Antero Resources Reports Second Quarter 2012 Results and Delivers Operating Update

DENVER, Aug. 13, 2012 /PRNewswire/ --

Highlights:

  • Net production averaged 348 MMcfed, up 57% over the prior-year quarter
  • Consolidated EBITDAX was $106 million, up 38% over the prior-year quarter
  • Closed $445 million Arkoma Basin asset sale in June
  • Completed first two horizontal wells in the Utica Shale play in Ohio with encouraging results
  • Current net production of 310 MMcfed following Arkoma sale — 243 MMcfd net from the Marcellus alone
  • 11 Antero operated drilling rigs currently running in Appalachian core areas
  • Natural gas hedges increased by 3% to 848 Bcfe through 2017 at $5.13 NYMEX-equivalent

Antero Resources today released its second quarter 2012 results. Those financial statements are included in Antero Resources LLC's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, which has been filed with the Securities and Exchange Commission.

Recent Developments
On June 29, 2012, Antero Resources completed the sale of its exploration and production assets in the Arkoma Basin (along with the associated commodity hedges) to Vanguard Natural Resources, LLC.  Net proceeds from the sale at closing after purchase price adjustments for revenues and costs realized during the quarter were $435 million and Antero recognized a $427 million noncash loss on the sale.  At June 30, 2012, after the repayment of a portion of outstanding borrowings with the proceeds of the Arkoma Basin asset sale, Antero had $90 million of borrowings and $40 million of letters of credit outstanding leaving $620 million of available lender commitments under the Credit Facility.  The next regular borrowing base redetermination is expected to occur in October 2012. 

In this release, Antero's results are presented two ways: (1) in accordance with GAAP, where the results of operations of the Arkoma Basin assets and the loss on the sale are presented as discontinued operations and (2) in a non-GAAP manner, where the results of operations of the Arkoma Basin assets (prior to the sale) and the loss on the sale are aggregated with the Company's results from continuing operations.  Antero is including this presentation in order to more clearly illustrate what its results of operations during the period were.  However, investors should be cautioned that this non-GAAP presentation is not representative of Antero's future operations, which will no longer include Arkoma Basin assets and revenues.  See "Non-GAAP Financial Measures" for reconciliation between these two presentations.

Financial Results for the Second Quarter
Production for the second quarter of 2012 increased by 57% to 32 Bcfe relative to the second quarter of 2011, in each case including the production from the Arkoma Basin.  The net production increase was primarily driven by new wells in the Marcellus Shale and the Piceance Basin.  Net production of 32 Bcfe for the quarter was comprised of 30 Bcf of natural gas, 266,000 barrels of NGLs and 81,000 barrels of oil, representing a 10% sequential increase over the first quarter of 2012.  Net daily production averaged 348 MMcfed for the second quarter, a record high for Antero, and was comprised of 325 MMcfd of natural gas (93%), 2,922 Bbl/d of NGLs (5%) and 886 Bbl/d of crude oil (2%).  Net NGL production increased 77% over the second quarter of 2011.  Excluding the Arkoma Basin assets, net production increased 82% from the second quarter of 2011 to 25 Bcfe or 271 MMcfed, in the second quarter of 2012. 

GAAP revenues for the second quarter of 2012 decreased by 64% compared to the second quarter of 2011 to $61 million, primarily due to a $70 million unrealized loss on commodity derivatives in 2012 compared to a $90 million unrealized gain on commodity derivatives in the prior year quarter.  Reported GAAP earnings resulted in a net loss of $478 million for the three months ended June 30, 2012, including a loss on the sale of the Arkoma Basin assets of $427 million, a $70 million unrealized loss on commodity derivatives as natural gas prices increased from the prior quarter, and a $16 million deferred income tax benefit.  Gas-equivalent prices, after adjusting for all realized gains on commodity derivatives, averaged $5.30 per Mcfe.

(The non-GAAP amounts presented below combine the Arkoma Basin operations with the Company's other operations.  See "Non-GAAP Financial Measures" for a definition of each of these non-GAAP financial measures and tables that reconcile each of these non-GAAP measures to their most directly comparable GAAP financial measure.)

Non-GAAP adjusted net revenues for the second quarter 2012 increased 39% to $163 million compared to the second quarter of 2011 (including cash-settled derivatives but excluding unrealized derivative gains and losses).  For a reconciliation of adjusted net revenues to revenues from operations (GAAP), please read "Non-GAAP Financial Measures".  Liquids production (NGLs and oil) contributed 19% of revenues before commodity hedges during the second quarter of 2012 compared to 11% in the prior year quarter.  Average natural gas prices before hedges decreased 52% from the prior-year quarter to $2.20 per Mcf and average natural gas-equivalent prices before hedges decreased 48% to $2.53 per Mcfe.  Additionally, average realized gas prices including hedges decreased by 11% to $5.00 per Mcf.  Average realized NGL prices decreased by 38% to $32.73 per barrel, while average realized oil prices including hedges increased by 3% to $77.49 per barrel. 

