Edgar Filing: ANTERO RESOURCES Corp

Antero Resources 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 March 31, 2019


☐	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)


Securities registered pursuant to section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01	AR	New York Stock Exchange

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 309,123,057 shares of common stock outstanding as of April 26, 2019.

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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	42
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	56
Item 4.	Controls and Procedures	58
PART II—OTHER INFORMATION		58
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities	59
Item 6.	Exhibits	60
SIGNATURES		61

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report on Form 10-Q includes “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this Quarterly Report on Form 10 Q, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward looking statements. 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, although not all forward-looking statements contain such identifying words. These forward looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering these forward-looking statements, investors should keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.

Forward looking statements may include statements about:

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;

our ability to successfully complete our share repurchase program;

our 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 Corporation, including its ability to realize the anticipated benefits of the simplification transactions described elsewhere in this Quarterly Report on Form 10-Q;

general economic conditions;

credit markets;

uncertainty regarding our future operating results; and

plans, objectives, expectations, and intentions.

We caution investors that these forward-looking statements are subject to all of the risks and uncertainties incidental to our business, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, commodity price volatility, inflation, availability of drilling, completion, and production equipment and services, environmental risks,

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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, 2018 (the “2018 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q 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 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, 2018 and March 31, 2019

(Unaudited)

(In thousands, except per share amounts)


	December 31, 2018		March 31, 2019
Assets
Current assets:
Accounts receivable	$	51,073		48,979
Accrued revenue		474,827		365,151
Derivative instruments		245,263		122,425
Other current assets		35,450		8,341
Total current assets		806,613		544,896
Property and equipment:
Oil and gas properties, at cost (successful efforts method):
Unproved properties		1,767,600		1,701,002
Proved properties		12,705,672		13,056,874
Water handling and treatment systems		1,013,818		—
Gathering systems and facilities		2,470,708		17,825
Other property and equipment		65,842		68,535
		18,023,640		14,844,236
Less accumulated depletion, depreciation, and amortization		(4,153,725)		(3,872,886)
Property and equipment, net		13,869,915		10,971,350
Operating leases right-of-use assets		—		3,433,515
Derivative instruments		362,169		313,909
Investments in unconsolidated affiliates		433,642		1,989,612
Other assets		47,125		35,448
Total assets	$	15,519,464		17,288,730

Liabilities and Equity
Current liabilities:
Accounts payable	$	66,289		48,096
Accounts payable, related parties		—		110,980
Accrued liabilities		465,070		384,707
Revenue distributions payable		310,827		301,066
Derivative instruments		532		3,894
Short-term lease liabilities		2,459		413,103
Other current liabilities		8,363		4,935
Total current liabilities		853,540		1,266,781
Long-term liabilities:
Long-term debt		5,461,688		3,475,950
Deferred income tax liability		650,788		1,171,866
Long-term lease liabilities		2,873		3,024,582
Other liabilities		63,098		56,753
Total liabilities		7,031,987		8,995,932
Commitments and contingencies (Notes 13 and 14)
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; 308,594 shares and 308,741 shares issued and outstanding at December 31, 2018 and March 31, 2019, respectively		3,086		3,087
Additional paid-in capital		6,485,174		6,133,400
Accumulated earnings		1,177,548		2,156,311
Total stockholders' equity		7,665,808		8,292,798
Noncontrolling interests in consolidated subsidiary		821,669		—
Total equity		8,487,477		8,292,798
Total liabilities and equity	$	15,519,464		17,288,730

