Antero Resources Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Financial figures below are in U.S. dollars; amounts are rounded to millions unless noted. Comparisons are with the corresponding 2022 period.
Business context
Antero explores for, develops and produces natural gas, natural gas liquids (NGLs) and oil in the Appalachian Basin. It also markets commodities and excess transportation capacity and holds a 29% interest in Antero Midstream. At June 30, 2023, it reported approximately 516,000 net acres.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $953 million | $2,202 million | $2,362 million | $2,989 million |
| Operating income (loss) | $(89) million | $1,062 million | $243 million | $857 million |
| Net income (loss) attributable to Antero | $(83) million | $765 million | $130 million | $609 million |
| Basic earnings (loss) per share | $(0.28) | $2.46 | $0.44 | $1.95 |
| Cash from operating activities | Not stated separately for Q2 | $499 million | $1,488 million | |
| Cash used in investing activities | Not stated separately for Q2 | $(638) million | $(475) million | |
| Cash from (used in) financing activities | Not stated separately for Q2 | $139 million | $(1,014) million |
Q2 operating margin was approximately negative 9%; first-half operating margin was approximately 10%. First-half net margin attributable to Antero was approximately 6%. These are calculated from reported revenue and income figures.
- Production: Q2 combined production was 309 Bcfe, up 5%, or 3.4 Bcfe per day. First-half production was 604 Bcfe, up 4%.
- Prices: Q2 average realized combined price after derivative settlements fell 52% to $2.90/Mcfe. First-half average realized price fell 38% to $3.47/Mcfe. Reported benchmark averages also declined: Henry Hub was $2.10/Mcf in Q2 2023 versus $7.17; WTI was $73.78/barrel versus $108.41.
- Cash and capital spending: The cash-flow statement reports no cash and cash equivalents at period end. First-half capital expenditures were approximately $628 million per management’s discussion; investing cash outflow was $638 million.
- Debt and liquidity: June 30 long-term debt was $1.492 billion carrying value, or $1.503 billion principal, versus $1.183 billion carrying value at year-end 2022. Credit Facility borrowings rose to $360 million from $35 million; $638 million of borrowing capacity remained. Current assets of $385 million were below current liabilities of $1.507 billion, a working-capital deficit of approximately $1.122 billion. The company reported compliance with credit-facility financial covenants.
- Other obligations: Lease liabilities totaled approximately $3.266 billion. The filing also lists approximately $14.804 billion of future minimum contractual payments across firm transportation, processing/gathering and water-service commitments, leases and other obligations; amounts are gross contractual commitments and do not necessarily equal future expenses recognized by Antero.
Material changes versus prior period
- Q2 revenue fell 57%, and Antero moved from substantial profit to a net loss attributable to the company. First-half revenue fell 21% and attributable net income fell 79%.
- The primary operating driver was lower commodity pricing: Q2 natural gas sales declined 72%, NGL sales 43% and oil sales 35%. Production growth partly offset lower prices.
- Derivative results swung from a $266 million Q2 fair-value loss in 2022 to an $8 million gain in Q2 2023. For the first half, results shifted from a $1.277 billion loss to a $134 million gain; these reported figures include mark-to-market effects and do not equal cash realized from hedges.
- Operating costs were broadly persistent despite lower revenue. Q2 gathering, compression, processing and transportation expense was $664 million, slightly above the prior-year quarter; first-half expense rose 5% to $1.309 billion.
- First-half operating cash flow decreased by approximately $989 million year over year, while investing outflows increased. The company borrowed $325 million net under its credit facility in the first half of 2023.
Outlook, commentary and risks
- 2023 plan: Management announced a net capital budget of $1.025–$1.075 billion, including $875–$925 million for drilling and completion and $150 million for leasehold expenditures. It planned to complete 60–65 net horizontal wells. The filing does not provide a specific production, earnings or commodity-price forecast.
- Liquidity outlook: Based on June 30, 2023 strip prices, management believed operating cash flow and available credit-facility borrowings would cover normal operating needs, debt service, capital expenditures and commitments for at least the next 12 months. This assessment depends on commodity prices and other assumptions.
- Hedging: Fixed-price swaps covered 1% of production in Q2 and 2% in the first half; management estimated 1% of 2023 production would be hedged through fixed-price swaps assuming production matched 2022. Antero paid $202 million in January 2023 to settle a swaption early. Its June 30 net derivative liability was approximately $84 million, compared with $431 million at year-end.
- Unusual costs: First-half contract-termination expense included a $24 million cash payment to end a 200,000 MMBtu/day Equitrans firm-transportation commitment. First-half property impairments were $31 million, primarily associated with expiring leases and pads no longer planned for development.
- Cost and market risks: Management cited commodity-price volatility, inflation and CPI-linked contract adjustments, transportation commitments, operating and development costs, access to capital, reserve-estimation uncertainty and potential regulatory changes. It noted an approximately 10% service-cost inflation assumption in the 2023 capital budget versus 2022.
- Contingencies: The company continues discussions with the EPA and West Virginia regulators regarding alleged air-permitting violations. Operations were not suspended, and management did not expect a material adverse effect. Other royalty-cost litigation could affect deductions from royalty payments; potential damages were not estimable. The company reported no material change in previously disclosed risk factors.
- Related parties: Antero Midstream provides services under long-term agreements. Antero reported $361 million of gathering and compression fees paid in the first half of 2023 and $69 million payable to Antero Midstream at June 30.
Important facts for investors to verify
- How sustained low realized commodity prices and limited 2023 hedging affect operating cash flow and the ability to fund the capital program.
- The drivers of the sharp Q2 loss and the distinction between derivative mark-to-market gains or losses and actual settlement cash flows.
- Credit-facility availability, borrowing-base terms, covenant compliance and the effect of higher floating rates on debt service.
- The economic burden and flexibility of long-term lease, gathering, processing and firm-transportation commitments, including the Equitrans termination.
- Progress against the stated 2023 capital budget and well-completion plan, and developments in the environmental and royalty-related matters.