Edgar Filing: ANTERO RESOURCES Corp

ar_Current folio_10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-36120

ANTERO RESOURCES CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		80-0162034
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1615 Wynkoop Street Denver, Colorado		80202
(Address of principal executive offices)		(Zip Code)

(303) 357-7310

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒		Accelerated filer ☐
Non-accelerated filer ☐		Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ Yes ☒ No

The registrant had 317,114,931 shares of common stock outstanding as of October 26, 2018.

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TABLE OF CONTENTS


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS		2
PART I—FINANCIAL INFORMATION		4
Item 1.	Financial Statements (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	66
Item 4.	Controls and Procedures	68
PART II—OTHER INFORMATION		68
Item 1.	Legal Proceedings	68
Item 1A.	Risk Factors	70
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 6.	Exhibits	71
SIGNATURES		72

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the information in this Quarterly Report on Form 10-Q may contain forward-looking statements. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking statements. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

business strategy;

reserves;

financial strategy, liquidity, and capital required for our development program;

natural gas, natural gas liquids (“NGLs”), and oil prices;

timing and amount of future production of natural gas, NGLs, and oil;

hedging strategy and results;

the Company’s ability to successfully complete its share repurchase program;

the possibility that the proposed simplification and related transactions described elsewhere in this Quarterly Report on Form 10-Q (the “Transactions”) are not consummated in a timely manner or at all;

the diversion of management in connection with the Transactions and the ability of the resulting entity of the Transactions to realize the anticipated benefits of the Transactions;

ability to meet minimum volume commitments and to utilize or monetize our firm transportation commitments;

future drilling plans;

competition and government regulations;

pending legal or environmental matters;

marketing of natural gas, NGLs, and oil;

leasehold or business acquisitions;

costs of developing our properties;

operations of Antero Midstream Partners LP (“Antero Midstream”), including the operations of its unconsolidated affiliates;

general economic conditions;

credit markets;

uncertainty regarding our future operating results; and

plans, objectives, expectations, and intentions.

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We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incidental to our business. These risks include, but are not limited to, commodity price volatility, inflation, availability of drilling, completion, and production equipment and services, environmental risks, drilling and completion and other operating risks, marketing and transportation risks, regulatory changes, the uncertainty inherent in estimating natural gas, NGLs, and oil reserves and in projecting future rates of production, cash flows and access to capital, the timing of development expenditures, conflicts of interest among our stockholders, and the other risks described under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”) on file with the Securities and Exchange Commission (“SEC”).

Reserve engineering is a process of estimating underground accumulations of natural gas, NGLs, and oil that cannot be measured in an exact manner. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data, and the price and cost assumptions made by reservoir engineers. In addition, the results of drilling, testing, and production activities, or changes in commodity prices, may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of natural gas, NGLs, and oil that are ultimately recovered.

Should one or more of the risks or uncertainties described in this report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

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PART I—FINANCIAL INFORMATION

ANTERO RESOURCES CORPORATION

Condensed Consolidated Balance Sheets

December 31, 2017 and September 30, 2018

(Unaudited)

(In thousands, except per share amounts)


	December 31, 2017		September 30, 2018
Assets
Current assets:
Cash and cash equivalents	$	28,441		—
Accounts receivable, net of allowance for doubtful accounts of $1,320 at December 31, 2017 and $1,195 at September 30, 2018, respectively		34,896		46,604
Accrued revenue		300,122		354,010
Derivative instruments		460,685		493,354
Other current assets		8,943		12,664
Total current assets		833,087		906,632
Property and equipment:
Natural gas properties, at cost (successful efforts method):
Unproved properties		2,266,673		1,928,990
Proved properties		11,096,462		12,306,198
Water handling and treatment systems		946,670		993,285
Gathering systems and facilities		2,050,490		2,384,041
Other property and equipment		57,429		62,739
		16,417,724		17,675,253
Less accumulated depletion, depreciation, and amortization		(3,182,171)		(3,890,834)
Property and equipment, net		13,235,553		13,784,419
Derivative instruments		841,257		672,768
Investments in unconsolidated affiliates		303,302		392,893
Other assets		48,291		45,823
Total assets	$	15,261,490		15,802,535