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

Three Months Ended March 31, 2018 and 2019

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended March 31,
	2018		2019
Revenue and other:
Natural gas sales	$	497,663		657,266
Natural gas liquids sales		234,170		313,685
Oil sales		30,273		48,052
Commodity derivative fair value gains (losses)		22,437		(77,368)
Gathering, compression, water handling and treatment		4,935		4,479
Marketing		144,389		91,186
Marketing derivative fair value gains		94,234		—
Other income		—		107
Total revenue		1,028,101		1,037,407
Operating expenses:
Lease operating		26,722		41,732
Gathering, compression, processing, and transportation		291,938		424,529
Production and ad valorem taxes		25,823		35,678
Marketing		195,739		163,084
Exploration		1,885		126
Impairment of unproved properties		50,536		81,244
Impairment of gathering systems and facilities		—		6,982
Depletion, depreciation, and amortization		228,244		240,201
Accretion of asset retirement obligations		690		976
General and administrative (including equity-based compensation expense of $21,156 and $8,903 in 2018 and 2019, respectively)		60,030		68,202
Contract termination and rig stacking		—		8,360
Total operating expenses		881,607		1,071,114
Operating income (loss)		146,494		(33,707)
Other income (expenses):
Equity in earnings of unconsolidated affiliates		7,862		14,081
Interest		(64,426)		(71,950)
Gain on deconsolidation of Antero Midstream Partners LP		—		1,406,042
Total other expenses		(56,564)		1,348,173
Income before income taxes		89,930		1,314,466
Provision for income tax expense		(9,120)		(288,710)
Net income and comprehensive income including noncontrolling interests		80,810		1,025,756
Net income and comprehensive income attributable to noncontrolling interests		65,977		46,993
Net income and comprehensive income attributable to Antero Resources Corporation	$	14,833		978,763

Earnings per common share—basic	$	0.05		3.17

Earnings per common share—assuming dilution	$	0.05		3.17

Weighted average number of shares outstanding:
Basic		316,471		308,694
Diluted		316,911		308,788

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Equity

Three Months Ended March 31, 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

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Equity

Three Months Ended March 31, 2019

(Unaudited)

(In thousands)


	Common Stock				Additional paid-		Accumulated		Noncontrolling		Total
	Shares		Amount		in capital		earnings		interests		equity
Balances, December 31, 2018		308,594	$	3,086		6,485,174		1,177,548		821,669		8,487,477
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes		147		1		(451)		—		—		(450)
Issuance of common units in Antero Midstream Partners LP upon vesting of equity-based compensation awards, net of units withheld for income taxes		—		—		(85)		—		56		(29)
Equity-based compensation		—		—		7,801		—		1,102		8,903
Net income and comprehensive income		—		—		—		978,763		46,993		1,025,756
Distributions to noncontrolling interests		—		—		—		—		(85,076)		(85,076)
Effect of deconsolidation of Antero Midstream Partners LP		—		—		(359,039)		—		(784,744)		(1,143,783)
Balances, March 31, 2019		308,741	$	3,087		6,133,400		2,156,311		—		8,292,798

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2018 and 2019

(Unaudited)

(In thousands)


	Three Months Ended March 31,
	2018		2019
Cash flows provided by (used in) operating activities:
Net income including noncontrolling interests	$	80,810		1,025,756
Adjustments to reconcile net income to net cash provided by operating activities:
Depletion, depreciation, amortization, and accretion		228,934		241,177
Impairment of unproved properties		50,536		81,244
Impairment of gathering systems and facilities		—		6,982
Commodity derivative fair value (gains) losses		(22,437)		77,368
Gains on settled commodity derivatives		101,341		97,092
Marketing derivative fair value gains		(94,234)		—
Gains on settled marketing derivatives		110,042		—
Deferred income tax expense		9,120		287,854
Equity-based compensation expense		21,156		8,903
Equity in earnings of unconsolidated affiliates		(7,862)		(14,081)
Distributions of earnings from unconsolidated affiliates		7,085		12,605
Gain on deconsolidation of Antero Midstream Partners LP		—		(1,406,042)
Other		969		11,081
Changes in current assets and liabilities:
Accounts receivable		8,204		42,168
Accrued revenue		20,199		109,677
Other current assets		(1,431)		1,364
Accounts payable		(8,042)		(21,370)
Accrued liabilities		10,359		(14,965)
Revenue distributions payable		28,290		(9,761)
Other current liabilities		(1,490)		1,952
Net cash provided by operating activities		541,549		539,004
Cash flows provided by (used in) investing activities:
Additions to unproved properties		(49,569)		(27,463)
Drilling and completion costs		(359,868)		(368,687)
Additions to water handling and treatment systems		(40,285)		(24,416)
Additions to gathering systems and facilities		(93,670)		(48,239)
Additions to other property and equipment		(2,571)		(3,128)
Investments in unconsolidated affiliates		(17,389)		(25,020)
Proceeds from the Antero Midstream Partners LP Transactions		—		296,611
Change in other assets		(217)		(4,475)
Net cash used in investing activities		(563,569)		(204,817)
Cash flows provided by (used in) financing activities:
Issuance of senior notes		—		650,000
Borrowings (repayments) on bank credit facilities, net		75,000		(270,000)
Payments of deferred financing costs		—		(8,259)
Distributions to noncontrolling interests in Antero Midstream Partners LP		(55,915)		(85,076)
Employee tax withholding for settlement of equity compensation awards		(1,084)		(479)
Other		(1,269)		(841)
Net cash provided by financing activities		16,732		285,345
Effect of deconsolidation of Antero Midstream Partners LP		—		(619,532)
Net decrease in cash and cash equivalents		(5,288)		—
Cash and cash equivalents, beginning of period		28,441		—
Cash and cash equivalents, end of period	$	23,153		—

