Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2014

 

OR

 

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

 

For the transition period from                    to                   

 

Commission file number: 001-36120

 

ANTERO RESOURCES CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

80-0162034

(State or other jurisdiction of
incorporation or organization)

 

(IRS Employer Identification No.)

 

 

 

1615 Wynkoop Street
Denver, Colorado

 

80202

(Address of principal executive offices)

 

(Zip Code)

 

(303) 357-7310

(Registrant’s telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  x Yes  o No

 

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

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

The registrant had 262,049,659 shares of common stock outstanding as of August 5, 2014.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

i

PART I—FINANCIAL INFORMATION

1

Item 1.

Financial Statements

1

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

34

Item 4.

Controls and Procedures

35

PART II—OTHER INFORMATION

36

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 6.

Exhibits

37

SIGNATURES

 

38

 



Table of Contents

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

The information in this report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q (this “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. When used, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended 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 forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” in this Form 10-Q.  These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.

 

Forward-looking statements may include statements about our:

 

·                  business strategy, including the proposed initial public offering of our midstream business;

 

·                  reserves;

 

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

 

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

 

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

 

·                  hedging strategy and results;

 

·                  future drilling plans;

 

·                  competition and government regulations;

 

·                  pending legal or environmental matters;

 

·                  marketing of natural gas, NGLs and oil;

 

·                  leasehold or business acquisitions;

 

·                  costs of developing our properties and conducting our midstream operations;

 

·                  general economic conditions;

 

·                  credit markets;

 

·                  uncertainty regarding our future operating results; and

 

·                  plans, objectives, expectations and intentions contained in this report that are not historical.

 

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, NGLs, 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, 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 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, 2013 (the “2013 Form 10-K”) on file with the Securities and Exchange Commission (the “SEC”) and in “Item 1A. Risk Factors” of this Form 10-Q.

 

Reserve engineering is a process of estimating underground accumulations of natural gas, NGLs, and oil that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reservoir engineers. In addition, the results of drilling, testing and production activities 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.

 

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

 

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

 

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

 

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Table of Contents

 

PART I—FINANCIAL INFORMATION

 

ANTERO RESOURCES CORPORATION

Condensed Consolidated Balance Sheets

December 31, 2013 and June 30, 2014

(Unaudited)

(In thousands, except share amounts)

 

 

 

2013

 

2014

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

17,487

 

19,273

 

Accounts receivable — trade, net of allowance for doubtful accounts of $1,251 in 2013 and 2014

 

30,610

 

46,532

 

Notes receivable - short-term portion

 

2,667

 

889

 

Accrued revenue

 

96,825

 

139,553

 

Derivative instruments

 

183,000

 

175,286

 

Other

 

2,975

 

5,695

 

Total current assets

 

333,564

 

387,228

 

Property and equipment:

 

 

 

 

 

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

 

 

 

 

 

Unproved properties

 

1,513,136

 

1,677,642

 

Proved properties

 

3,621,672

 

4,881,002

 

Fresh water distribution systems

 

231,684

 

346,851

 

Gathering systems and facilities

 

584,626

 

873,308

 

Other property and equipment

 

15,757

 

34,019

 

 

 

5,966,875

 

7,812,822

 

Less accumulated depletion, depreciation, and amortization

 

(407,219

)

(601,029

)

Property and equipment, net

 

5,559,656

 

7,211,793

 

Derivative instruments

 

677,780

 

354,254

 

Other assets, net

 

42,581

 

91,933

 

Total assets

 

$

6,613,581

 

8,045,208

 

 

See accompanying notes to consolidated financial statements.

 

 

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Balance Sheets

December 31, 2013 and June 30, 2014

(Unaudited)

(In thousands, except share amounts)

 

 

 

2013

 

2014

 

Liabilities and Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

370,640

 

500,774

 

Accrued liabilities

 

77,126

 

116,037

 

Revenue distributions payable

 

96,589

 

154,092

 

Deferred income tax liability

 

69,191

 

71,104

 

Derivative instruments

 

646

 

11,907

 

Other

 

8,037

 

6,800

 

Total current liabilities

 

622,229

 

860,714

 

Long-term liabilities:

 

 

 

 

 

Long-term debt

 

2,078,999

 

3,370,636

 

Deferred income tax liability

 

278,580

 

218,905

 

Derivative instruments

 

 

30,076

 

Other long-term liabilities

 

35,113

 

41,650

 

Total liabilities

 

3,014,921

 

4,521,981

 

Commitments and contingencies

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.01 par value; authorized - 1,000,000,000 shares; issued and outstanding - 262,049,659 shares

 

2,620

 

2,620

 

Preferred stock, $0.01 par value; authorized - 50,000,000 shares; none issued

 

 

 

Additional paid-in capital

 

3,402,180

 

3,463,791

 

Accumulated earnings

 

193,860

 

56,816

 

Total stockholders’ equity

 

3,598,660

 

3,523,227

 

Total liabilities and stockholders’ equity

 

$

6,613,581

 

8,045,208

 

 

See accompanying notes to consolidated financial statements.

