Antero Resources Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are rounded to millions unless otherwise noted.
Business context
Antero explores and produces natural gas, NGLs and oil in the Appalachian Basin, principally in West Virginia and Ohio. It reported approximately 508,000 net acres. The company also markets gas and NGLs and owns an approximately 29.1% interest in Antero Midstream Corporation.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $534 million | $381 million | $2.228 billion | $2.183 billion |
| Operating loss | $684 million | $754 million | $1.232 billion | $1.099 billion |
| Net loss attributable to Antero | $549 million | $536 million | $1.088 billion | $1.338 billion |
| Loss per diluted share | $1.75 | $1.99 | $3.55 | $4.89 |
| Cash provided by operating activities | Not reported separately for the quarter | Not reported separately for the quarter | $1.185 billion | $493 million |
| Adjusted EBITDAX (non-GAAP) | $358 million | $272 million | $1.197 billion | $703 million |
Q3 sales were higher for natural gas ($885 million vs. $436 million), NGLs ($598 million vs. $327 million) and oil ($57 million vs. $34 million), primarily reflecting higher commodity prices. These sales were substantially offset in reported revenue by commodity derivative fair-value losses of $1.250 billion in Q3 2021, compared with $515 million in Q3 2020. Nine-month derivative fair-value losses were $2.260 billion, versus $117 million. Mark-to-market changes do not necessarily represent current-period cash flows; settled hedge payments and receipts do affect cash. Operating margins are difficult to interpret alongside these large derivative marks.
Production declined: Q3 combined output fell 14% year over year to 3.247 Bcfe/d; nine-month output fell 7% to 3.297 Bcfe/d. Q3 realized price after derivative settlements rose 30% to $3.79/Mcfe; the nine-month realized price also rose 30% to $3.79/Mcfe. The nine-month realized-price figure includes $85 million of litigation proceeds.
At September 30, total assets were $13.472 billion and total liabilities were $8.336 billion. Long-term debt had a $2.341 billion carrying value and $2.394 billion principal balance. The balance sheet reported $709 million of current assets and $2.803 billion of current liabilities, including $1.436 billion of current derivative liabilities. Cash and cash equivalents were reported as zero. Separately, the company reported a 2.7:1 current ratio under the Prior Credit Facility’s covenant calculation and compliance with applicable covenants.
Nine-month investing cash outflow was $505 million and financing cash outflow was $679 million. Capital spending was approximately $542 million through September 30. The company reported that operating cash flow, affiliate distributions, credit availability, capital markets and the drilling partnership were expected to cover requirements for at least 12 months, based on September 30 strip prices.
Material changes and financing
- Revenue increased modestly for the first nine months, but the company remained loss-making. The lower nine-month net loss versus 2020 partly reflects the prior-year $611 million impairment of the Antero Midstream equity investment and lower oil-and-gas impairments in 2021.
- During 2021, Antero issued $500 million of 8.375% notes due 2026, $700 million of 7.625% notes due 2029 and $600 million of 5.375% notes due 2030. It retired the remaining $661 million of 2022 notes and $574 million of 2023 notes, redeemed $175 million of 2026 notes at a premium, and paid down its revolving credit facility.
- Share offerings and repurchases of convertible notes reduced 2026 Convertible Notes principal by $206 million; $82 million remained at quarter-end. Common shares outstanding rose from 268.7 million at December 31, 2020 to 313.9 million at September 30, 2021.
- On October 26, 2021, after quarter-end, Antero amended its revolving facility: borrowing base of $3.5 billion, lender commitments of $1.5 billion, and maturity generally in October 2026 subject to an earlier-maturity provision. Commitments were reduced from $2.64 billion. At September 30, the Prior Facility had $98 million drawn and $742 million of letters of credit outstanding.
- In October 2021, Antero gave notice to redeem $116 million of 2029 notes at 107.625% of principal; the redemption was scheduled for November 2 and would leave $584 million outstanding.
Outlook, risks and unusual items
- The 2021 net capital budget was revised to $657.5 million, including $590 million for drilling and completion and $67.5 million for leasehold spending. No production or earnings guidance is provided in the supplied filing text.
- A drilling partnership with QL Capital Partners provides 20% of development capital for 2021 wells, with expected 15%–20% participation for 2022–2024 tranches, subject to agreed annual terms.
- At September 30, the estimated net fair value of commodity derivatives was a $1.7 billion liability, compared with a $22 million net asset at year-end 2020. Hedges help reduce exposure to price declines but also limit gains when prices rise; derivative valuations and commodity markets remain volatile.
- Contractual commitments for firm transportation, processing, gathering, compression, land obligations and leases totaled approximately $16.0 billion in scheduled gross future payments. These commitments are long-dated and some amounts are based on gross obligations before the company’s working-interest share.
- Risks cited include commodity-price volatility, production declines, takeaway or storage constraints, availability and cost of services, financing access, COVID-19 variants, regulatory and environmental matters, and counterparty/customer credit risk. Management said a relatively small decline in commodity prices could trigger further proved-property impairment evaluation.
- Antero continued negotiations with regulators concerning Clean Air Act and state permitting notices; operations were not suspended and management did not expect a material adverse effect. A WGL judgment was satisfied with an approximately $107 million gross payment in February 2021; the filing identifies $85 million of net litigation proceeds in nine-month realized prices.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No material changes to the risk factors in the 2020 Form 10-K were reported.
Important facts for investors to verify
- How much of the reported derivative loss is unrealized versus settled cash payments, and how the hedge book affects expected production revenue and cash flow.
- Liquidity after the October 26 facility amendment, including the effect of $742 million of letters of credit, borrowing-base redeterminations and covenant definitions.
- The company’s ability to fund substantial transportation and lease commitments while meeting debt service and capital spending needs.
- Production trends, realized prices net of hedges, and whether higher prices can offset lower volumes and rising per-unit gathering, transportation and tax costs.
- The impact of debt redemptions, convertible-note equitizations and share issuance on interest costs, future dilution and debt maturities.
- Potential outcomes and financial exposure from environmental notices, commodity-price-driven impairment tests and other legal or operational contingencies.