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	42,010		37,081

Increase in accounts payable and accrued liabilities for additions to property and equipment	$	12,691		22,825

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements

December 31, 2018 and March 31, 2019

(1)Organization

Antero Resources Corporation (individually referred to as “Antero”) and its consolidated subsidiaries (collectively referred to as the “Company,” “we,” “us” or “our”) are engaged in the exploration, development, and acquisition of natural gas, NGLs, and oil properties in the Appalachian Basin in West Virginia and Ohio. The Company targets large, repeatable resource plays where horizontal drilling and advanced fracture stimulation technologies provide the means to economically develop and produce natural gas, NGLs, and oil from unconventional formations. The Company’s corporate headquarters are located in Denver, Colorado.

(2)Summary of Significant Accounting Policies

(a)Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC applicable to interim financial information and should be read in the context of the December 31, 2018 consolidated financial statements and notes thereto for a more complete understanding of the Company’s operations, financial position, and accounting policies. The December 31, 2018 consolidated financial statements have been filed with the Securities and Exchange Commission (“SEC”) in Antero’s 2018 Form 10-K.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, and, accordingly, do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of normal and recurring accruals) considered necessary to present fairly the Company’s financial position as of December 31, 2018 and March 31, 2019, and the results of its operations and its cash flows for the three months ended March 31, 2018 and 2019. The Company has no items of other comprehensive income or loss; therefore, its net income or loss is equal to its comprehensive income or loss. Operating results for the period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the full year because of the impact of fluctuations in prices received for natural gas, NGLs, and oil, natural production declines, the uncertainty of exploration and development drilling results, fluctuations in the fair value of derivative instruments, and other factors.

The Company’s exploration and production activities are accounted for under the successful efforts method.

As of the date these financial statements were filed with the SEC, the Company completed its evaluation of potential subsequent events for disclosure and no items requiring disclosure were identified.

(b)Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Antero, its wholly-owned subsidiaries, any entities in which the Company owns a controlling interest, and variable interest entities (“VIEs”) for which the Company is the primary beneficiary.

Through March 12, 2019, Antero Midstream Partners LP (“Antero Midstream Partners”), a publicly traded limited partnership, was included in the consolidated financial statements of Antero. Prior to the Closing (defined in Note 3 to the unaudited condensed consolidated financial statements), our ownership of Antero Midstream Partners common units represented approximately a 53% limited partner interest in Antero Midstream Partners, and we consolidated Antero Midstream Partners’ financial position and results of operations into our consolidated financial statements. The Transactions (defined in Note 3 to the unaudited condensed consolidated financial statements) resulted in the exchange of the limited partner interest we owned in Antero Midstream Partners for common stock of Antero Midstream Corporation representing a 31% interest. As a result, we no longer hold a controlling interest in Antero Midstream Partners and we now have an interest in Antero Midstream Corporation that provides significant influence, but not control, over Antero Midstream Corporation. Thus, effective March 13, 2019, the Company no longer consolidates Antero Midstream Partners in our consolidated financial statements and accounts for its interest in Antero Midstream Corporation using the equity method of accounting. See Note 3 to the unaudited condensed consolidated financial statements for further discussion on the Transactions.

All significant intercompany accounts and transactions have been eliminated in the Company’s unaudited condensed consolidated financial statements. The noncontrolling interest in the Company’s unaudited condensed consolidated financial statements represents the interests in Antero Midstream Partners, which were owned by the public prior to the Transactions, and the

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ANTERO RESOURCES CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements

December 31, 2018 and March 31, 2019

incentive distribution rights in Antero Midstream Partners, in both cases during the periods prior to the Transactions. Noncontrolling interests in consolidated subsidiaries is included as a component of equity in the Company’s unaudited condensed consolidated balance sheets.