Average gas-equivalent prices, including NGLs, oil and hedges, decreased 12% to $5.14 per Mcfe.  For the quarter, Antero realized natural gas hedging gains of $83 million, or $2.61 per Mcfe.  However, due to the fact that expiring financial hedges are settled and realized on a monthly basis while long-term non-expiring hedges are marked to market at the end of the quarter, we realized gains on hedges that expired during the quarter while we realized a loss on long-term non-expiring hedges as natural gas prices rose near the end of the second quarter of 2012.

Excluding the unrealized gain on commodity derivatives, the loss on asset sale, and deferred income tax benefit, adjusted net income, a non-GAAP measure, was $22 million for the quarter.  Driven by a 39% increase in revenues, cash flow from operations before changes in working capital, a non-GAAP measure, increased 31% from the prior-year quarter to $77 million.  EBITDAX of $106 million for the second quarter of 2012 was 38% higher than the prior-year quarter, also primarily due to increased production.   For a description of EBITDAX, adjusted net income and cash flow from operations before changes in working capital and reconciliation to the nearest comparable GAAP measures, please read "Non-GAAP Financial Measures".

Per unit cash production costs (lease operating, gathering, compression and transportation, and production tax) including the Arkoma Basin assets for the second quarter of 2012 were $1.49 per Mcfe, a 4% improvement from the prior year quarter.  This improvement was primarily driven by increased production volumes from new Marcellus Shale wells that generally have low per unit production costs compared to the Company's existing production base.  Per unit depreciation, depletion and amortization expense decreased 12% from the prior year quarter to $1.71 per Mcfe, driven by low cost reserve increases.  On a per unit basis including the Arkoma Basin assets, general and administrative expense for the second quarter 2012 was $0.33 per Mcfe, a 20% decline from the second quarter of 2011, primarily driven by the increase in gas-equivalent production.

Antero Operations
Antero's current gross operated production is 378 MMcfd, and estimated net production is 310 MMcfed, including non-operated production, NGLs and oil.  During the first six months of 2012, Antero completed 22 gross operated wells (20 net wells) and currently has 27 gross operated wells (26 net wells) in various stages of drilling, completion or waiting on completion.

Marcellus Shale — Antero is operating ten drilling rigs in the Marcellus Shale play, all of which are drilling in northern West Virginia.  The Company plans to add an 11th drilling rig in August and a 12th rig in October 2012.  Antero has 315 MMcfd of gross operated production in the play of which 98% is coming from 88 horizontal Marcellus Shale wells, resulting in 243 MMcfd of net production.  Antero has 19 horizontal wells either completing or waiting on completion and has two fully-dedicated frac crews currently working in West Virginia along with intermittent spot crews as needed.  A third Antero-dedicated frac crew is scheduled to begin work in the fourth quarter of 2012.  The 88 horizontal Marcellus wells that Antero has completed to date have an average lateral length of 6,550'.  In the second quarter of 2012, Antero completed 13 horizontal Marcellus Shale wells with an average 24-hour peak rate of 14.0 MMcfd and an average lateral length of approximately 7,200'.

There continues to be a number of infrastructure projects underway in Harrison and Doddridge Counties, West Virginia that will facilitate rich gas transportation to the 200 MMcfd Sherwood I gas processing plant which is scheduled to start up late in the third quarter of 2012.   Antero has committed to a second 200 MMcfd gas processing plant, Sherwood II, to be located on the same site as Sherwood I.  Sherwood II is expected to go in service in the second quarter of 2013.  Antero has also committed to the fabrication of a third 200 MMcfd gas processing plant, Sherwood III, giving Antero access to a total of 600 MMcfd of gas processing capacity by the end of 2013.

MarkWest is also building the Zinnia high pressure pipeline lateral and the Pike Fork high pressure lateral which will transport rich gas production from western Harrison and eastern Doddridge Counties to the Sherwood processing plants.  The high pressure laterals are expected to be in service when the Sherwood I plant goes online in the third quarter of 2012 and will move rich gas that is gathered by Crestwood Midstream Partners in the area of dedication to the Sherwood gas processing facilities.

Antero is building the 17-mile Canton low pressure pipeline lateral which will gather rich gas in northern Doddridge County and deliver the gas to the Sherwood I plant.  The southern section of the Canton low pressure lateral is expected to be in service when the Sherwood I plant goes in service with the remainder of the pipeline expected to go in service in the fourth quarter of 2012.  MarkWest is also building compression facilities located at the Sherwood I plant to serve the Canton low pressure lateral.  Antero is building the White Oak high pressure lateral which will transport rich gas production from western Doddridge County to the Sherwood processing facilities.  The White Oak lateral is expected to be in service in the fourth quarter of 2012 along with initial compression facilities.

Antero has 258,000 net acres in the Marcellus Shale play of which only 16% was associated with proved reserves at mid-year 2012.

Utica Shale Antero has assembled a 56,000 net acre leasehold position in the Utica Shale play of eastern Ohio.  Almost all of the acreage is located in the rich gas/condensate window of the Utica Shale play.  Antero has completed two horizontal wells with encouraging results and is currently drilling a third horizontal well.  The two completed wells are shut-in waiting on pipeline and processing infrastructure.