 

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended June 30, 2013 and 2014

(Unaudited)

(In thousands, except per share amounts)

 

 

 

2013

 

2014

 

Revenue:

 

 

 

 

 

Natural gas sales

 

$

172,332

 

314,151

 

Natural gas liquids sales

 

17,244

 

79,768

 

Oil sales

 

2,085

 

35,633

 

Gathering, compression, and water distribution

 

 

3,565

 

Marketing

 

 

1,987

 

Commodity derivative fair value gains (losses)

 

195,483

 

(123,766

)

Total revenue

 

387,144

 

311,338

 

Operating expenses:

 

 

 

 

 

Lease operating

 

1,454

 

5,021

 

Gathering, compression, processing, and transportation

 

48,670

 

103,837

 

Production and ad valorem taxes

 

10,108

 

21,358

 

Marketing

 

 

13,946

 

Exploration

 

7,300

 

6,703

 

Impairment of unproved properties

 

4,803

 

1,956

 

Depletion, depreciation, and amortization

 

52,589

 

105,154

 

Accretion of asset retirement obligations

 

267

 

309

 

General and administrative (including stock compensation expense of $32,474 in 2014)

 

13,567

 

58,357

 

Total operating expenses

 

138,758

 

316,641

 

Operating income (loss)

 

248,386

 

(5,303

)

Other expenses:

 

 

 

 

 

Interest

 

(33,468

)

(37,260

)

Loss on early extinguishment of debt

 

 

(20,386

)

Total other expenses

 

(33,468

)

(57,646

)

Income (loss) from continuing operations before income taxes and discontinued operations

 

214,918

 

(62,949

)

Provision for income tax (expense) benefit

 

(83,725

)

18,454

 

Income (loss) from continuing operations

 

131,193

 

(44,495

)

Discontinued operations:

 

 

 

 

 

Income from sale of discontinued operations, net of income tax expense of $1,354

 

 

2,210

 

Net income (loss) and comprehensive income (loss)

 

$

131,193

 

(42,285

)

 

 

 

 

 

 

Earnings (loss) per common share:

 

 

 

 

 

Continuing operations

 

$

0.50

 

(0.17

)

Discontinued operations

 

 

0.01

 

Total

 

$

0.50

 

(0.16

)

 

 

 

 

 

 

Earnings (loss) per common share - assuming dilution

 

 

 

 

 

Continuing operations

 

$

0.50

 

(0.17

)

Discontinued operations

 

 

0.01

 

Total

 

$

0.50

 

(0.16

)

 

See accompanying notes to consolidated financial statements.

 

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Six Months Ended June 30, 2013 and 2014

(Unaudited)

(In thousands, except per share amounts)

 

 

 

2013

 

2014

 

Revenue:

 

 

 

 

 

Natural gas sales

 

$

294,278

 

626,487

 

Natural gas liquids sales

 

27,816

 

153,696

 

Oil sales

 

2,962

 

59,755

 

Gathering, compression, and water distribution

 

 

7,089

 

Marketing

 

 

5,213

 

Commodity derivative fair value gains (losses)

 

123,542

 

(372,695

)

Total revenue

 

448,598

 

479,545

 

Operating expenses:

 

 

 

 

 

Lease operating

 

2,525

 

9,890

 

Gathering, compression, processing, and transportation

 

89,640

 

187,347

 

Production and ad valorem taxes

 

18,727

 

42,397

 

Marketing

 

 

25,927

 

Exploration

 

11,662

 

13,700

 

Impairment of unproved properties

 

6,359

 

3,353

 

Depletion, depreciation, and amortization

 

92,953

 

196,360

 

Accretion of asset retirement obligations

 

531

 

611

 

General and administrative (including stock compensation expense of $61,611 in 2014)

 

26,284

 

109,342

 

Total operating expenses

 

248,681

 

588,927

 

Operating income (loss)

 

199,917

 

(109,382

)

Other expenses:

 

 

 

 

 

Interest

 

(63,396

)

(68,602

)

Loss on early extinguishment of debt

 

 

(20,386

)

Total other expenses

 