Investments in entities for which the Company exercises significant influence, but not control, are accounted for under the equity method. The Company’s judgment regarding the level of influence over its equity investments includes considering key factors such as Antero’s ownership interest, representation on the board of directors, and participation in the policy-making decisions of equity method investees. Such investments are included in Investments in unconsolidated affiliates on the Company’s unaudited condensed consolidated balance sheets. Income from investees that are accounted for under the equity method is included in Equity in earnings of unconsolidated affiliates on the Company’s unaudited condensed consolidated statements of operations and cash flows. When Antero records its proportionate share of net income, it increases equity income in the statements of operations and comprehensive income (loss) and the carrying value of that investment on the Company’s balance sheet. When a distribution is received, it is recorded as a reduction to the carrying value of that investment on the balance sheet. Our equity in earnings of unconsolidated affiliates is adjusted for intercompany transactions and the basis differences recognized as a result of the deconsolidation.

The Company accounts for distributions received from equity method investees under the “nature of the distribution” approach. Under this approach, distributions received from equity method investees are classified on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as cash inflows from operating activities) or a return of investment (classified as cash inflows from investing activities).

(c)Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions which affect revenues, expenses, assets, and liabilities, as well as the disclosure of contingent assets and liabilities. Changes in facts and circumstances or discovery of new information may result in revised estimates, and actual results could differ from those estimates.

The Company’s unaudited condensed consolidated financial statements are based on a number of significant estimates including estimates of natural gas, NGLs, and oil reserve quantities, which are the basis for the calculation of depletion and impairment of oil and gas properties. Reserve estimates, by their nature, are inherently imprecise. Other items in the Company’s unaudited condensed consolidated financial statements that involve the use of significant estimates include derivative assets and liabilities, accrued revenue, deferred and current income taxes, equity-based compensation, asset retirement obligations, depreciation, amortization, and commitments and contingencies.

(d)Risks and Uncertainties

The markets for natural gas, NGLs, and oil have, and continue to, experience significant price fluctuations. Price fluctuations can result from variations in weather, levels of production, availability of transportation capacity to other regions of the country, the level of imports to and exports from the United States, and various other factors. Increases or decreases in the prices the Company receives for its production could have a significant impact on the Company’s future results of operations and reserve quantities.

(e)Cash and Cash Equivalents

The Company considers all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments. From time to time, the Company may be in the position of a “book overdraft” in which outstanding checks exceed cash and cash equivalents. The Company classifies book overdrafts in accounts payable and revenue distributions payable within its unaudited condensed consolidated balance sheets, and classifies the change in accounts payable and revenue distributions payable associated with book overdrafts as an operating activity within its unaudited condensed consolidated statements of cash flows. As of March 31, 2019, the book overdraft included within revenue distributions payable was $27 million. As of December 31, 2018, the book overdraft included within accounts payable and revenue distributions payable were $10 million and $28 million, respectively.

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ANTERO RESOURCES CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements

December 31, 2018 and March 31, 2019

(f)Derivative Financial Instruments

In order to manage its exposure to natural gas, NGLs, and oil price volatility, the Company enters into derivative transactions from time to time, which may include commodity swap agreements, basis swap agreements, collar agreements, and other similar agreements related to the price risk associated with the Company’s production. To the extent legal right of offset exists with a counterparty, the Company reports derivative assets and liabilities on a net basis. The Company has exposure to credit risk to the extent that the counterparty is unable to satisfy its settlement obligations. The Company actively monitors the creditworthiness of counterparties and assesses the impact, if any, on its derivative positions.

The Company records derivative instruments on the unaudited condensed consolidated balance sheets as either assets or liabilities measured at fair value and records changes in the fair value of derivatives in current earnings as they occur. Changes in the fair value of commodity derivatives, including gains or losses on settled derivatives, are classified as revenues on the Company’s unaudited condensed consolidated statements of operations. The Company’s derivatives have not been designated as hedges for accounting purposes.

