Antero Resources Earnings 2020-03-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

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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, 2020


☐	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 268,390,401 shares of common stock outstanding as of April 24, 2020.

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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” 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. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

●

our ability to execute our business strategy;

●

our production and oil and gas reserves;

●

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

●

our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;

●

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

●

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

●

our hedging strategy and results;

●

our ability to execute our debt repurchase program and/or our asset sale program;

●

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

●

our future drilling plans;

●

our projected well costs and cost savings initiatives, including with respect to water handling and treatment services provided by Antero Midstream Corporation;

●

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;

●

general economic conditions;

●

credit markets;

●

expectations regarding the amount and timing of jury awards;

●

uncertainty regarding our future operating results; and

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●

our other plans, objectives, expectations and intentions contained in this Quarterly Report on Form 10-Q.

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, 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, impacts of world health events, including the COVID-19 pandemic, potential shut-ins of production due to lack of downstream demand or storage capacity, and the other risks described under the heading “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 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 or the 2019 Form 10-K 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, 2019 and March 31, 2020

(In thousands)


			(Unaudited)
	December 31,		March 31,
	2019		2020
Assets
Current assets:
Accounts receivable	$	46,419		91,944
Accounts receivable, related parties		125,000		—
Accrued revenue		317,886		201,320
Derivative instruments		422,849		816,444
Other current assets		10,731		10,313
Total current assets		922,885		1,120,021
Property and equipment:
Oil and gas properties, at cost (successful efforts method):
Unproved properties		1,368,854		1,289,770
Proved properties		11,859,817		12,154,162
Gathering systems and facilities		5,802		5,802
Other property and equipment		71,895		72,312
		13,306,368		13,522,046
Less accumulated depletion, depreciation, and amortization		(3,327,629)		(3,527,306)
Property and equipment, net		9,978,739		9,994,740
Operating leases right-of-use assets		2,886,500		2,814,539
Derivative instruments		333,174		284,461
Investment in unconsolidated affiliate		1,055,177		291,989
Other assets		21,094		20,039
Total assets	$	15,197,569		14,525,789

Liabilities and Equity
Current liabilities:
Accounts payable	$	14,498		37,909
Accounts payable, related parties		97,883		88,894
Accrued liabilities		400,850		367,444
Revenue distributions payable		207,988		174,654
Derivative instruments		6,721		—
Short-term lease liabilities		305,320		295,658
Other current liabilities		6,879		7,315
Total current liabilities		1,040,139		971,874
Long-term liabilities:
Long-term debt		3,758,868		3,707,787
Deferred income tax liability		781,987		672,002
Derivative instruments		3,519		215
Long-term lease liabilities		2,583,678		2,520,939
Other liabilities		58,635		60,432
Total liabilities		8,226,826		7,933,249
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; 295,941 shares and 268,926 shares issued and outstanding at December 31, 2019 and March 31, 2020, respectively		2,959		2,689
Additional paid-in capital		6,130,365		6,091,242
Accumulated earnings		837,419		498,609
Total equity		6,970,743		6,592,540
Total liabilities and equity	$	15,197,569		14,525,789

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended March 31, 2019 and 2020

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended March 31,
	2019		2020
Revenue and other:
Natural gas sales	$	657,266		411,082
Natural gas liquids sales		313,685		257,673
Oil sales		48,052		35,646
Commodity derivative fair value gains (losses)		(77,368)		565,833
Gathering, compression, water handling and treatment		4,479		—
Marketing		91,186		46,073
Other income		107		798
Total revenue and other		1,037,407		1,317,105
Operating expenses:
Lease operating		41,732		25,644
Gathering, compression, processing, and transportation		424,529		588,624
Production and ad valorem taxes		35,678		25,699
Marketing		163,084		93,273
Exploration		126		210
Impairment of oil and gas properties		81,244		89,220
Impairment of midstream assets		6,982		—
Depletion, depreciation, and amortization		240,201		199,677
Accretion of asset retirement obligations		976		1,104
General and administrative (including equity-based compensation expense of $8,903 and $3,329 in 2019 and 2020, respectively)		68,202		31,221
Contract termination and rig stacking		8,360		—
Total operating expenses		1,071,114		1,054,672
Operating income (loss)		(33,707)		262,433
Other income (expenses):
Equity in earnings (loss) of unconsolidated affiliates		14,081		(128,055)
Impairment of equity investment		—		(610,632)
Gain on deconsolidation of Antero Midstream Partners LP		1,406,042		—
Interest expense, net		(71,950)		(53,102)
Gain on early extinguishment of debt		—		80,561
Total other income (expenses)		1,348,173		(711,228)
Income (loss) before income taxes		1,314,466		(448,795)
Provision for income tax (expense) benefit		(288,710)		109,985
Net income (loss) and comprehensive income (loss) including noncontrolling interests		1,025,756		(338,810)
Net income and comprehensive income attributable to noncontrolling interests		46,993		—
Net income (loss) and comprehensive income (loss) attributable to Antero Resources Corporation	$	978,763		(338,810)