Piceance Basin — Antero is no longer operating a drilling rig in the Piceance Basin as of late July 2012 when its drilling contract expired. The Company's gross operated production in the Piceance is currently 63 MMcfd and 67 MMcfed net including 2 MMcfed of non-operated production from 231 wells online.  The 67 MMcfed net is comprised of approximately 44 MMcfd of tailgate gas, 3,200 Bbls/d of NGLs and 800 Bbls/d of light oil.  Antero has eight Mesaverde wells waiting on completion in its Gravel Trend rich gas area and has one frac crew currently working in the basin.

Antero has 62,000 net acres in the Piceance.

Commodity Hedges
Antero has hedged 848 Bcfe for the period beginning in the third quarter of 2012 through the end of 2017 using simple fixed price swaps at an average NYMEX-equivalent price of $5.13 per MMBtu.  Approximately 80% of estimated production for the last six months of 2012 is hedged at a NYMEX-equivalent price of $5.52 per MMBtu and approximately 70% of estimated 2013 production is hedged at a NYMEX-equivalent price of $5.14 per MMBtu.  Virtually all of Antero's financial hedges are tied to the local basin.  In the following table, these basin prices are converted to NYMEX-equivalent prices using current basis differentials in the over-the-counter futures market.  Antero has ten different counterparties to its hedge contracts, all but one of which are lenders in the Company's bank credit facility.



Natural gas
equivalent


NYMEX-
equivalent


Calendar Year


MMBtu/day


index price


2012


263,443


$

5.52


2013


374,333


$

5.14


2014


420,000


$

5.36


2015


450,000


$

5.44


2016


532,500


$

5.07


2017


410,000


$

4.37


Non-GAAP Financial Measures
The table below reconciles the Company's GAAP results from continuing operations to Non-GAAP results including operations of the Arkoma Basin assets (prior to the sale) and the loss on the sale.  Antero is including this presentation in order to more clearly illustrate its results of operations during the period:

ANTERO RESOURCES LLC
Statements of Operations and Additional Data
Based on GAAP reported earnings with additional
Details of items included in each line in Form 10-Q



Three Months Ended June 30, 2011


Three Months Ended June 30, 2012






Arkoma


Including




Arkoma


Including




As


Discontinued


Arkoma


As


Discontinued


Arkoma




Reported


Operations


Operations


Reported


Operations


Operations




(in thousands, except per unit and production data)


Operating revenues:














Natural gas sales


$

60,138


26,557


86,695


52,531


12,496


65,027


NGL sales


4,983


2,993


7,976


6,057


2,644


8,701


Oil sales


2,297


591


2,888


6,072


268


6,340


Realized commodity derivative gains


12,260


7,060


19,320


65,873


16,638


82,511


Unrealized commodity derivative gains


89,621


8,194


97,815


(69,576)


(19,525)


(89,101)


Total operating revenues


169,299


45,395


214,694


60,957


12,521


73,478


Operating expenses:














Lease operating expenses


6,160


1,523


7,683


5,761


2,436


8,197


Gathering, compression and transportation


12,256


7,551


19,807


27,256


6,975


34,231


Production taxes


3,967


142


4,109


4,403


232


4,635


Exploration expenses


2,077


227


2,304


3,031


121


3,152


Impairment of unproved properties


131


651


782


1,538



1,538


Depletion, depreciation and amortization


21,580


17,399


38,979


36,306


17,600


53,906


Accretion of asset retirement obligations


84


25


109


108


29


137


General and administrative


8,207



8,207


10,473



10,473


Loss on sale of compressor station


8,700



8,700





Total operating expenses


63,162


27,518


90,680


88,876


27,393


116,269


Operating income


106,137


17,877


124,014


(27,919)


(14,872)


(42,791)


Interest expense and loss on interest rate derivatives


(15,606)



(15,606)


(24,223)



(24,223)


Income (loss) before income taxes


90,531


17,877


108,408


(52,142)


(14,872)


(67,014)


Income tax benefit (expense)


(33,785)



(33,785)


16,159



16,159


Income from continuing operations


56,746


17,877


74,623


(35,983)


(14,872)


(50,855)


Income (loss) from discontinued operations and sale

   of discontinued operations


17,877


(17,877)



(442,104)


14,872


(427,232)


Net income (loss) attributable to Antero members


$

74,623



74,623


(478,087)



(478,087)
















Production data:














Natural gas (Bcf)


13


6


19


23


7


30


NGLs (MBbl)


93


57


150


188


78


266


Oil (MBbl)


26


8


34


78


3


81


Combined (Bcfe)


14


6


20


25


7


32


Daily combined production (MMcfe/d)


149


72


221


271


77


348


Average prices before effects of hedges:














Natural gas (per Mcf)


$

4.68


$

4.30


$

4.56


$

2.28


$

1.92


$

2.20


NGLs (per Bbl)


$

53.67


$

51.94


$

53.01


$

32.28


$

33.80


$

32.73


Oil (per Bbl)


$

88.08


$

78.70


$

85.98


$

78.04


$

94.04


$

78.60


Combined (per Mcfe)


$

4.97


$

4.59


$

4.85


$

2.62


$

2.20


$

2.53


Average realized prices after effects

  of hedges:














Natural gas (per Mcf)


$

5.67


$

5.44


$

5.59


$

5.14


$

4.47


$

5.00


NGLs (per Bbl)


