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Antero Resources Reports Second Quarter 2019 Financial and Operational Results
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PR Newswire
DENVER, July 31, 2019
DENVER, July 31, 2019 /PRNewswire/ -- Antero Resources Corporation (NYSE: AR) ("Antero," "Antero Resources," or the "Company") today released its second quarter 2019 financial and operational results. The relevant condensed consolidated and condensed consolidating financial statements are included in Antero's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, which has been filed with the Securities and Exchange Commission ("SEC").
Second Quarter 2019 Highlights Include:
- Net daily gas equivalent production averaged 3,226 MMcfe/d (29% liquids by volume), a 28% increase over the prior year period
- Includes liquids production of 156,441 Bbl/d, a 38% increase over the prior year period, contributing 39% of total product revenues before hedges
- Liquids components were oil production of 10,331 Bbl/d, C3+ NGL production of 105,228 Bbl/d and recovered ethane production of 40,882 Bbl/d, with approximately 135,000 Bbl/d of ethane remaining in the gas stream
- Realized C3+ NGL price averaged $28.57 per Bbl for the quarter
- 55% of C3+ volumes were exported and realized a $0.19 per gallon premium to Mont Belvieu pricing at Marcus Hook
- 45% of C3+ volumes were sold domestically and realized a $0.14 per gallon discount to Mont Belvieu pricing at Hopedale
- Drilling and completion capital spend was $303 million, the lowest quarterly spend since Antero's IPO in 201
- Announced well cost reductions of 10% to 14% per lateral foot by 2020 compared to 2019 budgeted costs
- Increased forward hedge position with 90% of projected 2020 natural gas production sold at $2.87/MMBtu and over 35% of projected 2021 natural gas production sold at $2.88/MMBtu
- Debt to trailing twelve months Adjusted EBITDAX ratio was 2.3x at quarter end (Non-GAAP)
- Reaffirmed $4.5 billion bank borrowing base with commitments of $2.5 billion and only $175 million drawn
Paul Rady, Chairman and CEO said, "Antero achieved strong production volumes and incurred its lowest quarterly capital expenditures to date as a public company. We remain highly focused on creating sustained value by prioritizing key initiatives dedicated to reducing costs, streamlining operations and strategically targeting favorably priced markets for our diverse product portfolio of natural gas and liquids. The first half of 2019 showcased these efforts, with technical and operational initiatives that resulted in our ability to reach our previously announced full year well cost reduction targets by midyear, significantly ahead of schedule. Meanwhile, further well cost reduction initiatives are underway, and we expect well costs to be 10% to 14% lower per foot by 2020, compared to our 2019 budgeted costs per foot. This will primarily be driven through water savings initiatives and continued operational efficiencies. These cost savings combined with our expanded hedge position provide us with greater certainty in our ability to continue to execute our development plan in a challenged commodity price environment."
Recent Developments
Well Cost Savings Update & Outlook
Antero is on track to achieve its targeted reductions in well costs and lease operating expenses. Antero's 2019 well cost was budgeted at $0.97 million per 1,000 feet of lateral assuming a 12,000 foot lateral. During the second half of 2019, Antero is expecting well costs to average $0.93 million per 1,000 feet of lateral. Well cost reductions are ahead of schedule and have been delivered through service cost deflation, sand logistics optimization and operational efficiency gains. For 2020, Antero is targeting well costs of $0.83 million to $0.87 million per 1,000 feet of lateral, on average, 10% to 14% lower than the 2019 initial budgeted costs, or $1.2 to $1.7 million lower per well for a 12,000 foot lateral. The additional cost savings are expected to come from water savings initiatives that include enhanced flowback water management and completion design optimization. Expanded water services are also anticipated to reduce lease operating expenses by at least 20% in 2020.
Second Half 2019 Well Costs
During the second quarter of 2019, Antero approached its vendors and service providers to reduce pricing to reflect the current deflationary market environment. The price reductions achieved to date are included in the well cost assumptions discussed above.