Income (loss) per share—basic	$	3.17		(1.19)
Income (loss) per share—diluted	$	3.17		(1.19)

Weighted average number of shares outstanding:
Basic		308,694		284,227
Diluted		308,788		284,227

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statement of Equity

Three Months Ended March 31, 2019

(Unaudited)

(In thousands)


					Additional
	Common Stock				paid-in		Accumulated		Noncontrolling		Total
	Shares		Amount		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 unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statement of Equity

Three Months Ended March 31, 2020

(Unaudited)

(In thousands)


					Additional
	Common Stock				paid-in		Accumulated		Total
	Shares		Amount		capital		earnings		equity
Balances, December 31, 2019		295,941	$	2,959		6,130,365		837,419		6,970,743
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes		178		2		(34)		—		(32)
Repurchases and retirements of common stock		(27,193)		(272)		(42,418)		—		(42,690)
Equity-based compensation		—		—		3,329		—		3,329
Net loss and comprehensive loss		—		—		—		(338,810)		(338,810)
Balances, March 31, 2020		268,926	$	2,689		6,091,242		498,609		6,592,540

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2019 and 2020

(Unaudited)

(In thousands)


	Three Months Ended March 31,
	2019		2020
Cash flows provided by (used in) operating activities:
Net income (loss) including noncontrolling interests	$	1,025,756		(338,810)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depletion, depreciation, amortization, and accretion		241,177		200,781
Impairment of oil and gas properties		81,244		89,220
Impairment of midstream assets		6,982		—
Commodity derivative fair value (gains) losses		77,368		(565,833)
Gains on settled commodity derivatives		97,092		210,926
Equity-based compensation expense		8,903		3,329
Deferred income tax expense (benefit)		287,854		(109,985)
Gain on early extinguishment of debt		—		(80,561)
Equity in (earnings) loss of unconsolidated affiliates		(14,081)		128,055
Impairment of equity investment		—		610,632
Gain on deconsolidation of Antero Midstream Partners LP		(1,406,042)		—
Distributions/dividends of earnings from unconsolidated affiliates		12,605		42,756
Other		11,081		2,440
Changes in current assets and liabilities:
Accounts receivable		42,168		(54,514)
Accrued revenue		109,677		116,566
Other current assets		1,364		(583)
Accounts payable including related parties		(21,370)		(1,251)
Accrued liabilities		(14,965)		(19,593)
Revenue distributions payable		(9,761)		(33,333)
Other current liabilities		1,952		435
Net cash provided by operating activities		539,004		200,677
Cash flows provided by (used in) investing activities:
Additions to unproved properties		(27,463)		(10,357)
Drilling and completion costs		(368,687)		(300,483)
Additions to water handling and treatment systems		(24,416)		—
Additions to gathering systems and facilities		(48,239)		—
Additions to other property and equipment		(3,128)		(771)
Settlement of water earnout		—		125,000
Investments in unconsolidated affiliates		(25,020)		—
Proceeds from the Antero Midstream Partners LP Transactions		296,611		—
Change in other assets		(4,475)		(70)
Net cash used in investing activities		(204,817)		(186,681)
Cash flows provided by (used in) financing activities:
Repurchases of common stock		—		(42,690)
Issuance of senior notes		650,000		—
Repayment of senior notes		—		(300,835)
Borrowings (repayments) on bank credit facilities, net		(270,000)		330,000
Payments of deferred financing costs		(8,259)		—
Distributions to noncontrolling interests in Antero Midstream Partners LP		(85,076)		—
Employee tax withholding for settlement of equity compensation awards		(479)		(32)
Other		(841)		(439)
Net cash provided by (used in) financing activities		285,345		(13,996)
Effect of deconsolidation of Antero Midstream Partners LP		(619,532)		—
Net decrease in cash and cash equivalents		—		—
Cash and cash equivalents, beginning of period		—		—
Cash and cash equivalents, end of period	$	—		—