Liabilities and Equity
Current liabilities:
Accounts payable	$	62,982		91,940
Accrued liabilities		443,225		457,216
Revenue distributions payable		209,617		245,832
Derivative instruments		28,476		10,456
Other current liabilities		17,796		8,427
Total current liabilities		762,096		813,871
Long-term liabilities:
Long-term debt		4,800,090		5,487,004
Deferred income tax liability		779,645		782,145
Derivative instruments		207		—
Other liabilities		43,316		48,363
Total liabilities		6,385,354		7,131,383
Commitments and contingencies (notes 12 and 13)
Equity:
Stockholders' equity:
Preferred stock, $0.01 par value; authorized - 50,000 shares; none issued		—		—
Common stock, $0.01 par value; authorized - 1,000,000 shares; 316,379 shares and 317,086 shares issued and outstanding at December 31, 2017 and September 30, 2018, respectively		3,164		3,171
Additional paid-in capital		6,570,952		6,611,348
Accumulated earnings		1,575,065		1,299,094
Total stockholders' equity		8,149,181		7,913,613
Noncontrolling interests in consolidated subsidiary		726,955		757,539
Total equity		8,876,136		8,671,152
Total liabilities and equity	$	15,261,490		15,802,535

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended September 30, 2017 and 2018

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended September 30,
	2017		2018
Revenue:
Natural gas sales	$	409,141		527,122
Natural gas liquids sales		224,533		338,269
Oil sales		26,527		59,722
Commodity derivative fair value gains (losses)		(65,957)		57,019
Gathering, compression, water handling and treatment		2,869		4,844
Marketing		50,767		89,598
Marketing derivative fair value losses		—		(42)
Total revenue		647,880		1,076,532
Operating expenses:
Lease operating		23,491		36,269
Gathering, compression, processing, and transportation		282,134		326,504
Production and ad valorem taxes		22,995		30,518
Marketing		78,884		151,764
Exploration		1,599		666
Impairment of unproved properties		41,000		221,094
Impairment of gathering systems and facilities		—		1,157
Depletion, depreciation, and amortization		206,968		243,186
Accretion of asset retirement obligations		658		710
General and administrative (including equity-based compensation expense of $26,447 and $16,202 in 2017 and 2018, respectively)		62,203		59,860
Total operating expenses		719,932		1,071,728
Operating income (loss)		(72,052)		4,804
Other income (expenses):
Equity in earnings of unconsolidated affiliates		7,033		10,705
Interest		(70,059)		(74,528)
Total other expenses		(63,026)		(63,823)
Loss before income taxes		(135,078)		(59,019)
Provision for income tax (expense) benefit		45,078		(18,953)
Net loss and comprehensive loss including noncontrolling interests		(90,000)		(77,972)
Net income and comprehensive income attributable to noncontrolling interests		45,063		76,447
Net loss and comprehensive loss attributable to Antero Resources Corporation	$	(135,063)		(154,419)

Loss per common share—basic and diluted	$	(0.43)		(0.49)

Weighted average number of shares outstanding:
Basic and diluted		315,463		317,082

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income

Nine Months Ended September 30, 2017 and 2018

(Unaudited)

(In thousands, except per share amounts)


	Nine Months Ended September 30,
	2017		2018
Revenue and other:
Natural gas sales	$	1,330,062		1,498,324
Natural gas liquids sales		590,004		828,424
Oil sales		79,999		128,869
Commodity derivative fair value gains		458,459		134,793
Gathering, compression, water handling and treatment		8,665		15,298
Marketing		166,659		394,189
Marketing derivative fair value gains		—		94,081
Total revenue and other		2,633,848		3,093,978
Operating expenses:
Lease operating		56,034		93,155
Gathering, compression, processing, and transportation		815,710		926,228
Production and ad valorem taxes		70,341		82,232
Marketing		246,298		560,924
Exploration		5,510		4,022
Impairment of unproved properties		83,098		406,068
Impairment of gathering systems and facilities		—		9,658
Depletion, depreciation, and amortization		610,879		709,480
Accretion of asset retirement obligations		1,944		2,101
General and administrative (including equity-based compensation expense of $78,925 and $56,429 in 2017 and 2018, respectively)		191,000		181,576
Total operating expenses		2,080,814		2,975,444
Operating income		553,034		118,534
Other income (expenses):
Equity in earnings of unconsolidated affiliates		12,887		27,832
Interest		(205,311)		(208,303)
Total other expenses		(192,424)		(180,471)
Income (loss) before income taxes		360,610		(61,937)
Provision for income tax expense		(105,087)		(2,500)
Net income (loss) and comprehensive income (loss) including noncontrolling interests		255,523		(64,437)
Net income and comprehensive income attributable to noncontrolling interests		127,322		211,534
Net income (loss) and comprehensive income (loss) attributable to Antero Resources Corporation	$	128,201		(275,971)