One of the key areas of focus with vendors continues to be sand sourcing and logistics. Total delivered sand costs continue to decrease materially, through a shift to directly-sourced sand and improved "last mile" logistics. Antero previously executed its first direct sourcing sand supply agreement at the end of 2018. The Company executed a similar agreement with a premier sand supplier in the second quarter of 2019, and expects to increase directly-sourced sand supply from 75% currently to 100% of completion needs going forward. In addition, improvements to last mile logistics for sand are underway, as the Company has lowered sand delivery trucking costs during the second quarter of 2019.
Operational efficiency gains continue on both the drilling and completions side of development. Drilling days from spud to final rig release have been reduced from 12.4 days in 2018 to 12.0 days year to date in the Marcellus, despite lateral lengths increasing from 10,100 feet to 11,000 feet over that same time period. The Company has seen material improvement in stages completed per day, with an average of 5.7 stages per day in the second quarter of 2019, a 10% increase from 5.2 stages per day in 2018. Antero expects to continue pushing the stages completed per day higher through further completion optimization. In addition, top-hole optimization and other related drilling efficiencies have been achieved and are now becoming a part of Antero's standard drilling process. The service cost deflation initiative, sand savings and efficiency gains have resulted in per well savings of approximately $500,000 per well, or $0.04 million per 1,000 feet of lateral on a 12,000 foot lateral, resulting in second half of 2019 expected well costs of $0.93 million per 1,000 feet of lateral.
Water Savings Initiatives and Other Efficiency Gains Expected in 2020
Targeted well cost savings and lower lease operating expenses for 2020 are expected to be derived primarily from Antero's water savings initiatives. The water savings initiatives consist of two components (i) a reduction in flowback water costs through the planning and implementation by Antero Midstream of localized water blending and polishing operations and a flowback and produced water pipeline system and (ii) a reduction in fresh water costs from completion design optimization that will consist of both higher mesh sand and lower fresh water usage.
In conjunction with Antero's well cost savings initiatives, Antero Midstream announced plans to expand the scope of its water business to support the growing flowback and produced water volumes from Antero Resources. Antero Midstream plans to implement localized storage and fresh water blending operations, utilize mobile treatment for flowback and produced water volumes in Antero's northern fairway, repurpose portions of the existing fresh water system to transport flowback and produced water, and construct a limited amount of new pipelines to deliver flowback and produced water to localized blending and treatment operations and the Antero Clearwater Facility. Antero Midstream has indicated the fresh water blending and mobile treatment options could be implemented as soon as the second half of 2019 in certain areas of development. The infrastructure buildout will be a flexible, fit-for-purpose system based on Antero Resources' development plan and Antero Midstream believes the system could be phased in beginning in 2020. These localized operations will replace a significant amount of the flowback and produced volumes currently trucked by third parties, which Antero Midstream manages on a cost plus 3% basis. The Company has historically trucked all flowback and produced water, paying third party trucking companies $160 million over the last twelve months. This creates an opportunity for Antero Resources to materially reduce both capital and lease operating costs.
Based on ongoing assessments of drilling and completion designs, Antero also expects to trend lower in water used in completion operations over time. Depending on the areas being developed, Antero expects water use will be reduced by 5 to 7 barrels per foot, from the current design of 40 to 45 barrels per foot to 35 to 38 barrels per foot in the Marcellus beginning in January 2020.
In addition to water savings initiatives, Antero expects further operational efficiency gains related to development plan optimization. Together, Antero expects overall water savings initiatives and operational efficiency gains to result in additional per well savings of $700,000 to $1.2 million, or $0.06 to $0.10 million per 1,000 feet of lateral, which is 6% to 11% of additional savings per well compared to second half of 2019 budgeted well costs.