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	37,081		30,089
Increase (decrease) in accounts payable and accrued liabilities for additions to property and equipment	$	(22,825)		10,767

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2019 and March 31, 2020

(1) Organization

Antero Resources Corporation (individually referred to as “Antero”) and its consolidated subsidiaries (collectively referred to as “Antero Resources,” 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 Securities and Exchange Commission (the “SEC”) applicable to interim financial information and should be read in the context of the Company’s December 31, 2019 consolidated financial statements and notes thereto for a more complete understanding of the Company’s operations, financial position, and accounting policies. The Company’s December 31, 2019 consolidated financial statements were included in Antero Resources’ 2019 Annual Report on Form 10-K, which was filed with the SEC.

These 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, these 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, 2019 and March 31, 2020, and the results of its operations and its cash flows for the three months ended March 31, 2019 and 2020. 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, 2020 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, the impacts of COVID-19 and other factors.

(b)

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Antero Resources Corporation, 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, par value $0.01 per share (the “Antero Midstream Corporation common stock”), representing an approximate 31% interest in Antero Midstream Corporation. As a result, our controlling interest in Antero Midstream Partners was converted to an interest in Antero Midstream Corporation that provides significant influence, but not control, over Antero Midstream Corporation. Thus, effective March 13, 2019, Antero no longer consolidates Antero Midstream Partners in its 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 for the three months ended March 31, 2019 represents the interests in Antero Midstream Partners that were owned by the public prior to the Transactions, and the incentive distribution rights in Antero Midstream Partners.

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ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2019 and March 31, 2020

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 Investment in unconsolidated affiliate on the Company’s unaudited condensed consolidated balance sheets. Income (loss) from investees that are accounted for under the equity method is included in Equity in earnings (loss) 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 or net loss, it is recorded in equity in earnings (loss) of unconsolidated affiliates in the statements of operations 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 Company’s balance sheet. The Company’s equity in earnings of unconsolidated affiliates is adjusted for intercompany transactions and the basis differences recognized due to the difference between the cost of the equity investment in Antero Midstream Corporation and the amount of underlying equity in the net assets of Antero Midstream Partners as of the date of 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, which is classified as cash inflows from operating activities, or a return of investment, which is 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 that affect revenues, expenses, assets, liabilities and 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 storage capacity and transportation 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 December 31, 2019, the book overdraft included within accounts payable and revenue distributions payable were $7 million and $18 million, respectively. As of March 31, 2020, the book overdraft included within accounts payable and revenue distributions payable were $5 million and $21 million, respectively.

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ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2019 and March 31, 2020

(f)

Oil and Gas Properties

The Company accounts for its natural gas, NGLs, and oil exploration and development activities under the successful efforts method of accounting. Under the successful efforts method, the costs incurred to acquire, drill, and complete productive wells, development wells, and undeveloped leases are capitalized. Oil and gas lease acquisition costs are also capitalized. Exploration costs, including personnel and other internal costs, geological and geophysical expenses, delay rentals for gas and oil leases, and costs associated with unsuccessful lease acquisitions are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if the Company determines that the well does not contain reserves in commercially viable quantities. The Company reviews exploration costs related to wells-in-progress at the end of each quarter and makes a determination, based on known results of drilling at that time, whether the costs should continue to be capitalized pending further well testing and results, or charged to expense. The Company incurred no such charges to expense during the three months ended March 31, 2019 and 2020. The sale of a partial interest in a proved property is accounted for as a cost recovery, and no gain or loss is recognized as long as this treatment does not significantly affect the units-of-production amortization rate. A gain or loss is recognized for all other sales of producing properties.

Unproved properties are assessed for impairment on a property-by-property basis, and any impairment in value is charged to expense. Impairment is assessed based on remaining lease terms, commodity price outlooks, and future plans to develop acreage, as well as drilling results, and reservoir performance of wells in the area. Unproved properties and the related costs are transferred to proved properties when reserves are discovered on, or otherwise attributed to, the property. Proceeds from sales of partial interests in unproved properties are accounted for as a recovery of cost without recognition of any gain or loss until the cost has been recovered. Impairment of oil and gas properties was $81 million and $89 million for the three months ended March 31, 2019 and 2020, respectively.

The Company evaluates the carrying amount of its proved natural gas, NGLs, and oil properties for impairment on a geological reservoir basis whenever events or changes in circumstances indicate that a property’s carrying amount may not be recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the Company would estimate the fair value of its properties and record an impairment charge for any excess of the carrying amount of the properties over the estimated fair value of the properties. Factors used to estimate fair value may include estimates of proved reserves, estimated future commodity prices, future production estimates, and anticipated capital expenditures, using a commensurate discount rate.