Earnings (loss) per common share—basic	$	0.41		(0.87)

Earnings (loss) per common share—assuming dilution	$	0.41		(0.87)

Weighted average number of shares outstanding:
Basic		315,275		316,850
Diluted		316,140		316,850

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Equity

Nine Months Ended September 30, 2017

(Unaudited)

(In thousands)


	Common Stock				Additional paid-		Accumulated		Noncontrolling		Total
	Shares		Amount		in capital		earnings		interests		equity
Balances, December 31, 2016		314,877	$	3,149		5,299,481		959,995		1,465,953		7,728,578
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes		129		1		(1,658)		—		—		(1,657)
Issuance of common units by Antero Midstream Partners LP, net of underwriter discounts and offering costs		—		—		—		—		223,119		223,119
Equity-based compensation		—		—		23,354		—		2,149		25,503
Net income and comprehensive income		—		—		—		268,396		37,162		305,558
Effects of changes in ownership interests in consolidated subsidiaries		—		—		1,085,981		—		(1,085,981)		—
Distributions to noncontrolling interests		—		—		—		—		(27,149)		(27,149)
Balances, March 31, 2017		315,006	$	3,150		6,407,158		1,228,391		615,253		8,253,952
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes		442		4		(5,848)		—		—		(5,844)
Issuance of common units by Antero Midstream Partners LP, net of underwriter discounts and offering costs		—		—		—		—		23,466		23,466
Issuance of common units in Antero Midstream Partners LP upon vesting of equity-based compensation awards, net of units withheld for income taxes		—		—		(1,559)		—		627		(932)
Equity-based compensation		—		—		24,543		—		2,432		26,975
Net income (loss) and comprehensive income (loss)		—		—		—		(5,132)		45,097		39,965
Effects of changes in ownership interests in consolidated subsidiaries		—		—		10,753		—		(10,753)		—
Distributions to noncontrolling interests		—		—		—		—		(34,720)		(34,720)
Balances, June 30, 2017		315,448	$	3,154		6,435,047		1,223,259		641,402		8,302,862
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes		22		1		(68)		—		—		(67)
Issuance of common units by Antero Midstream Partners LP, net of underwriter discounts and offering costs		—		—		—		—		2,364		2,364
Sale of common units of Antero Midstream Partners LP held by Antero Resources Corporation, net of tax		—		—		205,780		—		(19,940)		185,840
Net income (loss) and comprehensive income (loss)		—		—		—		(135,063)		45,063		(90,000)
Equity-based compensation		—		—		23,889		—		2,558		26,447
Effects of changes in ownership interests in consolidated subsidiaries		—		—		(100,328)		—		100,328		—
Distributions to noncontrolling interests		—		—		—		—		(40,184)		(40,184)
Balances, September 30, 2017		315,470	$	3,155		6,564,320		1,088,196		731,591		8,387,262

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Equity

Nine Months Ended September 30, 2018

(Unaudited)

(In thousands)