Lease Operating Expense Reduction
Antero capitalizes the cost of moving flowback water during the first 90 days of a well's life. Antero's lease operating expenses include the cost of transporting produced water after the first 90 days of the well's life. In the first half of 2019, produced water costs represented approximately 80% of total lease operating expenses. Assuming Antero Midstream implements the expanded produced water services, Antero expects it will result in at least a 20% reduction in lease operating costs in 2020 compared to 2019 budgeted costs. Antero estimates lease operating expense savings of at least $50 million on an annualized basis once the expanded produced water services and blending and polishing operations are fully implemented.
Preliminary 2020 Outlook
Antero Resources is targeting 110 to 120 completions in 2020, with an average lateral length of 12,100 feet as compared to 115 to 125 completions in 2019 with an average lateral of 10,200 feet. This represents a 14% increase in total lateral feet completed. Despite the increase in lateral feet completed, Antero's preliminary drilling and completion capital budget for 2020 is $1.2 billion to $1.3 billion. This is a result of the aforementioned 10% to 14% well cost reduction initiative combined with the 19% increase in the average lateral length to be completed in 2020 compared to 2019. In addition to drilling and completion capital, Antero is targeting a land capital budget of approximately $75 million, resulting in a total preliminary capital budget of $1.275 to $1.375 billion.
Based on current strip pricing of $2.45 per MMBtu natural gas, $29 per barrel C3+ NGLs, and $56 per barrel oil, the 2020 drilling and completion capital budget is expected to be funded with cash flow from operations and $125 million from a water earn-out payment from Antero Midstream. Additionally, approximately $150 million net to Antero from previously disclosed natural gas pricing disputes that have been ruled in favor of Antero are expected to be included in cash flow from operations in 2020. Assuming strip pricing, an estimated $350 million of realized hedge gains will more than offset all of Antero's expected net marketing expense in 2020. Antero's 2020 capital budget is subject to Board approval and will be finalized at year-end 2019 based on the commodity price outlook and various other considerations at that time.
Natural Gas Hedges
During the second quarter of 2019, Antero added NYMEX Henry Hub-based natural gas fixed price swaps for 2020 and 2021 of 810 MMBtu/d at a weighted average price of $2.66 per MMBtu and 300 MMBtu/d at a weighted average price of $2.60 per MMBtu, respectively.
As a result, Antero's natural gas production is nearly fully hedged for the remainder of 2019 and for all of 2020, and partially hedged in future years.
- For the second half of 2019, the Company is 100% hedged on expected natural gas production with the combination of fixed price swaps and collars at the midpoint of 2019 guidance of 2,225 to 2,275 MMcf/d. Natural gas volumes of 2,330 BBtu/d are hedged for the second half of 2019, including 755 BBtu/d in fixed price swaps with a weighted average price of $3.39/MMBtu.
- In 2020, the company is 90% hedged on expected natural gas production, assuming a 10% increase in natural gas production over the midpoint of 2019 guidance. Antero has 2,228 BBtu/d in natural gas volumes hedged at a weighted average price of $2.87/MMBtu.
- In 2021, the company is over 35% hedged on expected natural gas production, assuming a 10% increase in natural gas production over 2020 target production. Antero has 1,010 BBtu/d in natural gas volumes hedged at a weighted average price of $2.88/MMBtu.
Antero has been at the forefront of commodity price risk management through its comprehensive natural gas hedging program, and actions taken during the second quarter of 2019 further support Antero's strategic objectives. The mitigation of commodity price volatility risk through hedging provides key benefits to Antero, most importantly the ability to protect the Company from downside commodity price risk and maintain the Company's development program, which lead to more efficient development at lower overall costs, supporting EBITDAX margins.
2019 Guidance Update
Natural Gas Pricing Update
In 2019, Antero expects to realize a $0.10 to $0.15 per Mcf price premium relative to NYMEX Henry Hub prices for natural gas sales, compared to the original guidance range of a $0.15 to $0.20 per Mcf premium issued in January 2019. The Company continues to see favorable price mix impacts from natural gas volumes sold in higher priced geographic markets including the Gulf Coast and Midwest. However, NYMEX Henry Hub commodity futures prices for the full year have declined by approximately 15% since the issuance of guidance in January. The reduction in natural gas pricing through the year directly results in a lower overall BTU upgrade and premium to NYMEX for Antero's natural gas sales.
