Antero Resources Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited interim results. Antero develops and produces natural gas, NGLs and oil in the Appalachian Basin; it reported approximately 503,000 net acres in West Virginia and Ohio.
Financial performance
- Q2 revenue: $2.20 billion, versus $487 million in Q2 2021. Natural gas sales were $1.56 billion, NGL sales $702 million and oil sales $89 million. Revenue includes a $266 million commodity-derivative fair-value loss; derivative accounting materially affects period-to-period comparisons.
- Q2 earnings: Operating income was $1.06 billion, compared with an operating loss of $643 million a year earlier. Net income attributable to Antero was $765 million, or $2.46 basic and $2.29 diluted per share, versus a $523 million loss, or $1.70 per share. Operating and attributable net margins were approximately 48% and 35%, respectively.
- First half: Revenue was $2.99 billion, operating income $857 million and net income attributable to Antero $609 million, compared with losses of $548 million and $539 million, respectively, in the first half of 2021. Diluted EPS was $1.81 versus a loss of $1.78.
- Production and realized prices: Q2 combined production decreased 3% year over year to 3.228 Bcfe per day. Weighted-average realized price after derivative settlements rose 72% to $6.10 per Mcfe. For the first half, production fell 4% to 3.197 Bcfe per day and realized price increased 47% to $5.57 per Mcfe.
- Costs and margins: Q2 gathering, processing and transportation expense was $656 million; production and ad valorem taxes were $82 million; DD&A was $173 million. Higher commodity prices drove revenue and taxes, while service, processing and fuel costs also rose. First-half total operating expenses declined to $2.13 billion from $2.24 billion.
- Cash flow: First-half operating cash flow was $1.49 billion, versus $872 million in 2021; investing outflow was $475 million and financing outflow $1.01 billion. Capital expenditures were approximately $474 million. Cash and cash equivalents were zero at June 30.
Balance sheet, debt and liquidity
- Total assets were $14.21 billion and total liabilities $7.94 billion at June 30. Current assets of $1.02 billion were below current liabilities of $2.48 billion; current assets included $952 million of accrued revenue. The company reported no cash balance.
- Long-term debt carrying value was $1.58 billion, down from $2.13 billion at year-end 2021. Principal outstanding was $1.59 billion, including $71 million drawn on the revolving credit facility. The company redeemed its remaining $585 million of 2025 notes and repurchased $13 million of 2026 notes and $50 million of 2029 notes during the first half.
- The revolver had $924 million of available borrowing capacity at June 30, with $505 million of letters of credit outstanding. The company reported compliance with its financial covenants. Management stated that, based on June 30 strip prices, operating cash flow, affiliate distributions and revolver availability should cover expected needs for at least 12 months.
- Operating lease liabilities were $3.36 billion. Separately, disclosed future firm transportation commitments totaled $10.71 billion; the filing notes these are gross commitments and Antero records its proportionate share based on working interest.
Material changes, outlook and risks
- Commodity prices rose sharply while production volumes declined modestly. Q2 prices before derivative settlements increased 112% on a weighted-average Mcfe basis year over year. Derivative fair-value losses were $1.28 billion in the first half, and the net derivative liability was $1.16 billion at June 30. First-half settled commodity-derivative cash payments were approximately $845 million. Hedges reduce downside exposure but also limit gains above fixed prices.
- The board authorized a $1.0 billion share-repurchase program in February. Antero repurchased approximately 9 million shares for $293 million in the first half; 308.8 million shares were outstanding at June 30, with 306.1 million reported outstanding July 22.
- On July 27, 2022, Antero announced a revised 2022 net capital budget of $825 million to $860 million: $725 million to $750 million for drilling and completion and $100 million to $110 million for leasehold expenditures. It planned 60–65 net horizontal wells. Management said the budget increase reflected inflation, including higher diesel and steel costs, and retaining preferred crews.
- Inflation, labor and supply costs, commodity-price volatility, production uncertainty, market access, and the ability to use or monetize firm transportation commitments remain material risks. Management reported no significant pandemic-related supply-chain interruption, but noted possible impacts from new COVID-19 variants and global events.
- Environmental matters include federal and state notices alleging air-permit violations; negotiations continued, operations were not suspended, and management did not expect a material adverse effect. A prior WGL contract dispute was resolved after Antero received approximately $107 million in 2021. The filing also notes pending Appalachian Basin litigation that could affect royalty post-production cost deductions.
- The filing reported no material changes to the risk factors in the 2021 Form 10-K. Disclosure controls were judged effective at a reasonable-assurance level; no material change in internal control was reported for the quarter. The company adopted the new convertible-debt accounting standard in January 2022, changing the presentation of its 2026 convertible notes.
Investor verification priorities
- Confirm the cash-versus-noncash components of derivative losses, settlement payments, hedge volumes and prices, and resulting realized cash flows.
- Assess whether projected operating cash flow and the $924 million revolver availability are adequate given zero cash, current liabilities, letters of credit and substantial transportation and lease commitments.
- Track production declines, realized prices after hedging, inflation in unit costs, and execution of the revised capital budget and well plan.
- Review share-repurchase pace and price, remaining authorization, and potential dilution from convertible notes and equity awards.
- Monitor resolution and potential financial exposure from environmental notices and royalty-related litigation.