	Common Stock				Additional paid-		Accumulated		Noncontrolling		Total
	Shares		Amount		in capital		earnings		interests		equity
Balances, December 31, 2017		316,379	$	3,164		6,570,952		1,575,065		726,955		8,876,136
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes		145		1		(1,067)		—		—		(1,066)
Issuance of common units in Antero Midstream Partners LP upon vesting of equity-based compensation awards, net of units withheld for income taxes		—		—		(50)		—		32		(18)
Equity-based compensation		—		—		18,802		—		2,354		21,156
Net income and comprehensive income		—		—		—		14,833		65,977		80,810
Effects of changes in ownership interests in consolidated subsidiaries		—		—		(555)		—		555		—
Distributions to noncontrolling interests		—		—		—		—		(55,915)		(55,915)
Other		—		—		—		—		(5)		(5)
Balances, March 31, 2018		316,524	$	3,165		6,588,082		1,589,898		739,953		8,921,098
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes		528		6		(5,589)		—		—		(5,583)
Issuance of common units in Antero Midstream Partners LP upon vesting of equity-based compensation awards, net of units withheld for income taxes		—		—		(4,007)		—		2,707		(1,300)
Equity-based compensation		—		—		16,930		—		2,141		19,071
Net income (loss) and comprehensive income (loss)		—		—		—		(136,385)		69,110		(67,275)
Effects of changes in ownership interests in consolidated subsidiaries		—		—		2,121		—		(2,121)		—
Distributions to noncontrolling interests		—		—		—		—		(63,108)		(63,108)
Other		—		—		—		—		8		8
Balances, June 30, 2018		317,052	$	3,171		6,597,537		1,453,513		748,690		8,802,911
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes		34		—		(157)		—		—		(157)
Issuance of common units in Antero Midstream Partners LP upon vesting of equity-based compensation awards, net of units withheld for income taxes		—		—		(306)		—		226		(80)
Equity-based compensation		—		—		14,646		—		1,556		16,202
Net income (loss) and comprehensive income (loss)		—		—		—		(154,419)		76,447		(77,972)
Effects of changes in ownership interests in consolidated subsidiaries		—		—		(372)		—		372		—
Distributions to noncontrolling interests		—		—		—		—		(69,752)		(69,752)
Balances, September 30, 2018		317,086	$	3,171		6,611,348		1,299,094		757,539		8,671,152

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2017 and 2018

(Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2017		2018
Cash flows provided by (used in) operating activities:
Net income (loss) including noncontrolling interests	$	255,523		(64,437)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depletion, depreciation, amortization, and accretion		612,823		711,581
Impairment of unproved properties		83,098		406,068
Impairment of gathering systems and facilities		—		9,658
Commodity derivative fair value gains		(458,459)		(134,793)
Gains on settled commodity derivatives		137,392		268,369
Proceeds from derivative monetizations		749,906		—
Marketing derivative fair value gains		—		(94,081)
Gains on settled marketing derivatives		—		78,098
Deferred income tax expense		105,087		2,500
Equity-based compensation expense		78,925		56,429
Equity in earnings of unconsolidated affiliates		(12,887)		(27,832)
Distributions of earnings from unconsolidated affiliates		10,120		29,660
Other		1,191		2,945
Changes in current assets and liabilities:
Accounts receivable		1,771		4,653
Accrued revenue		28,375		(53,888)
Other current assets		(3,836)		(3,721)
Accounts payable		4,731		8,177
Accrued liabilities		43,043		27,446
Revenue distributions payable		56,982		36,215
Other current liabilities		(977)		(2,649)
Net cash provided by operating activities		1,692,808		1,260,398
Cash flows used in investing activities:
Additions to proved properties		(179,318)		—
Additions to unproved properties		(182,207)		(130,381)
Drilling and completion costs		(946,508)		(1,125,660)
Additions to water handling and treatment systems		(143,470)		(77,385)
Additions to gathering systems and facilities		(254,619)		(337,448)
Additions to other property and equipment		(11,417)		(5,371)
Investments in unconsolidated affiliates		(216,776)		(91,419)
Change in other assets		(16,148)		(2,675)
Other		2,156		—
Net cash used in investing activities		(1,948,307)		(1,770,339)
Cash flows provided by (used in) financing activities:
Issuance of common units by Antero Midstream Partners LP		248,949		—
Proceeds from sale of common units of Antero Midstream Partners LP held by Antero Resources Corporation		311,100		—
Borrowings (repayments) on bank credit facilities, net		(198,000)		682,000
Distributions to noncontrolling interests in consolidated subsidiary		(102,053)		(188,775)
Employee tax withholding for settlement of equity compensation awards		(8,500)		(8,205)
Other		(3,913)		(3,520)