Cash Production and Net Marketing Expense
Antero is forecasting a decrease in cash production expenses during 2019 to a range of $2.15 to $2.20 per Mcfe from the prior guidance range of $2.15 to $2.25 per Mcfe. Cash production expenses includes lease operating expenses (LOE), gathering, compression, processing, transportation expenses and production and ad valorem taxes. The decrease is driven primarily by lower transportation costs as a result of utilizing lower cost transportation for Antero's gas production. Based on current strip pricing, Antero expects to continue to utilize the lower cost transport and leave higher cost transport unutilized. As a result, Antero is increasing its net marketing expense guidance to a range of $0.225 to $0.25 per Mcfe, as compared to the original guidance of $0.175 to $0.225 per Mcfe.
Any 2019 projections not discussed in this release are unchanged from previously stated guidance.
Second Quarter 2019 Financial Results
For the three months ended June 30, 2019, Antero reported GAAP net income of $42 million, or $0.14 per diluted share, compared to GAAP net loss of $136 million, or $0.43 per diluted share, in the prior year period. Excluding items detailed in "Non-GAAP Financial Measures," Adjusted Net Loss was $66 million, or $0.21 per diluted share, compared to Adjusted Net Loss of $2 million during the three months ended June 30, 2018, or $0.01 per diluted share.
Adjusted EBITDAX was $252 million, a 25% decrease compared to $335 million in the prior year period due to lower commodity pricing.
The following table details the components of average net production and average realized prices for the three months ended June 30, 2019:
| | | Three months ended June 30, 2019 | | |||||||||||||
| | | Natural Gas | | Oil (Bbl/d) | | C3+ NGLs | | Ethane (Bbl/d) | | Combined | | |||||
| Average Net Production | | | 2,288 | | | 10,331 | | | 105,228 | | | 40,882 | | | 3,226 | |
| | | | | | | | | | | | | | | | | |
| Average Realized Prices | | Natural Gas ($/Mcf) | | Oil ($/Bbl) | | C3+ NGLs ($/Bbl) | | Ethane ($/Bbl) | | Combined | | |||||
| Average realized prices before settled derivatives | | $ | 2.66 | | $ | 52.19 | | $ | 28.57 | | $ | 8.16 | | $ | 3.09 | |
| Settled commodity derivatives | | | 0.20 | | | 1.30 | | | 0.10 | | | — | | | 0.15 | |
| Average realized prices after settled derivatives | | $ | 2.86 | | $ | 53.49 | | $ | 28.67 | | $ | 8.16 | | $ | 3.24 | |
| | | | | | | | | | | | | | | | | |
| NYMEX average price | | $ | 2.64 | | $ | 59.78 | | | | | | | | $ | 2.64 | |
| Premium / (Differential) to NYMEX | | $ | 0.22 | | $ | (6.29) | | | | | | | | $ | 0.60 | |
Net daily natural gas equivalent production in the second quarter averaged 3,226 MMcfe/d, including 156,441 Bbl/d of liquids (29% of production), an increase of 28% compared to the prior year period.
Total liquids production grew 38% compared to the prior year period. Liquids revenue represented approximately 39% of total product revenue before hedges. Oil production averaged 10,331 Bbl/d, an increase of 49% over the prior year period. C3+ NGLs production averaged 105,228 Bbl/d, an increase of 49% over the prior year period. Recovered ethane production averaged 40,882 Bbl/d, an increase of 13% over the prior year period.
Antero's average realized natural gas price before hedging was $2.66 per Mcf, representing a 6% decrease versus the prior year period and a $0.02 per Mcf premium to the average NYMEX Henry Hub price. Including hedges, Antero's average realized natural gas price was $2.86 per Mcf, a $0.22 premium to the average NYMEX price, reflecting the realization of a cash settled natural gas hedge gain of $43 million, or $0.20 per Mcf.
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