$

53.67


$

51.94


$

53.01


$

32.28


$

33.80


$

32.73


Oil (per Bbl)


$

74.69


$

78.70


$

75.59


$

76.88


$

94.04


$

77.49


Combined (per Mcfe)


$

5.88


$

5.66


$

5.81


$

5.30


$

4.58


$

5.14


Average Costs (per Mcfe):














Lease operating costs


$

0.45


$

0.23


$

0.38


$

0.23


$

0.35


$

0.26


Gathering, compression, and transportation


$

0.90


$

1.15


$

0.98


$

1.11


$

1.00


$

1.08


Production taxes


$

0.29


$

0.02


$

0.20


$

0.18


$

0.03


$

0.15


Depletion, depreciation, amortization and accretion


$

1.59


$

2.65


$

1.94


$

1.47


$

2.52


$

1.71


General and administrative


$

0.61


$


$

0.41


$

0.43


$


$

0.33































ANTERO RESOURCES LLC
Statements of Operations and Additional Data
Based on GAAP reported earnings with additional
Details of items included in each line in Form 10-Q

 



Six Months Ended June 30, 2011


Six Months Ended June 30, 2012






Arkoma


Including




Arkoma


Including




As


Discontinued


Arkoma


As


Discontinued


Arkoma




Reported


Operations


Operations


Reported


Operations


Operations




(in thousands, except per unit and production data)


Operating revenues:














Natural gas sales


$

96,961


50,592


147,533


107,281


31,432


138,713


NGL sales


8,338


5,223


13,561


15,245


4,913


20,158


Oil sales


4,449


967


5,416


13,325


357


13,682


Realized commodity derivative gains


31,735


16,823


48,558


128,909


33,681


162,590


Unrealized commodity derivative gains


26,953


(6,404)


20,549


124,887


(11,025)


113,862


Gain on sale of assets





291,305



291,305


Total operating revenues


168,436


67,201


235,637


680,952


59,358


740,310


Operating expenses:














Lease operating expenses


11,400


3,584


14,984


12,180


4,344


16,524


Gathering, compression and transportation


21,892


15,065


36,957


45,912


16,267


62,179


Production taxes


6,668


569


7,237


9,794


417


10,211


Exploration expenses


4,934


499


5,433


4,899


269


5,168


Impairment of unproved properties


2,176


924


3,100


2,165


409


2,574


Depletion, depreciation and amortization


38,748


33,900


72,648


65,678


35,900


101,578


Accretion of asset retirement obligations


156


49


205


209


56


265


General and administrative


14,568



14,568


19,646



19,646


Loss on sale of compressor station


8,700



8,700





Total operating expenses


109,242


54,590


163,832


160,483


57,662


218,145


Operating income


59,194


12,611


71,805


520,469


1,696


522,165


Interest expense and loss on interest rate derivatives


(30,754)



(30,754)


(48,593)



(48,593)


Income (loss) before income taxes


28,440


12,611


41,051


471,876


1,696


473,572


Income tax benefit (expense)


(25,363)



(25,363)


(196,696)



(196,696)


Income from continuing operations


3,077


12,611


15,688


275,180


1,696


276,876


Income (loss) from discontinued operations and

  sale of discontinued operations


12,611


(12,611)



(425,536)


(1,696)


(427,232)


Net income (loss) attributable to Antero
           members


$

15,688



15,688


(150,356)



(150,356)
















Production data:














Natural gas (Bcf)


22


12


34


43


14


56


NGLs (MBbl)


177


99


276


415


123


538


Oil (MBbl)


54


12


66


157


4


161


Combined (Bcfe)


23


13


36


46


14


60


Daily combined production (MMcfe/d)


126


71


197


253


79


332


Average prices before effects of hedges:














Natural gas (per Mcf)


$

4.51


$

4.17


$

4.39


$

2.52


$

2.31


$

2.47


NGLs (per Bbl)


$

47.10


$

52.62


$

49.08


$

36.75


$

39.93


$

37.47


Oil (per Bbl)


$

83.10


$

81.88


$

82.88


$

84.73


$

93.95


$

84.95


Combined (per Mcfe)


$

4.80


$

4.43


$

4.67


$

2.95


$

2.56


$

2.86


Average realized prices after effects of hedges:














Natural gas (per Mcf)


$

6.01


$

5.55


$

5.84


$

5.55


$

4.79


$

5.36


NGLs (per Bbl)


$

47.10


$

52.62


$

49.08


$

36.75


$

39.93


$

37.47


Oil (per Bbl)


$

73.81


$

81.88


$

75.27


$

81.95


$

93.95


$

82.23


Combined (per Mcfe)


$

6.18


$

5.75


$

6.03


$

5.74


$

4.90


$

5.55


Average Costs (per Mcfe):














