent cash paid or received in the period, apart from settlements and monetizations. Six-month natural gas, NGL and oil sales rose substantially, while reported total revenue declined because derivative results swung from a $398 million gain in first-half 2020 to a $1.010 billion loss in 2021.
- Production and prices: Q2 combined production was 3.324 Bcfe per day, down 6% year over year; first-half production was 3.323 Bcfe per day, down 4%. Q2 weighted-average realized price after derivative settlements was $3.55/Mcfe, up 26%; first-half realized price was $3.80/Mcfe, up 31%, including litigation proceeds.
- Cash flow and capital spending: First-half operating cash flow was $872 million, compared with $317 million in 2020. Investing cash outflow was $303 million versus $450 million; financing cash outflow was $565 million versus $133 million of inflow. First-half capital expenditures were approximately $341 million.
- Balance sheet and liquidity: At June 30, cash was $4.5 million, current assets $550 million and current liabilities $1.883 billion. Long-term debt carrying value was $2.415 billion; principal was $2.472 billion. The company reported no revolver borrowings, $742 million of letters of credit, a $2.85 billion borrowing base and $2.64 billion of lender commitments. Its stated 3.0:1 current ratio is the Credit Facility covenant measure, not the simple balance-sheet current-assets/current-liabilities ratio.
- Hedges and obligations: Derivatives were a net liability of $918 million at June 30, versus a $22 million net asset at year-end 2020. Future minimum firm-transportation commitments were $11.778 billion; the commitments schedule totals $16.220 billion, including other listed obligations and lease amounts.
Material changes versus the prior comparable period
- Q2 natural gas, NGL and oil sales increased with higher commodity prices, despite lower production. Production was down 5% in combined volume year over year for the quarter; first-half combined volume declined 4%.
- Net loss attributable to Antero increased in Q2, while first-half net loss narrowed from 2020. The prior-year first half included a $611 million impairment of the equity-method investment in Antero Midstream; no such impairment was recorded in 2021.
- Debt principal fell from $3.129 billion at December 31, 2020 to $2.472 billion at June 30, 2021. Antero retired its 2022 and 2023 notes, issued $500 million of 2026 notes, $700 million of 2029 notes and $600 million of 2030 notes, and repurchased $206 million principal of convertible notes through equity offerings and cash.
- Common shares issued and outstanding increased from 268.7 million at year-end to 313.5 million at June 30, primarily reflecting the January and May share offerings used in convertible-note equitizations.
- Gathering and transportation costs per Mcfe increased, partly due to higher fuel costs, increased pipeline usage and the absence of prior-year Antero Midstream incentive-fee rebates. Lower processing costs and lower lease-operating costs partly offset this.
Outlook, management commentary, risks and unusual items
- Management stated that, based on June 30 strip prices, operating cash flow, affiliate distributions, revolver availability, capital-market transactions and the drilling partnership should cover cash requirements for at least the next 12 months. This is an estimate, not a guarantee.
- The 2021 net capital budget was revised on July 28 to $657.5 million: $590 million for drilling and completion and $65 million for leasehold expenditures. QL Capital Partners is to fund 20% of development capital for 2021 partnership wells; later annual tranches through 2024 are subject to agreed terms and return criteria.
- Management said most expected 2021 natural-gas production was hedged. Hedges can reduce the benefit of prices rising above contracted levels. Commodity volatility, regional basis differences, counterparty and customer credit, takeaway or storage constraints, and changing COVID-19 conditions remain risks.
- The next Credit Facility borrowing-base redetermination was scheduled for October 2021; the facility matures October 26, 2022. Antero reported covenant compliance at June 30.
- On July 1, Antero redeemed $175 million principal of its 8.375% 2026 notes at 108.375%, funded with revolver borrowings. The $15 million premium and related write-off are expected to be recognized as a third-quarter extinguishment loss.
- Antero received approximately $107 million from WGL in February 2021 in full satisfaction of a favorable judgment; first-half sales included $85 million of net litigation proceeds. EPA and state environmental notices concerning alleged air-permitting violations remained under negotiation. Management did not expect those matters to have a material adverse effect; operations were not suspended.
- Management identified no material changes to the risk factors in its 2020 Form 10-K. It also cautioned that commodity prices, reserves, production, capital access, transportation commitments, regulation, litigation and COVID-19 effects can cause actual results to differ materially from projections.
Important facts for investors to verify
- Whether cash generation and the revised capital budget remain consistent with the stated liquidity outlook, particularly after the October borrowing-base redetermination.
- The cash and earnings effects of hedge settlements versus non-cash fair-value changes, and the extent to which future production is hedged at prices below prevailing markets.
- Debt maturities, interest costs, revolver availability after letters of credit, and the impact of the July 1 redemption and borrowing.
- The effect of lower production, gathering and transportation costs, firm-transportation commitments, and the QL drilling partnership on per-unit economics and future volumes.
- Potential dilution from the convertible-note equitizations and remaining convertible securities, as well as the status and possible cost of environmental and other legal matters.