(g)

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.

(h)

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.

Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2019 and March 31, 2020

(i)

Natural Gas, NGLs, and Oil Revenues

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 Midstream Corporation or other 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 incurred to gather, compress, process and transport natural gas are recorded as Gathering, compression, processing and transportation expense.

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 incurred to process and transport NGLs are recorded as Gathering, compression, processing, and transportation expense. 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 purchasers 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 a purchaser. When applicable, the costs incurred to transport oil to a purchaser are recorded as Gathering, compression, processing and transportation expense.

(j)

Marketing Revenues and Expenses

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 contract price received from the purchaser. Fees generated from the sale of excess firm transportation marketed to third parties are included in Marketing revenue.

Marketing expenses include the cost of purchased third-party natural gas and NGLs. The Company classifies firm transportation costs related to capacity contracted for in advance of having sufficient production and infrastructure to fully utilize the capacity (excess capacity) as marketing expenses since it is marketing this excess capacity to third parties. Firm transportation for which the Company has sufficient production capacity (even though it may not use the transportation capacity because of alternative delivery points with more favorable pricing) is considered unutilized capacity and is charged to transportation expense.

(k)

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 consolidated financial statements for further discussion on the Transactions and Note 17 to the consolidated financial statements for disclosures on the Company’s reportable segments. The portion of such fees shown in our consolidated financial statements prior to March 13, 2019 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

Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2019 and March 31, 2020

satisfied its performance obligations and recognized revenue when low pressure volumes were delivered to a compressor station, high pressure volumes were delivered to a processing plant or transmission pipeline, and compression volumes were delivered to a high pressure line. Revenue was 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 satisfied its performance obligations and recognized revenue when the fresh water volumes were delivered to the hydration unit of a specified well pad and the wastewater volumes were delivered to its wastewater treatment facility. For services contracted through third-party providers, Antero Midstream Partners’ performance obligation was satisfied when the services performed by the third-party providers were completed. Revenue was 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.

(l)

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 then transport the Company’s production to foreign countries for resale or consumption.

(m) 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 anti-dilutive.

Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2019 and March 31, 2020

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,
	2019	2020
Basic weighted average number of shares outstanding	308,694	284,227
Add: Dilutive effect of restricted stock units	80	—
Add: Dilutive effect of outstanding stock options	—	—
Add: Dilutive effect of performance stock units	14	—
Diluted weighted average number of shares outstanding	308,788	284,227

Weighted average number of outstanding equity awards excluded from calculation of diluted earnings per common share ⁽¹⁾:
Restricted stock units	1,445	5,952
Outstanding stock options	570	459
Performance stock units	1,721	1,621

(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.

(n)

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 outstanding, to the balance of additional paid-in capital as of retirement.

(3) Deconsolidation of Antero Midstream Partners LP

On March 12, 2019, Antero Midstream GP LP and Antero Midstream Partners completed (the “Closing”) the transactions contemplated by the 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 subsidiary of Antero Midstream Corporation (together, along with the other transactions contemplated by the Simplification Agreement, the “Transactions”). In connection with the Closing, Antero received $297 million in cash and 158.4 million shares of Antero Midstream Corporation common stock in consideration for 98,870,335 common units representing limited partnership interests in Antero Midstream Partners.

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 Antero’s 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 are no longer consolidated in the Company’s unaudited consolidated statement of operations and comprehensive income (loss) 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 unaudited statement of operations and comprehensive income (loss) through March 12, 2019.

Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2019 and March 31, 2020

(4) Revenue

(a)Disaggregation of Revenue

Revenue is disaggregated by type in the following table. The table also identifies which reportable segment that the disaggregated revenues relate. For more information on reportable segments, see Note 17— Segment Information.


	Three months ended March 31,				Segment to which
(in thousands)	2019		2020		revenues relate
Revenues from contracts with customers:
Natural gas sales	$	657,266		411,082	Exploration and production
Natural gas liquids sales (ethane)		35,516		26,796	Exploration and production
Natural gas liquids sales (C3+ NGLs)		278,169		230,877	Exploration and production
Oil sales		48,052		35,646	Exploration and production
Gathering and compression ⁽¹⁾		3,972		—	Equity method investment in AMC
Water handling and treatment ⁽¹⁾		507		—	Equity method investment in AMC
Marketing		91,186		46,073	Marketing
Total revenue from contracts with customers		1,114,668		750,474
Income (loss) from derivatives and other sources:		(77,261)		566,631
Total revenue and other	$	1,037,407		1,317,105

(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.

