Antero Resources Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited results; comparisons are with the corresponding 2022 periods. Unless stated otherwise, dollar amounts are in millions.
Business context and financial performance
Antero develops and produces natural gas, natural gas liquids (NGLs), and oil in the Appalachian Basin. It reported approximately 515,000 net acres and operated through exploration and production, marketing, and an equity-method investment in Antero Midstream.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $1,126 | $2,065 | $3,488 | $5,053 |
| Operating income | $56 | $774 | $298 | $1,631 |
| Net income attributable to Antero | $18 | $560 | $148 | $1,168 |
| Diluted earnings per share | $0.06 | $1.72 | $0.48 | $3.51 |
| Cash provided by operating activities | Not presented separately | Not presented separately | $683 | $2,576 |
| Cash used in investing activities | Not presented separately | Not presented separately | $(914) | $(718) |
| Cash from (used in) financing activities | Not presented separately | Not presented separately | $232 | $(1,858) |
Q3 operating margin was approximately 5%, compared with 38% a year earlier; attributable net margin was approximately 2%, compared with 27%. Revenue includes noncash derivative fair-value gains and losses, so it is not a direct measure of realized commodity proceeds.
Liquidity, debt, and capital
- At September 30, 2023, total assets were $13.7 billion, current assets $422 million, current liabilities $1.46 billion, and total equity $7.10 billion. Reported cash and cash equivalents were zero at both the beginning and end of the nine-month cash-flow period.
- Long-term debt carrying value was $1.61 billion, representing $1.62 billion of principal. Credit Facility borrowings were $474 million, at a 7.68% weighted-average rate; available capacity was $524 million. The facility’s $3.5 billion borrowing base was reaffirmed in October, and lender commitments increased to $1.6 billion. The company reported compliance with financial covenants.
- Operating lease liabilities totaled $3.13 billion. Contractual commitments, including firm transportation, service agreements, leases, and other obligations, totaled $14.31 billion gross as of September 30, 2023.
- Nine-month capital expenditures were $890 million. The 2023 net capital budget was $1.025–$1.075 billion, including $875–$925 million for drilling and completion and $150 million for leasehold expenditures. Management planned to complete 60–65 net horizontal wells during 2023.
Material changes versus the prior comparable period
- Q3 revenue fell 45% and attributable net income fell 97% year over year; nine-month revenue fell 31% and attributable net income fell 87%.
- Lower commodity prices were the main driver: Q3 benchmark Henry Hub averaged $2.55/Mcf versus $8.20, and WTI averaged $82.26/barrel versus $91.55. Nine-month averages were $2.69/Mcf versus $6.77 and $77.39/barrel versus $98.09.
- Production increased despite lower prices: combined output rose 9% in Q3 to 3,474 MMcfe/day and 6% for the nine months to 3,383 MMcfe/day.
- Nine-month operating cash flow declined to $683 million, primarily reflecting lower prices and a $202 million cash payment to settle a 2024 natural-gas swaption early. Investing outflows increased as capital spending rose.
- Credit Facility borrowings increased from $35 million at December 31, 2022 to $474 million at September 30, 2023. The company made no debt repurchases in the first nine months of 2023, versus substantial note repayments and repurchases in 2022.
Outlook, commentary, risks, and unusual items
- Management said operating cash flow and available Credit Facility borrowings, based on September 30 strip prices, should cover normal operating needs, debt service, capital expenditures, commitments, and contingencies for at least the next 12 months. The filing provides capital and activity plans, but no specific earnings or production-price guidance beyond those plans.
- Only 1% of production was hedged through fixed-price swaps in the first nine months of 2023, versus 34% in the comparable 2022 period. Management cited improved liquidity and leverage as reasons for reducing hedge coverage; it cautioned that commodity prices remain volatile. The company’s commodity derivative portfolio was a net liability of $75 million at quarter-end.
- The $202 million early swaption settlement was a significant cash outflow. Derivative fair-value movements also materially affect reported revenue and earnings, and may reverse as prices change or contracts settle.
- Inflation remains a cost risk: management estimated approximately 10% service-cost inflation in the 2023 capital budget. CPI-based contract adjustments, operating costs, interest rates, production performance, transportation commitments, and commodity-price volatility may affect results.
- The company reported ongoing EPA and state environmental notices and negotiations, without suspended operations; management did not expect a material adverse effect. Other royalty-cost litigation remains uncertain, including recent adverse rulings in two cases; potential damages could not be estimated, and no material litigation accrual was recorded.
- Q3 included $13.7 million of contract termination and loss-contingency expense, primarily a loss contingency. Nine-month expense was $47.7 million, including the $24 million payment to terminate an Equitrans firm-transportation commitment. The filing states no payment obligations remained for delayed or cancelled contracts at quarter-end.
Important facts for investors to verify
- How lower realized commodity prices and minimal hedge coverage affect cash generation, and whether production growth offsets pricing pressure.
- Whether the stated $524 million of borrowing availability remains adequate given the higher revolving-credit balance, variable interest costs, and covenant terms.
- The scale and timing of firm-transportation and lease obligations, including the company’s ability to use or monetize contracted capacity.
- The cash-flow and earnings effects of derivative settlements and fair-value changes, including the swaption settlement and remaining VPP-related options.
- Developments in environmental notices and royalty litigation, including any changes to expected exposure or required accruals.
- Progress against the 2023 capital budget and well-completion plan, and the assumptions supporting management’s 12-month liquidity assessment.