Lease operating costs


$

0.50


$

0.28


$

0.42


$

0.26


$

0.30


$

0.27


Gathering, compression, and transportation


$

0.96


$

1.18


$

1.04


$

1.00


$

1.13


$

1.03


Production taxes


$

0.29


$

0.04


$

0.20


$

0.21


$

0.03


$

0.17


Depletion, depreciation, amortization
      and accretion


$

1.69


$

2.65


$

2.04


$

1.43


$

2.51


$

1.69


General and administrative


$

0.64


$


$

0.41


$

0.43


$


$

0.33






























Adjusted net revenue as set forth in this release represents total operating revenues adjusted for certain non-cash items including unrealized derivative gains and losses and gains and losses on asset sales.  We believe that adjusted net revenue is useful to investors in evaluating operational trends of the Company and its performance relative to other oil and gas producing companies.  Adjusted net revenue is not a measure of financial performance under GAAP and should not be considered in isolation or as a substitute for total operating revenues as an indicator of financial performance.  The following table reconciles total operating revenues to total adjusted net revenues:

 



Three months ended
June 30,


Six months ended
June 30,




2012


2011


2012


2011












Total revenues from continuing operations


$

60,957


$

169,299


$

680,952


$

168,436


Total revenues from discontinued operations



12,521



45,395



59,358



67,201


Total revenues


$

73,478


$

214,694


$

740,310


$

235,637


Gain on sale of assets




(291,305)



Unrealized commodity derivative (gains) losses


89,101


(97,815)


(113,862)


(20,549)


Adjusted net revenues


$

162,579


$

116,879


$

335,143


$

215,088


 

Adjusted net income as set forth in this release represents income from operations before deferred income taxes, adjusted for certain non-cash items from operations and discontinued operations.  We believe that adjusted net income is useful to investors in evaluating operational trends of the Company and its performance relative to other oil and gas producing companies.  Adjusted net income is not a measure of financial performance in accordance with GAAP and should not be considered in isolation or as a substitute for net income (loss) as an indicator of financial performance.  The following table reconciles income from operations to adjusted net income:

 



Three months ended
June 30,


Six months ended
June 30,




2012


2011


2012


2011












Net income (loss)


$

(478,087)


$

74,623


$

(150,356)


$

15,688


Unrealized commodity derivative (gains) losses


89,101


(97,815)


(113,862)


(20,549)


Loss on sale of Arkoma Basin assets


427,232




427,232




Gain on sale of Marcellus gathering assets






(291,305)




Loss on sale of compressor station


-


8,700


-


8,700


Income tax expense (benefit)


(16,159)


33,785


196,696


25,363


Adjusted net income


$

22,087


$

19,293


$

68,405


$

29,202


 

Cash flow from operations before changes in working capital as presented in this release represents net cash provided by operations before changes in working capital. Cash flow from operations before changes in working capital is widely accepted by the investment community as a financial indicator of an oil and gas company's ability to generate cash to internally fund exploration and development activities and to service debt. Cash flow from operations before changes in working capital is also useful because it is widely used by professional research analysts in valuing, comparing, rating and providing investment recommendations of companies in the oil and gas exploration and production industry. In turn, many investors use this published research in making investment decisions. Cash flow from operations before changes in working capital is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operations, investing, or financing activities, as an indicator of cash flows, or as a measure of liquidity. The following table reconciles net cash provided by operating activities to cash flow from operations before changes in working capital as used in this release:



Three months ended
June 30,


Six months ended
June 30,




2012


2011


2012


2011












Net cash provided by operating activities


$

60,493


$

41,736


$

160,984


$

111,903


Net change in working capital


(16,654)


(17,101)


4,040


6,451


Cash flow from operations before

   changes in working capital


$

77,147


$

58,837


$

156,944


$

105,452


 

EBITDAX is a non-GAAP financial measure that we define as net income before interest expense and other income or expense, taxes, impairments, depletion, depreciation, amortization, exploration expense, unrealized hedge gains or losses, gain or loss on sale of assets, franchise taxes and expenses related to business acquisitions.  EBITDAX, as used and defined by us, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with GAAP. EBITDAX should not be considered in isolation or as a substitute for operating income, net income or loss, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP. EBITDAX provides no information regarding a company's capital structure, borrowings, interest costs, capital expenditures, and working capital movement or tax position. EBITDAX does not represent funds available for discretionary use because those funds are required for debt service, capital expenditures, working capital, and other commitments and obligations. However, our management team believes EBITDAX is useful to an investor in evaluating our operating performance because this measure is widely used by investors in the natural gas and oil industry to measure a company's operating performance without regard to items excluded from the calculation of such term, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors; helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating structure; and is used by our management team for various purposes, including as a measure of operating performance, in presentations to our board of directors, as a basis for strategic planning and forecasting and by our lenders pursuant to a covenant under our senior secured revolving credit facility.  EBITDAX is also used as a measure of operating performance pursuant to a covenant under the indenture governing our 9.375% and 7.25% senior notes.