(g)Asset Retirement Obligations

The Company is obligated to dispose of certain long‑lived assets upon their abandonment. The Company’s asset retirement obligations (“AROs”) relate primarily to its obligation to plug and abandon oil and gas wells at the end of their lives. AROs are recorded at estimated fair value, measured by reference to the expected future cash outflows required to satisfy the retirement obligations, which is then discounted at the Company’s credit‑adjusted, risk‑free interest rate. Revisions to estimated AROs often result from changes in retirement cost estimates or changes in the estimated timing of abandonment. The fair value of the liability is added to the carrying amount of the associated asset, and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense.

(h)Industry Segments and Geographic Information

Management has evaluated how the Company is organized and managed and has identified the following segments: (1) the exploration, development, and production of natural gas, NGLs, and oil; (2) marketing and utilization of excess firm transportation capacity and (3) our equity method investment in Antero Midstream Corporation. Through March 12, 2019, the results of Antero Midstream Partners were included in the consolidated financial statements of Antero. Effective March 13, 2019, the results of Antero Midstream Partners are no longer consolidated in Antero’s results, however, the Company’s segment disclosures include our equity method investment in Antero Midstream Corporation due to its significance to the Company’s operations. See Note 3 to the unaudited condensed consolidated financial statements for further discussion on the Transactions and Note 17 to the unaudited condensed consolidated financial statements for disclosures on the Company’s reportable segments.

All of the Company’s assets are located in the United States and substantially all of its production revenues are attributable to customers located in the United States; however, some of the Company’s production revenues are attributable to customers who resell the Company’s production to third parties located in foreign countries.

(i)

Earnings (loss) Per Common Share

Earnings (loss) per common share—basic for each period is computed by dividing net income (loss) attributable to Antero by the basic weighted average number of shares outstanding during the period. Earnings (loss) per common share—assuming dilution for each period is computed after giving consideration to the potential dilution from outstanding equity awards, calculated using the treasury stock method. The Company includes performance share unit awards in the calculation of diluted weighted average shares outstanding based on the number of common shares that would be issuable if the end of the period was also the end of the performance period required for the vesting of the awards. During periods in which the Company incurs a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the effect of all equity awards is antidilutive.

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ANTERO RESOURCES CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements

December 31, 2018 and March 31, 2019

The following is a reconciliation of the Company’s basic weighted average shares outstanding to diluted weighted average shares outstanding during the periods presented (in thousands):


	Three months ended March 31,
	2018	2019
Basic weighted average number of shares outstanding	316,471	308,694
Add: Dilutive effect of restricted stock units	401	80
Add: Dilutive effect of outstanding stock options	—	—
Add: Dilutive effect of performance stock units	39	14
Diluted weighted average number of shares outstanding	316,911	308,788

Weighted average number of outstanding equity awards excluded from calculation of diluted earnings per common share (1):
Restricted stock units	421	1,445
Outstanding stock options	653	570
Performance stock units	1,189	1,721

(1) The potential dilutive effects of these awards were excluded from the computation of earnings (loss) per common share—assuming dilution because the inclusion of these awards would have been anti-dilutive.

(j)Treasury Share Retirement

The Company retires treasury shares acquired through share repurchases and returns those shares to the status of authorized but unissued. When treasury shares are retired, the Company’s policy is to allocate the excess of the repurchase price over the par value of shares acquired first, to additional paid-in capital, and then to accumulated earnings. The portion allocable to additional paid-in capital is determined by applying a percentage, determined by dividing the number of shares to be retired by the number of shares issued, to the balance of additional paid-in capital as of retirement.

(k)Adoption of New Accounting Principle

The Company adopted ASU No. 2016-02, Leases, (“Topic 842”) as of January 1, 2019, using the effective date method. The effective date method allows the Company to report its leases under Topic 842 prospectively as of the date of adoption, and no retrospective adjustments were needed to be made for prior periods.

The Company elected the available practical expedients and updated internal controls and implemented new lease software to enable the preparation of financial information on adoption.

The standard had a material impact on our consolidated balance sheets, but did not have a material impact on our consolidated income statements. The most significant impact was the recognition of operating leases right-of-use assets and short-term and long-term lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. See Note 12 to the unaudited condensed consolidated financial statements for a description of the Company’s leases.

(3) Deconsolidation of Antero Midstream Partners LP

In 2014, the Company formed Antero Midstream Partners to own, operate, and develop midstream energy assets that service Antero’s production. Antero Midstream Partners’ assets consist of gathering systems and compression facilities, water handling and treatment facilities, and interests in processing and fractionation plants, through which it provides services to Antero under long-term, fixed-fee contracts.