(b)Transaction Price Allocated to Remaining Performance Obligations

For our product sales that have a contract term greater than one year, we have utilized the practical expedient, 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, 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.

(c)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. At December 31, 2019 and March 31, 2020, our receivables from contracts with customers were $318 million and $

Price	3.36	EPS	1
Shares	309	P/E	5
MCap	1,037	P/FCF	1
Net Debt	3,704	EBIT	313
TEV	4,741	TEV/EBIT	15
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-03-31	Filed 2020-04-29
10-K	2019-12-31	Filed 2020-02-12
10-Q	2019-09-30	Filed 2019-10-30
10-Q	2019-06-30	Filed 2019-07-31
10-Q	2019-03-31	Filed 2019-05-01
10-K	2018-12-31	Filed 2019-02-13
10-Q	2018-09-30	Filed 2018-10-31
10-Q	2018-06-30	Filed 2018-08-01
10-Q	2018-03-31	Filed 2018-04-25
10-K	2017-12-31	Filed 2018-02-13
10-Q	2017-09-30	Filed 2017-11-01
10-Q	2017-06-30	Filed 2017-08-02
10-Q	2017-03-31	Filed 2017-05-08
10-K	2016-12-31	Filed 2017-02-28
10-Q	2016-09-30	Filed 2016-10-26
10-Q	2016-06-30	Filed 2016-08-02
10-Q	2016-03-31	Filed 2016-04-27
10-K	2015-12-31	Filed 2016-02-24
10-Q	2015-09-30	Filed 2015-10-28
10-Q	2015-06-30	Filed 2015-07-29
10-Q	2015-03-31	Filed 2015-04-29
10-K	2014-12-31	Filed 2015-02-25
10-Q	2014-09-30	Filed 2014-11-05
10-Q	2014-06-30	Filed 2014-08-06
10-Q	2014-03-31	Filed 2014-05-07
10-K	2013-12-31	Filed 2014-02-27
10-Q	2013-09-30	Filed 2013-11-06

8-K	2020-06-17
8-K	2020-06-17
8-K	2020-06-15
8-K	2020-05-12
8-K	2020-04-29
8-K	2020-03-31
8-K	2020-03-24
8-K	2020-03-23
8-K	2020-02-25
8-K	2020-02-12
8-K	2020-02-03
8-K	2019-12-16
8-K	2019-12-08
8-K	2019-12-03
8-K	2019-10-29
8-K	2019-10-07
8-K	2019-09-03
8-K	2019-08-12
8-K	2019-07-31
8-K	2019-07-01
8-K	2019-06-25
8-K	2019-06-21
8-K	2019-06-19
8-K	2019-06-17
8-K	2019-06-12
8-K	2019-06-10
8-K	2019-05-31
8-K	2019-05-14
8-K	2019-05-01
8-K	2019-03-25
8-K	2019-03-11
8-K	2019-03-05
8-K	2019-02-25
8-K	2019-02-14
8-K	2019-02-13
8-K	2019-02-12
8-K	2019-01-24
8-K	2019-01-08
8-K	2018-12-21
8-K	2018-12-18
8-K	2018-12-07
8-K	2018-11-06
8-K	2018-11-01
8-K	2018-11-01
8-K	2018-10-31
8-K	2018-10-09
8-K	2018-10-09
8-K	2018-08-01
8-K	2018-06-20
8-K	2018-04-25
8-K	2018-04-13
8-K	2018-02-26
8-K	2018-02-20
8-K	2018-02-13
8-K	2018-02-13
8-K	2018-01-17

EX-10.1	ar-20200331xex10d1.htm
EX-10.2	ar-20200331xex10d2.htm
EX-10.3	ar-20200331xex10d3.htm
EX-31.1	ar-20200331xex31d1.htm
EX-31.2	ar-20200331xex31d2.htm
EX-32.1	ar-20200331xex32d1.htm
EX-32.2	ar-20200331xex32d2.htm


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	40
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	56
Item 4.	Controls and Procedures	58
PART II—OTHER INFORMATION		59
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities	61
Item 5.	Other Information	61
Item 6.	Exhibits	62
SIGNATURES		63

AR 10Q Quarterly Report

Antero Resources Earnings 2020-03-31