(63,396

)

(88,988

)

Income (loss) from continuing operations before income taxes and discontinued operations

 

136,521

 

(198,370

)

Provision for income tax (expense) benefit

 

(53,325

)

59,116

 

Income (loss) from continuing operations

 

83,196

 

(139,254

)

Discontinued operations:

 

 

 

 

 

Income from sale of discontinued operations, net of income tax expense of $1,354

 

 

2,210

 

Net income (loss) and comprehensive income (loss)

 

$

83,196

 

(137,044

)

 

 

 

 

 

 

Earnings (loss) per common share:

 

 

 

 

 

Continuing operations

 

$

0.32

 

(0.53

)

Discontinued operations

 

 

0.01

 

Total

 

$

0.32

 

(0.52

)

 

 

 

 

 

 

Earnings (loss) per common share - assuming dilution

 

 

 

 

 

Continuing operations

 

$

0.32

 

(0.53

)

Discontinued operations

 

 

0.01

 

Total

 

$

0.32

 

(0.52

)

 

See accompanying notes to consolidated financial statements.

 

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Equity

Six Months Ended June 30, 2014

(Unaudited)

(In thousands)

 

 

 

Common

 

Additional

 

Accumulated

 

Total

 

 

 

Stock

 

paid-in capital

 

earnings

 

equity

 

Balances, December 31, 2013

 

$

2,620

 

3,402,180

 

193,860

 

3,598,660

 

Stock compensation

 

 

61,611

 

 

61,611

 

Net loss and comprehensive loss

 

 

 

(137,044

)

(137,044

)

Balances, June 30, 2014

 

$

2,620

 

3,463,791

 

56,816

 

3,523,227

 

 

See accompanying notes to consolidated financial statements.

 

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30, 2013 and 2014

(Unaudited)

(In thousands)

 

 

 

2013

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

 

$

83,196

 

(137,044

)

Adjustment to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

Depletion, depreciation, amortization, and accretion

 

93,484

 

196,971

 

Impairment of unproved properties

 

6,359

 

3,353

 

Derivative fair value (gains) losses

 

(123,542

)

372,695

 

Cash receipts (payments) for settled derivatives

 

62,277

 

(118

)

Deferred income tax expense (benefit)

 

53,325

 

(57,762

)

Stock compensation

 

 

61,611

 

Gain on sale of discontinued operations

 

 

(3,564

)

Loss on early extinguishment of debt

 

 

20,386

 

Other

 

2,575

 

969

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(7,935

)

(15,922

)

Accrued revenue

 

(19,763

)

(42,728

)

Other current assets

 

10,808

 

(942

)

Accounts payable

 

(1,436

)

3,477

 

Accrued liabilities

 

20,137

 

42,475

 

Revenue distributions payable

 

8,495

 

57,503

 

Other

 

4,417

 

(3,331

)

Net cash provided by operating activities

 

192,397

 

498,029

 

Cash flows used in investing activities:

 

 

 

 

 

Additions to unproved properties

 

(271,003

)

(239,152

)

Drilling and completion costs

 

(720,910

)

(1,103,017

)

Additions to fresh water distribution systems

 

(36,967

)

(99,927

)

Additions to gathering systems and facilities

 

(151,737

)

(261,667

)

Additions to other property and equipment

 

(1,766

)

(11,041

)

Change in other assets

 

3,975

 

(39,067

)

Net cash used in investing activities

 

(1,178,408

)

(1,753,871

)

Cash flows from financing activities:

 

 

 

 

 

Issuance of senior notes

 

231,750

 

600,000

 

Repayment of senior notes

 

 

(260,000

)

Borrowings on bank credit facility, net

 

743,000

 

952,000

 

Payments of deferred financing costs and redemption premiums on early extinguishment of debt

 

(5,663

)

(34,372

)

Other

 

8,802

 

 

Net cash provided by financing activities

 

977,889

 

1,257,628

 

Net (decrease) increase in cash and cash equivalents

 

(8,122

)

1,786

 

Cash and cash equivalents, beginning of period

 

18,989

 

17,487

 

Cash and cash equivalents, end of period

 

$

10,867

 

19,273

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid during the period for interest

 

$

62,246

 

60,031

 

Supplemental disclosure of noncash investing activities:

 

 

 

 

 

Changes in accounts payable for additions to property and equipment

 

$

54,051

 

126,657

 

 

See accompanying notes to consolidated financial statements.