There are significant limitations to using EBITDAX as a measure of performance, including the inability to analyze the effect of certain recurring and non-recurring items that materially affect our net income or loss, the lack of comparability of results of operations of different companies and the different methods of calculating EBITDAX reported by different companies. The following table represents a reconciliation of our net income to EBITDAX for the three and six months ended June 30, 2010 and 2011:

 



Three months ended
June 30,


Six months ended
June 30,




2012


2011


2012


2011


Net income (loss)


$

(478,087)


$

74,623


$

(150,356)


$

15,688


Unrealized loss (gain) on commodity

  derivative contracts


89,101


(97,814)


(113,862)


(20,549)


Interest expense and other


24,223


15,606


48,593


30,754


Provision (benefit) for income taxes


(16,159)


33,785


196,696


25,363


Depreciation, depletion, amortization

 and accretion


54,044


39,088


101,844


72,853


Impairment of unproved properties


1,538


782


2,574


3,100


Exploration expense


3,151


2,304


5,167


5,433


Loss on sale of Arkoma Basin assets


427,232



427,232



Gain on sale of gathering systems




(291,305)



Loss on sale of compressor station



8,700



8,700


Other


1,196


156


1,996


523


EBITDAX


$

106,239


$

77,230


$

228,579


$

141,865


 

The cash prices realized for oil, NGLs and natural gas production including the amounts realized on cash settled derivatives are a critical component in the Company's performance tracked by investors and professional research analysts in valuing, comparing, rating and providing investment recommendations and forecasts of companies in the oil and gas exploration and production industry. In turn, many investors use this published research in making investment decisions. Due to the GAAP disclosures of various hedging and derivative transactions, such information is now reported in various lines of the income statement.

Antero Resources is an independent oil and natural gas company engaged in the acquisition, development and production of unconventional natural gas properties primarily located in the Appalachian Basin in West Virginia, Pennsylvania and Ohio and the Piceance Basin in Colorado.  Our website is www.anteroresources.com.

This release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond Antero's control. All statements, other than historical facts included in this release, are forward-looking statements. All forward-looking statements speak only as of the date of this release. Although Antero believes that the plans, intentions and expectations reflected in or suggested by the forward-looking statements are reasonable, there is no assurance that these plans, intentions or expectations will be achieved. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the exploration for and development, production, gathering and sale of natural gas and oil.  These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating natural gas and oil reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, 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, 2011.

ANTERO RESOURCES LLC
Condensed Consolidated Balance Sheets
December 31, 2011 and June 30, 2012
(Unaudited)
(In thousands)

 



2011


2012


Assets






Current assets:






Cash and cash equivalents


$

3,343


5,575


Accounts receivable — trade, net of allowance for doubtful

 accounts of $182 and $10 in 2011 and 2012, respectively


25,117


36,720


Notes receivable — short-term portion


7,000


8,333


Accrued revenue


35,986


17,451


Derivative instruments


248,550


220,361


Other


13,646


13,911


Total current assets


333,642


302,351


Property and equipment:






Natural gas properties, at cost (successful efforts method):






Unproved properties


834,255


984,105


Producing properties


2,497,306


1,925,216


Gathering systems and facilities


142,241


113,270


Other property and equipment


8,314


9,615




3,482,116


3,032,206


Less accumulated depletion, depreciation, and amortization


(601,702)


(353,406)


Property and equipment, net


2,880,414


2,678,800


Derivative instruments


541,423


575,255


Notes receivable — long-term portion


5,111


3,333


Other assets, net


28,210


26,343


Total assets


$

3,788,800


3,586,082


Liabilities and Equity






Current liabilities:






Accounts payable


$

107,027


132,998


Accrued liabilities


35,011


46,298


Revenue distributions payable


34,768


32,953


Advances from joint interest owners


2,944


2,239


Current income tax liability



10,300


Deferred income tax liability


75,308


86,978


Total current liabilities


255,058


311,766


Long-term liabilities:






Long-term debt


1,317,330


1,042,172


Deferred income tax liability


245,327


412,053


Other long-term liabilities


12,279


11,641


Total liabilities


1,829,994


1,777,632


Equity:






Members' equity


1,460,947


1,460,947


Accumulated earnings


497,859


347,503


Total equity


1,958,806


1,808,450


Total liabilities and equity


$

3,788,800


3,586,082


 


ANTERO RESOURCES LLC
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Three months ended June 30, 2011 and 2012
(Unaudited)
(In thousands)

 



2011


2012


Revenue:






Natural gas sales


$

60,138


52,531


Natural gas liquids sales


4,983


6,057


Oil sales


2,297


6,072


Realized and unrealized gain (loss) on commodity derivative

 instruments  (including unrealized gains (losses) of $89,621

 and $(69,576) in 2011 and 2012, respectively)


101,881


(3,703)


Total revenue


169,299


60,957


Operating expenses:






Lease operating expenses


6,160


5,761


Gathering, compression and transportation


12,256


27,256


Production taxes


3,967


4,403


Exploration expenses


2,077


3,031


Impairment of unproved properties


131


1,538


Depletion, depreciation and amortization


21,580


36,306


Accretion of asset retirement obligations


84


108


General and administrative


8,207


10,473


Loss on sale of assets


8,700



Total operating expenses


63,162


88,876


Operating income (loss)


106,137


(27,919)


Interest expense


(15,606)


(24,223)


Income (loss) from continuing operations before income

 taxes and discontinued operations  


90,531


(52,142)


Income tax (expense) benefit


(33,785)


16,159


Income (loss) from continuing operations


56,746


(35,983)


Discontinued operations:






Income (loss) from results of operations and sale of discontinued

 operations


17,877


(442,104)


Net income (loss) and comprehensive income (loss) attributable

  to Antero equity owners


$

74,623


(478,087)



 

ANTERO RESOURCES LLC
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Six months ended June 30, 2011 and 2012
(Unaudited)
(In thousands)