On March 12, 2019, Antero Midstream GP LP and Antero Midstream Partners completed (the “Closing”) the transactions contemplated by the previously announced Simplification Agreement (the “Simplification Agreement”), dated as of October 9, 2018, by and among Antero Midstream GP LP, Antero Midstream Partners and certain of their affiliates, pursuant to which (i) Antero Midstream GP LP was converted from a limited partnership to a corporation under the laws of the State of Delaware and changed its name to Antero Midstream Corporation, and (ii) an indirect, wholly owned subsidiary of Antero Midstream Corporation was merged with and into Antero Midstream Partners, with Antero Midstream Partners surviving the merger as an indirect, wholly owned

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ANTERO RESOURCES CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements

December 31, 2018 and March 31, 2019

subsidiary of Antero Midstream Corporation (together, along with the other transactions contemplated by the Simplification Agreement, the “Transactions”). In connection with the Closing, we received $297 million in cash and 158.4 million shares of Antero Midstream Corporation’s common stock, par value $0.01 per share, in consideration for our 98,870,335 common units representing limited partnership interests in Antero Midstream Partners.

Prior to the Closing, the Company’s ownership of Antero Midstream Partners common units represented approximately a 53% limited partner interest in Antero Midstream Partners, and the Company consolidated Antero Midstream Partners’ financial position and results of operations into its consolidated financial statements. The Transactions resulted in the exchange of limited partner interests we owned in Antero Midstream Partners for common stock of Antero Midstream Corporation representing a 31% interest. As a result, the Company no longer holds a controlling interest in Antero Midstream Partners and the Company now has an interest in Antero Midstream Corporation that provides significant influence, but not control, over Antero Midstream Corporation. Thus, effective March 13, 2019, the Company no longer consolidates Antero Midstream Partners in our consolidated financial statements and will account for its interest in Antero Midstream Corporation using the equity method of accounting. In addition, the Company recorded a gain on deconsolidation of $1.4 billion calculated as the sum of (i) the cash proceeds received, (ii) the fair value of the Antero Midstream Corporation common stock received at the Closing, and (iii) the elimination of the noncontrolling interest, less the carrying amount of the investment in Antero Midstream Partners. The fair value of our retained equity method investment on March 13, 2019 in Antero Midstream Corporation was $2.0 billion based on the market price of the shares received on March 12, 2019. See Note 5 to the unaudited condensed consolidated financial statements for further discussion on equity method investments.

Antero Midstream Partners’ results of operations have been removed from Antero Resources’ consolidated statement of operations and comprehensive income beginning March 13, 2019. Because Antero Midstream Partners does not meet the requirements of a discontinued operation, Antero Midstream Partners’ results of operations continue to be included in the Company’s consolidated statement of operations and comprehensive income through March 12, 2019.

Summarized Financial Information of Antero Midstream Partners

The following table presents a summary of assets and liabilities of Antero Midstream Partners as of March 12, 2019, the date of deconsolidation.


(in thousands)	March 12, 2019
Current assets	$	763,109
Property and equipment, net		3,003,693
Other noncurrent assets		501,208
Total assets	$	4,268,010

Current liabilities	$	123,473
Long-term debt		2,359,084
Other noncurrent liabilities		123,523
Total liabilities	$	2,606,080

Net assets	$	1,661,930

(4) Revenue

(a)

Revenue from Contracts with Customers

Product revenue

Our revenues are primarily derived from the sale of natural gas and oil production, as well as the sale of NGLs that are extracted from our natural gas. Sales of natural gas, NGLs, and oil are recognized when we satisfy a performance obligation by transferring control of a product to a customer. Payment is generally received in the month following the sale.

Under our natural gas sales contracts, we deliver natural gas to the purchaser at an agreed upon delivery point. Natural gas is transported from our wellheads to delivery points specified under sales contracts. To deliver natural gas to these points, Antero

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ANTERO RESOURCES CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements

December 31, 2018 and March 31, 2019

Midstream Partners or third parties gather, compress, process and transport our natural gas. We maintain control of the natural gas during gathering, compression, processing, and transportation. Our sales contracts provide that we receive a specific index price adjusted for pricing differentials. We transfer control of the product at the delivery point and recognize revenue based on the contract price. The costs to gather, compress, process and transport the natural gas are recorded as Gathering, compression, processing and transportation expenses.

