Antero Resources Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless stated otherwise. Antero develops and produces natural gas, NGLs and oil in the Appalachian Basin, with approximately 513,000 net acres in West Virginia and Ohio.
Financial and operating performance
- Revenue: $1.204 billion, down 9% from $1.317 billion. The change largely reflects commodity derivative fair-value results: a $178 million loss in Q1 2021 versus a $566 million gain in Q1 2020. Revenue from contracts with customers increased to $1.370 billion from $750 million.
- Commodity sales: Natural gas sales were $720 million, NGL sales $440 million and oil sales $45 million. The company reported $85 million of net litigation proceeds in natural gas sales. Production was 299 Bcfe, down 2%; average realized price after derivative settlements rose 35% to $4.05/Mcfe.
- Profitability: Operating income was $95 million, versus $262 million. Net loss attributable to Antero was $15 million, or $0.05 per diluted share, compared with a $339 million loss, or $1.19 per share. Q1 2020 included a $611 million impairment of the Antero Midstream equity investment; Q1 2021 included debt-related losses from the convertible-note transaction.
- Cash flow and investment: Operating cash flow was $564 million, versus $201 million. Investing cash outflow was $123 million, including $123 million net cash used for investing activities; reported capital expenditures were approximately $159 million. Financing cash outflow was $441 million. Cash and cash equivalents were reported as zero at both period ends.
- Debt and liquidity: March 31 long-term debt carrying value was $2.569 billion; principal outstanding was $2.645 billion. The company had $143 million drawn on its revolving credit facility and $742 million of letters of credit outstanding, against $2.64 billion of lender commitments. The $2.85 billion borrowing base was reaffirmed in April; facility maturity is October 2022. The company reported covenant compliance.
- Other balance-sheet items: Current assets were $586 million and current liabilities $1.221 billion. Operating lease liabilities were $2.549 billion. Total assets were $13.0 billion and total equity $6.228 billion.
Material changes and significant transactions
- Issued $500 million of 8.375% senior notes due 2026 and $700 million of 7.625% senior notes due 2029. Proceeds supported retirement of the remaining $661 million of 2022 notes and repayment of revolving-credit borrowings.
- Issued 31.4 million common shares at $6.35 per share and repurchased $150 million principal amount of 2026 convertible notes. The transactions generated a $39 million equitization loss and a $43 million early-extinguishment loss. The convertible notes’ remaining principal was $137.5 million at quarter-end.
- Formed a 2021–2024 drilling partnership with QL Capital Partners. QL is to fund 20% of 2021 development capital and is expected to fund 15%–20% in subsequent participating annual tranches.
- Met production thresholds for an additional $51 million contribution under the Sixth Street royalty transaction; payment was expected in Q2 2021.
Outlook, risks and contingencies
- The 2021 net capital budget is $635 million: $590 million for drilling and completion and $45 million for leasehold expenditures. Management said liquidity sources were expected to cover operating needs, debt service, capital spending and commitments for at least 12 months, based on March 31 strip prices. No formal revenue or earnings guidance is provided in the filing.
- Management said most expected 2021 natural gas production was hedged; disclosed positions included 2.2 Bcf/day at a weighted average $2.76/MMBtu for the remainder of 2021, plus NGL and oil hedges. Derivative fair value was a net liability of approximately $161 million at March 31; fair-value movements affect reported earnings but generally not cash until settlement.
- Key risks include commodity-price volatility, takeaway and storage constraints, hedging outcomes, firm transportation commitments, access to capital, COVID-19 effects, and potential changes in borrowing availability at the October 2021 facility redetermination. Management reported no significant supply-chain interruptions or material COVID-related operating disruption to date.
- The company continues to address environmental notices alleging Clean Air Act and state-plan violations at facilities in West Virginia and Ohio. Operations were not suspended; management did not expect a material adverse financial effect. The WGL dispute was resolved: the company and royalty owners received approximately $107 million gross in February 2021 in satisfaction of the judgment.
- Firm transportation, gathering, processing and related commitments totaled approximately $16.7 billion, including lease-related amounts. The filing also highlights long-term minimum-volume commitments with Antero Midstream. Proved-property impairment sensitivity remains tied to commodity prices.
Most important facts for investors to verify
- How much of operating cash flow reflects sustained commodity pricing and working-capital movements, versus one-time litigation proceeds and derivative settlements?
- Whether the 2021 capital budget and drilling partnership support production and liquidity targets without increasing leverage or dilution materially.
- Debt repayment and refinancing needs, including the 2022 revolving-credit maturity, interest costs on new notes, and remaining convertible-note exposure.
- Hedge volumes, prices and mark-to-market liabilities, and the effect of hedges on cash realization if prices rise or production changes.
- Potential environmental liabilities, firm-transportation obligations, and available borrowing capacity after letters of credit and future borrowing-base reviews.