 



2011


2012


Revenue:






Natural gas sales


$

96,961


107,281


Natural gas liquids sales


8,338


15,245


Oil sales


4,449


13,325


Realized and unrealized gain on commodity derivative

  instruments (including unrealized gains of $26,953 and

  $124,887 in 2011 and 2012, respectively)


58,688


253,796


Gain on sale of gathering system



291,305


Total revenue


168,436


680,952


Operating expenses:






Lease operating expenses


11,400


12,180


Gathering, compression and transportation


21,892


45,912


Production taxes


6,668


9,794


Exploration expenses


4,934


4,899


Impairment of unproved properties


2,176


2,165


Depletion, depreciation and amortization


38,748


65,678


Accretion of asset retirement obligations


156


209


General and administrative


14,568


19,646


Loss on sale of assets


8,700



Total operating expenses


109,242


160,483


Operating income


59,194


520,469


Other expense:






Interest expense


(30,660)


(48,593)


Realized and unrealized losses on interest derivative instruments, net

  (including unrealized gains of $4,212 in 2011)


(94)



Total other expense


(30,754)


(48,593)


Income from continuing operations before income taxes and

  discontinued operations


28,440


471,876


Income tax expense


(25,363)


(196,696)


Income from continuing operations


3,077


275,180


Discontinued operations:






Income (loss) from results of operations and sale of discontinued

  operations


12,611


(425,536)


Net income (loss) and comprehensive income (loss) attributable to  

 Antero equity owners


$

15,688


(150,356)


 

ANTERO RESOURCES LLC
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2011 and 2012
(Unaudited)
(In thousands)

 



2011


2012


Cash flows from operating activities:






Net income (loss)


$

15,688


(150,356)


Adjustment to reconcile net income to net cash provided by operating

  activities:






Depletion, depreciation, and amortization


38,904


65,887


Impairment of unproved properties


2,176


2,165


Unrealized gains on derivative instruments, net


(31,165)


(124,887)


Loss on sale of discontinued operations



427,232


Loss (gain) on sale of assets


8,700


(291,305)


Depletion, depreciation, amortization and impairment of unproved

 properties — discontinued operations


34,873


36,365


Unrealized losses on derivative instruments, net — discontinued

 operations


6,404


11,025


Deferred taxes


25,363


178,396


Other


4,509


2,422


Changes in current assets and liabilities:






Accounts receivable


712


(15,791)


Accrued revenue


(11,894)


18,535


Other current assets


(2,745)


(3,162)


Accounts payable


(252)


(17,058)


Accrued liabilities


6,701


11,298


Revenue distributions payable


11,442


575


Advances from joint interest owners


2,487


(657)


Current income taxes payable



10,300


Net cash provided by operating activities


111,903


160,984


Cash flows from investing activities:






Additions to proved properties



(4,451)


Additions to unproved properties


(45,960)


(263,737)


Drilling costs


(229,122)


(377,199)


Additions to gathering systems and facilities


(49,953)


(47,982)


Additions to other property and equipment


(799)


(1,300)


Proceeds from asset sales


15,379


811,253


Changes in other assets


(2,635)


(257)


Net cash provided by (used in) investing activities


(313,090)


116,327


Cash flows from financing activities:






Borrowings (repayments) on bank credit facility, net


225,000


(275,000)


Distribution to members


(28,858)



Other



(79)


Net cash provided by (used in) financing activities


196,142


(275,079)


Net increase (decrease) in cash and cash equivalents


(5,045)


2,232


Cash and cash equivalents, beginning of period


8,988


3,343


Cash and cash equivalents, end of period


$

3,943


5,575


Supplemental disclosure of cash flow information:






Cash paid during the period for interest


$

(29,150)


(45,064)


Supplemental disclosure of noncash investing activities:






Changes in accounts payable for additions to properties, gathering

  systems and facilities


$

3,654


31,593


 

OPERATING DATA


The following table sets forth selected operating data for the three months ended June 30, 2011 compared to the three months ended June 30, 2012:

 



Three Months Ended
June 31,


Amount of
Increase


Percent 




2011


2012


(Decrease)


Change




(in thousands, except per unit and production data)


Operating revenues:










Natural gas sales


$

60,138



52,531



(7,607)


(13)

%

NGL sales


4,983


6,057


1,074


22

%

Oil sales


2,297


6,072


3,775


164

%

Realized commodity derivative gains


12,260


65,873


53,613


437

%

Unrealized commodity derivative gains (losses)


89,621


(69,576)


(159,197)


*


Total operating revenues


169,299


60,957


(108,342)


(64)

%

Operating expenses:










Lease operating expense


6,160


5,761


(399)


(6)

%

Gathering, compression and transportation


12,256


27,256


15,000


122

%

Production taxes


3,967


4,403


436


11

%

Exploration expenses


2,077


3,031


954


46

%

Impairment of unproved properties


131


1,538


1,407


1,074

%

Depletion, depreciation and amortization


21,580


36,306


14,726


68

%

Accretion of asset retirement obligations


84


108


24


29

%

General and administrative


8,207


10,473


2,266


28

%

Loss on sale of compressor station


8,700



(8,700)