NGLs, which are extracted from natural gas through processing, are either sold by us directly or by the processor under processing contracts. For NGLs sold by us directly, our sales contracts provide that we deliver the product to the purchaser at an agreed upon delivery point and that we receive a specific index price adjusted for pricing differentials. We transfer control of the product to the purchaser at the delivery point and recognize revenue based on the contract price. The costs to process and transport NGLs are recorded as Gathering, compression, processing, and transportation expenses. For NGLs sold by the processor, our processing contracts provide that we transfer control to the processor at the tailgate of the processing plant and we recognize revenue based on the price received from the processor.

Under our oil sales contracts, we generally sell oil to the purchaser and collect a contractually agreed upon index price, net of pricing differentials. We recognize revenue based on the contract price when we transfer control of the product to the purchaser.

Gathering, compression, water handling and treatment revenue

Substantially all revenues from the gathering, compression, water handling and treatment operations were derived from transactions for services Antero Midstream Partners provided to our exploration and production operations through March 12, 2019 and were eliminated in consolidation. Effective March 13, 2019, Antero Midstream Partners is no longer consolidated in Antero’s results. See Note 3 to the unaudited condensed consolidated financial statements for further discussion on the Transactions and Note 17 to the unaudited condensed consolidated financial statements for disclosures on the Company’s reportable segments. The portion of such fees shown in our consolidated financial statements represent amounts charged to interest owners in Antero-operated wells, as well as fees charged to other third parties for water handling and treatment services provided by Antero Midstream Partners or usage of Antero Midstream Partners’ gathering and compression systems. For gathering and compression revenue, Antero Midstream Partners satisfies its performance obligations and recognizes revenue when low pressure volumes are delivered to a compressor station, high pressure volumes are delivered to a processing plant or transmission pipeline, and compression volumes are delivered to a high pressure line. Revenue is recognized based on the per Mcf gathering or compression fee charged by Antero Midstream Partners in accordance with the gathering and compression agreement. For water handling and treatment revenue, Antero Midstream Partners satisfies its performance obligations and recognizes revenue when the fresh water volumes have been delivered to the hydration unit of a specified well pad and the wastewater volumes have been delivered to its wastewater treatment facility. For services contracted through third party providers, Antero Midstream Partners’ performance obligation is satisfied when the service performed by the third party provider has been completed. Revenue is recognized based on the per barrel fresh water delivery or wastewater treatment fee charged by Antero Midstream Partners in accordance with the water services agreement.

Marketing revenue

Marketing revenues are derived from activities to purchase and sell third-party natural gas and NGLs and to market excess firm transportation capacity to third parties. We retain control of the purchased natural gas and NGLs prior to delivery to the purchaser. We have concluded that we are the principal in these arrangements and therefore we recognize revenue on a gross basis, with costs to purchase and transport natural gas and NGLs presented as marketing expenses. Contracts to sell third party gas and NGLs are generally subject to similar terms as contracts to sell our produced natural gas and NGLs. We satisfy performance obligations to the purchaser by transferring control of the product at the delivery point and recognize revenue based on the price received from the purchaser.

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ANTERO RESOURCES CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements

December 31, 2018 and March 31, 2019

(b) Disaggregation of Revenue

In the following table, revenue is disaggregated by type (in thousands). The table also identifies the reportable segment to which the disaggregated revenues relate. For more information on reportable segments, see Note 17— Segment Information.


	Three months ended March 31,				Segment to which
	2018		2019		revenues relate
Revenues from contracts with customers:
Natural gas sales	$	497,663		657,266	Exploration and production
Natural gas liquids sales (ethane)		27,075		35,516	Exploration and production
Natural gas liquids sales (C3+ NGLs)		207,095		278,169	Exploration and production
Oil sales		30,273		48,052	Exploration and production
Gathering and compression (1)		4,145		3,972	Equity method investment in Antero Midstream Corporation
Water handling and treatment (1)		790		507	Equity method investment in Antero Midstream Corporation
Marketing		144,389		91,186	Marketing
Total		911,430		1,114,668
Income (loss) from derivatives and other sources		116,671		(77,261)
Total revenue and other	$	1,028,101		1,037,407

⁽¹⁾

Gathering and compression and water handling and treatment revenues were included through March 12, 2019. See Note 3 to the unaudited condensed consolidated financial statements for further discussion on the Transactions.

