Antero Resources Corporation — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing is an annual report, not a standalone fourth-quarter filing; quarterly figures below are included for context. Antero explores for and produces natural gas, NGLs and oil in the Appalachian Basin, primarily in West Virginia and Ohio.
Financial and operating highlights
- Revenue: Total operating revenue and other was $4.41 billion, up from $4.14 billion in 2018. Natural gas, NGL and oil sales combined were approximately $3.64 billion, essentially flat year over year; total revenue also reflected $464 million of commodity derivative fair-value gains.
- Profitability: Net loss attributable to Antero Resources was $340 million, compared with a $398 million loss in 2018; consolidated net loss including noncontrolling interests was $293 million. Operating loss was $987 million. Adjusted EBITDAX, a non-GAAP measure, was $1.25 billion, down from $1.72 billion.
- Fourth quarter: Operating revenue was $953 million, operating loss was $67 million, and net loss attributable to Antero was $482 million. The comparable 2018 quarter reported revenue of $1.05 billion and an attributable net loss of $122 million.
- Production and prices: Production rose 19% to 1,175 Bcfe, or 3,220 MMcfe/day. Average realized price after settled derivatives fell 14% to $3.38/Mcfe; before derivative settlements it fell 16% to $3.10/Mcfe.
- Costs and margins: Gathering, compression, processing and transportation expense increased to $2.15 billion, or $1.92/Mcfe, from $1.34 billion, or $1.81/Mcfe. The operating margin, calculated as operating income divided by total operating revenue, was approximately negative 22%. Adjusted EBITDAX was approximately 28% of total operating revenue.
- Cash flow and capital: Operating cash flow was $1.10 billion, down from $2.08 billion. Investing cash outflow was $1.04 billion and reported capital expenditures were $1.42 billion. Financing cash inflow was $558 million. Year-end cash was zero.
- Debt and liquidity: Long-term debt on the balance sheet was $3.76 billion. At year-end, the revolving facility had a $4.5 billion borrowing base, $2.64 billion in lender commitments, $552 million drawn and $623 million of letters of credit outstanding. Current assets were $923 million and current liabilities $1.04 billion. Antero reported compliance with its credit-facility covenants.
- Reserves: Proved reserves increased 5% to 18.9 Tcfe, with 62% classified as developed. The year-end standardized measure was $5.47 billion, versus $10.48 billion in 2018; PV-10, a non-GAAP measure, was $6.07 billion versus $12.59 billion.
Material changes and unusual items
- In March 2019, Antero exchanged its controlling partnership interest in Antero Midstream Partners for cash and Antero Midstream shares. It received $297 million cash and 158.4 million shares, ceased consolidating the midstream business, and began accounting for its approximately 31% interest under the equity method. A $1.41 billion deconsolidation gain was recorded. Antero sold $100 million of Antero Midstream shares in December, ending the year with an approximately 28.7% interest.
- 2019 included a $1.30 billion oil and gas property impairment, primarily associated with proved Utica properties, and a $468 million impairment of the Antero Midstream equity investment. These charges were non-cash. The company also recorded a $36 million gain on debt extinguishment and a $125 million water earnout, whose cash was received in January 2020.
- Fourth-quarter debt repurchases totaled $225 million principal at a 17% weighted-average discount. Antero repurchased 13.4 million shares during 2019 for approximately $39 million. No common-stock dividend was declared.
- Year-over-year results are affected by the midstream deconsolidation: 2018 included a full year of consolidated midstream operations, while 2019 included them only through March 12. Midstream service fees and capital spending are therefore not directly comparable across periods.
- Antero reported an $82 million gross South Jersey litigation settlement shared with royalty owners; $54 million was reflected in 2019 natural-gas proceeds. A separate jury awarded Antero approximately $96 million in its dispute with WGL; WGL appealed. EPA and West Virginia environmental notices alleged air-permitting and control violations; the company said operations were not suspended and did not expect a material adverse effect, while noting possible monetary sanctions exceeding $100,000.
Outlook, risks and contingencies
- The 2020 capital budget was $1.2 billion, including $1.15 billion for drilling and completion and $50 million for leases. Management planned an average of four rigs, three to four completion crews, and 120–130 completed horizontal wells.
- Antero announced a 2020 asset-monetization target of $750 million to $1.0 billion, with proceeds intended to reduce debt. Management expected operating cash flow, borrowing availability, affiliate distributions and asset-sale proceeds to cover needs for at least 12 months, based on year-end strip prices.
- Year-end hedges covered substantial projected production: approximately 815 Bcf of 2020 natural gas swaps at a weighted average $2.87/MMBtu, alongside NGL and oil swaps. Management stated hedges support cash-flow visibility but limit upside if market prices exceed hedge prices.
- Key exposures include commodity-price volatility, borrowing-base redetermination, debt maturities, and more than $18 billion of long-term contractual obligations, including firm transportation and processing commitments. Antero estimated 2020 net marketing costs of $0.10–$0.12/Mcfe for unused transportation capacity.
- About 38% of proved reserves were undeveloped and estimated to require $2.6 billion of development capital over five years. The filing cites development timing, lease renewals, transportation and water access, environmental and regulatory requirements, and potential impairment as material uncertainties. It also notes the wastewater treatment facility was idled in September 2019, limiting disposal options.
Investor verification priorities
- Confirm the 2020 asset-sale proceeds, timing and debt-reduction impact, and whether the operating plan was revised as commodity prices and liquidity changed.
- Review debt maturities, facility availability after letters of credit, covenant headroom and the outcome of the April 2020 borrowing-base redetermination.
- Assess cash generation excluding non-cash derivative marks, the deconsolidation gain, litigation proceeds and other unusual items; reconcile Adjusted EBITDAX to GAAP cash flow.
- Track Utica and equity-investment impairments, reserve revisions and the economics of the undeveloped-reserve program.
- Check the status and potential financial impact of the WGL appeal, environmental notices and wastewater-disposal arrangements.