*


Total operating expenses


63,162


88,876


25,714


41

%

Operating income (loss)


106,137


(27,919)


(134,056)


*


Interest expense


(15,606)


(24,223)


(8,617)


55

%

Income (loss) before income taxes


90,531


(52,142)


(142,673)


*


Income tax benefit (expense)


(33,785)


16,159


49,944


*


Income (loss) from continuing operations


56,746


(35,983)


(92,729)


*


Income (loss) from discontinued operations and sale of

 discontinued operations


17,877


(442,104)


(459,981)


*


Net income (loss) attributable to Antero members


$

74,623


(478,087)


(552,710)


*












EBITDAX


$

77,230



106,239



29,009


38

%











Production data:










Natural gas (Bcf)


13


23


10


79

%

NGLs (MBbl)


93


188


95


199

%

Oil (MBbl)


26


78


52


102

%

Combined (Bcfe)


14


25


11


82

%

Daily combined production (MMcfe/d)


149


271


122


82

%

Average prices before effects of hedges:










Natural gas (per Mcf)


$

4.68


$

2.28


$

(2.40)


(51)

%

NGLs (per Bbl)


$

53.67


$

32.28


$

(21.39)


(40)

%

Oil (per Bbl)


$

88.08


$

78.04


$

(10.04)


(11)

%

Combined (per Mcfe)


$

4.97


$

2.62


$

(2.35)


(47)

%

Average realized prices after effects of hedges:










Natural gas (per Mcf)


$

5.67


$

5.14


$

(0.53)


(9)

%

NGls (per Bbl)


$

53.67


$

32.28


$

(21.39)


(40)

%

Oil (per Bbl)


$

74.69


$

76.88


$

2.19


3

%

Combined (per Mcfe)


$

5.88


$

5.30


$

(0.58)


(10)

%

Average Costs (per Mcfe):










Lease operating costs


$

0.45


$

0.23


$

(0.22)


(49)

%

Gathering, compression and transportation


$

0.90


$

1.11


$

0.21


23

%

Production taxes


$

0.29


$

0.18


$

(0.11)


(38)

%

Depletion, depreciation, amortization and accretion


$

1.59


$

1.47


$

(0.12)


(8)

%

General and administrative


$

0.61


$

0.43


$

(0.18)


(30)

%


 

OPERATING DATA

The following table sets forth selected operating data for the six months ended June 30, 2011 compared to the six months ended June 30, 2012:

 



Six Months Ended
June 30,


Amount of
Increase


Percent




2011


2012


(Decrease)


Change




(in thousands, except per unit and production data)


Operating revenues:










Natural gas sales


$

96,961



107,281



10,320


11

%

NGL sales


8,338


15,245


6,907


83

%

Oil sales


4,449


13,325


8,876


200

%

Realized commodity derivative gains


31,735


128,909


97,174


306

%

Unrealized commodity derivative gains


26,953


124,887


97,934


363

%

Gain on sale of assets



291,305


291,305


*


Total operating revenues


168,436


680,952


512,516


304

%

Operating expenses:










Lease operating expense


11,400


12,180


780


7

%

Gathering, compression and transportation


21,892


45,912


24,020


110

%

Production taxes


6,668


9,794


3,126


47

%

Exploration expenses


4,934


4,899


(35)


(1)

%

Impairment of unproved properties


2,176


2,165


(11)


(1)

%

Depletion, depreciation and amortization


38,748


65,678


26,930


70

%

Accretion of asset retirement obligations


156


209


53


34

%

General and administrative


14,568


19,646


5,078


35

%

Loss on sale of compressor station


8,700



(8,700)


*


Total operating expenses


109,242


160,483


51,241


47

%

Operating income


59,194


520,469


461,275


779

%

Interest expense and loss on interest rate derivatives


(30,754)


(48,593)


(17,839)


58

%

Income (loss) before income taxes


28,440


471,876


443,436


1,559

%

Income tax expense


(25,363)


(196,696)


(171,333)


676

%

Income from continuing operations


3,077


275,180


272,103


8,843

%

Income (loss) from discontinued operations


12,611


(425,536)


(438,147)


*


Net income (loss) attributable to Antero members


$

15,688


(150,356)


(166,044)


*












EBITDAX


$

141,865



228,579


86,714


61

%











Production data:










Natural gas (Bcf)


22


43


21


98

%

NGLs (MBbl)


177


415


238


134

%

Oil (MBbl)


54


157


103


194

%

Combined (Bcfe)


23


46


23


101

%

Daily combined production (MMcfe/d)


126


253


127


101

%

Average prices before effects of hedges:










Natural gas (per Mcf)


$

4.51


$

2.52


$

(1.99)


(44)

%

NGLs (per Bbl)


$

47.10


$

36.75


$

(10.35)


(22)

%

Oil (per Bbl)


$

83.10


$

84.73


$

1.63


2

%

Combined (per Mcfe)


$

4.80


$

2.95


$

(1.85)


(39)

%

Average realized prices after effects of hedges:










Natural gas (per Mcf)


$

6.01


$

5.55


$

(0.46)


(8)

%

NGls (per Bbl)


$

47.10


$

36.75


$

(10.35)


(22)

%

Oil (per Bbl)


$