For our product sales that have a contract term greater than one year, we have utilized the practical expedient in ASC 606, which does not require the disclosure of the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under our product sales contracts, each unit of product delivered to the customer represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required. For our product sales that have a contract term of one year or less, we have utilized the practical expedient in ASC 606, which does not require the disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

(d) Contract Balances

Under our sales contracts, we invoice customers after our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our contracts do not give rise to contract assets or liabilities under ASC 606. At December 31, 2018 and March 31, 2019, our receivables from contracts with customers were $475 million and $365 million, respectively.

(5)Equity Method Investments

At March 13, 2019 and at March 31, 2019, Antero owned approximately 31.3% of Antero Midstream Corporation’s common stock, which is reflected in Antero’s consolidated financial statements using the equity method of accounting. See Note 3 to the unaudited condensed consolidated financial statements for further discussion on the Transactions.

Prior to March 13, 2019, our consolidated results included two equity method investments held by Antero Midstream Partners: a 15% equity interest in Stonewall Gas Gathering LLC (“Stonewall”), which operates a regional gathering pipeline on which Antero is an anchor shipper, and a 50% interest in the joint venture entered into on February 6, 2017 between Antero Midstream Partners and MarkWest Energy Partners, L.P. (“MarkWest”), a wholly owned subsidiary of MPLX, LP, to develop processing and fractionation assets in Appalachia (the “Joint Venture”). Effective March 13, 2019, the equity in earnings of these investments are accounted for in the equity in earnings of Antero Midstream Corporation.

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ANTERO RESOURCES CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements

December 31, 2018 and March 31, 2019

The following table is a reconciliation of investments in unconsolidated affiliates for the three months ended March 31, 2019 (in thousands):


	Stonewall (1)		MarkWest Joint Venture		Antero Midstream Corporation (2)		Total
Balance at December 31, 2018	$	68,103		365,539		—		433,642
Investments (3)		—		25,020		—		25,020
Equity in net income of unconsolidated affiliates		1,894		10,370		1,817		14,081
Distributions from unconsolidated affiliates		(3,000)		(9,605)		—		(12,605)
Effects of deconsolidation (4)		(66,997)		(391,324)		1,987,795		1,529,474
Balance at March 31, 2019	$	—		—		1,989,612		1,989,612

⁽¹⁾

Distributions are net of operating and capital requirements retained by Stonewall.

⁽²⁾

As adjusted for the amortization of the difference between the cost of the equity investment in Antero Midstream Partners and the amount of underlying equity in the net assets of Antero Midstream Partners as of the date of deconsolidation.

⁽³⁾

Investments in the Joint Venture during the three months ended March 31, 2019 relate to capital contributions for construction of additional processing facilities.

⁽⁴⁾

Effective March 13, 2019, the equity in earnings of Stonewall and the Joint Venture are accounted for in the equity in earnings of Antero Midstream Corporation.

Summarized Financial Information of Antero Midstream Corporation

The following tables present summarized financial information of Antero Midstream Corporation. Summarized financial information is presented from March 13, 2019.

Balance Sheet


(in thousands)	March 31, 2019
Current assets	$	116,719
Noncurrent assets		6,551,708
Total assets	$	6,668,427

Current liabilities	$	118,062
Noncurrent liabilities		2,514,815
Stockholders' equity		4,035,550
Total liabilities and equity	$	6,668,427

Statement of Operations


	For the period
		March 13, 2019 through
(in thousands)	March 31, 2019
Revenues	$	54,108
Operating expenses		30,029
Income from operations		24,079
Net income attributable to the equity method investments		23,197

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ANTERO RESOURCES CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements

December 31, 2018 and March 31, 2019

(6)Accrued Liabilities

Accrued liabilities as of December 31, 2018 and March 31, 2019 consisted of the following items (in thousands):


	December 31, 2018		March 31, 2019
Capital expenditures	$	113,237		63,060
Gathering, compression, processing, and transportation expenses		148,032		140,751
Marketing expenses		67,082		50,418
Interest expense		43,444		62,019
Other		93,275		68,459
	$	465,070		384,707

(7)Long-Term Debt

Long-term debt was as follows at December 31, 2018 and March 31, 2019 (in thousands):


		December 31, 2018