Antero Resources Corporation — Q3 2017 Form 10-Q
Business and reporting period. Antero explores for and produces natural gas, NGLs and oil in the Appalachian Basin, with gathering, processing and water services conducted through consolidated subsidiary Antero Midstream. This unaudited filing covers the quarter and nine months ended September 30, 2017; financial figures below are USD unless noted.
Key financial and operating metrics
| Metric | Q3 2017 | Nine months 2017 | Comparable 2016 |
|---|---|---|---|
| Total revenue | $648 million | $2.634 billion | Q3: $1.117 billion; nine months: $1.588 billion |
| Net income (loss) attributable to Antero | $(135) million | $128 million | Q3: $238 million; nine months: $(363) million |
| Operating income (loss) | $(72) million | $553 million | Q3: $467 million; nine months: $(344) million |
| Adjusted EBITDAX, non-GAAP | $336 million | $1.022 billion | Q3: $373 million; nine months: $1.060 billion |
| Operating cash flow | $1.045 billion, including hedge monetization proceeds | $1.693 billion | Nine months: $906 million |
| Net cash used in investing activities | Not separately stated here | $(1.948) billion | Nine months: $(1.975) billion |
| Production | 213 Bcfe; 2,317 MMcfe/day | 606 Bcfe; 2,221 MMcfe/day | Q3: 172 Bcfe; nine months: 493 Bcfe |
At September 30, cash was $24 million, current assets $611 million and current liabilities $718 million. Long-term debt was $4.511 billion, including Antero Midstream debt; total liabilities were $6.462 billion. The filing reports a $1.171 billion net derivative asset. No standalone margin guidance is provided; operating margin, calculated from reported revenue and operating income, was negative in Q3 and approximately 21% for the nine-month period.
Changes versus the prior comparable periods
- Q3 production rose 24% year over year; production sales increased 36% to approximately $660 million. Before settled derivative effects, realized price rose to $3.10/Mcfe from $2.82. After settled derivative effects, it fell to $3.39/Mcfe from $3.96.
- Q3 total reported revenue declined 42%, primarily because derivative fair-value results moved from a $530 million gain in Q3 2016 to a $66 million loss in Q3 2017. Q3 net loss attributable to Antero was $135 million.
- For nine months, production rose 23% and production sales rose 72% to about $2.0 billion. Pre-derivative realized price increased to $3.30/Mcfe from $2.36, while realized price after settled derivatives declined to $3.53/Mcfe from $4.02.
- Nine-month attributable earnings improved from a $363 million loss to $128 million of income. Adjusted EBITDAX nevertheless declined 4%, to $1.022 billion.
- Debt decreased from $4.704 billion at year-end 2016 to $4.511 billion. Antero’s revolving-credit balance fell to $25 million from $440 million, while Antero Midstream’s facility balance increased to $427 million from $210 million.
Outlook, financing, risks and unusual items
- Capital plans and liquidity: The 2017 consolidated capital budget was $2.3 billion, comprising $1.5 billion for Antero and $800 million for Antero Midstream. Plans included an average of seven rigs, 170 horizontal-well completions, and deferring 30 completions to 2018. Management expected operating cash flows, facility capacity and potential capital-market transactions to fund the budget, and believed resources sufficient for obligations and needs for at least 12 months. Spending could be adjusted as prices, liquidity and operating conditions change.
- Deleveraging: In September, Antero received approximately $311 million from selling 10 million Antero Midstream units and approximately $750 million from monetizing natural-gas hedges. Proceeds were used to repay Antero’s revolving facility. The monetized hedges covered 2018–2022 volumes and were repriced while total hedged volumes were maintained. The $750 million is included in operating cash flows but excluded from Adjusted EBITDAX.
- Credit facilities: On October 26, 2017, after quarter-end, Antero amended and restated its facility: $4.5 billion borrowing base, $2.5 billion lender commitments and $4.75 billion maximum facility amount; next borrowing-base redetermination was scheduled for March 2018. Antero Midstream’s restated facility has $1.5 billion commitments. Antero reported compliance with financial covenants at September 30.
- Hedging and price exposure: Antero’s commodity derivatives are not designated as accounting hedges, so fair-value changes affect earnings and may be volatile without corresponding current-period cash flow. Hedges reduce downside exposure but limit gains if market prices rise. The company also faces counterparty credit risk and substantial exposure to commodity prices and regional basis differentials.
- Commitments and costs: Disclosed contractual obligations totaled $24.448 billion, including $15.049 billion of firm-transportation commitments and $3.327 billion for processing, gathering and compression. Minimum-volume and take-or-pay terms create exposure if capacity is underused. Management noted that lease operating costs per unit may rise as wells mature.
- Legal claims: Antero estimated approximately $70 million of gross damages, including interest, owed in the SJGC dispute; substantially all was unaccrued. A jury verdict and final judgment favored Antero, but SJGC’s post-judgment motions were pending and an appeal could follow. In the WGL dispute, Antero estimated approximately $65 million of gross cover damages and other amounts, also unaccrued; WGL appealed a separate adverse ruling, and Antero filed suit seeking cover damages after quarter-end. These are claims, not recognized assets or assured recoveries.
- Other matters: Environmental compliance orders could result in monetary sanctions exceeding $100,000; total sanctions and remediation costs were not estimable. Antero reported no material change to previously disclosed risk factors and no proved-property impairment for the period. Unproved-property impairment was $83 million for nine months, primarily related to Utica leases not retained. Management cautioned that actual outcomes may differ materially from forward-looking statements.
Most important facts for investors to verify
- Separate recurring operating cash generation from the $750 million hedge monetization and assess how much remains available after capital spending and other commitments.
- Review derivative coverage, mark-to-market sensitivity, realized hedge prices, counterparty concentrations and exposure to basis differentials.
- Track debt, borrowing-base redeterminations, letters of credit, covenant headroom and the distinction between Antero and Antero Midstream obligations.
- Assess whether production growth and realized commodity prices can support the capital plan alongside firm-transportation commitments and potential unused-capacity costs.
- Monitor SJGC and WGL motions, appeals and recoveries; the disclosed damages are largely unaccrued and collection is uncertain.