 

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ANTERO RESOURCES CORPORATION

 

Notes to Condensed Consolidated Financial Statements

 

December 31, 2013 and June 30, 2014

 

(Unaudited)

 

(1)         Organization

 

(a)         Business and Organization

 

Antero Resources Corporation and its consolidated subsidiaries (collectively referred to as the “Company,” “we,” or “our”) are engaged in the exploitation, development, and acquisition of natural gas, natural gas liquids (“NGLs”) and oil properties in the Appalachian Basin in West Virginia, Ohio, and Pennsylvania. We target 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. We also have gathering and compression and fresh water distribution operations in the Appalachian Basin. Our corporate headquarters are in Denver, Colorado.

 

Our consolidated financial statements include the accounts of Antero Resources Corporation and its subsidiaries, Antero Resources Midstream LLC (“Antero Midstream”) and Antero Midstream LLC (“Midstream Operating”).

 

(b)         Corporate Reorganization and Initial Public Offering

 

Prior to October 16, 2013, the Company’s predecessor, Antero Resources LLC, filed reports with the Securities and Exchange Commission. Antero Resources LLC was formed in October 2009 by members of the Company’s management team and its sponsor investors. Antero Resources LLC owned 100% of the outstanding shares of Antero Resources Appalachian Corporation, which was formed in March 2008 and renamed Antero Resources Corporation in June 2013. In connection with our initial public offering (“IPO”) completed on October 16, 2013, all of the ownership interests in Antero Resources LLC were exchanged for similar interests in a newly formed limited liability company, Antero Resources Investment LLC (“Antero Investment”), and Antero Resources LLC was merged into Antero Resources Corporation. As a result of this reorganization, Antero Investment owned 100% of the issued and outstanding 224,375,000 shares of common stock of Antero Resources Corporation prior to the IPO.

 

On October 16, 2013, Antero Resources Corporation issued 37,674,659 additional shares of its common stock at $44.00 per share in the IPO, resulting in proceeds to the Company, net of underwriter discounts and expenses of the offering, of approximately $1.6 billion.

 

In 2013, the Company formed a subsidiary, Antero Midstream. The Company owns all of the common economic interest in Antero Midstream and Antero Investment indirectly owns a special membership interest. In connection with a planned initial public offering of Antero Midstream during 2014, the Company intends to contribute midstream and water assets to Antero Midstream and intends to enter into commercial arrangements for services from Antero Midstream. If the offering is completed, Midstream Operating, which will hold all the midstream and water assets, will be contributed to Antero Midstream. The special membership interest in Antero Midstream provides Antero Investment with certain rights, including the right to cause an initial public offering of Antero Midstream as a master limited partnership (“MLP”) or similar structure. Following any such initial public offering, the special membership interest will entitle Antero Investment to own the general partner interest in the MLP, which will allow Antero Investment to manage Antero Midstream’s business and affairs. Following any such initial public offering, Antero Investment will also indirectly hold the incentive distribution rights in the MLP.  We cannot provide any assurance that the proposed initial public offering of the MLP will be completed in a timely fashion, or at all.

 

(c)          Stock Compensation Charge in Connection with the Reorganization

 

In connection with its formation in October 2009, Antero Resources LLC issued profits interests to Antero Resources Employee Holdings LLC (“Employee Holdings”), which is owned solely by certain of our officers and employees. These profits interests provide for the participation in distributions upon liquidation events meeting certain requisite financial return thresholds. In turn, Employee Holdings issued membership interests to certain of our officers and employees. The Employee Holdings interests in Antero Resources LLC were exchanged for similar interests in Antero Investment in connection with the corporate reorganization on October 16, 2013.

 

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The limited liability company agreement of Antero Investment provides a mechanism that determines how the shares of the Company’s common stock will be allocated among the members of Antero Investment, including Employee Holdings, will be determined. As a result of the adoption of the Antero Investment limited liability company agreement, the satisfaction of all performance and service conditions relative to the profits interests awards held by Employee Holdings in Antero Investment became probable. Accordingly, we recognized approximately $418 million of stock compensation expense for the vested profits interests through June 30, 2014 and will recognize an additional approximate $69 million over the remaining service period.  Stock compensation expense for the profits interests during the three and six months ended June 30, 2014 was $24.1 million and $52.8 million, respectively.  Because consideration for the profits interests awards is deemed given by Antero Investment, the charge to stock compensation expense is accounted for as a capital contribution by Antero Investment to the Company and credited to additional paid-in capital.

 

(2)         Summary of Significant Accounting Policies

 

(a)         Basis of Presentation

 

These consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC applicable to interim financial information and should be read in the context of the December 31, 2013 consolidated financial statements and notes thereto for a more complete understanding of the Company’s operations, financial position, and accounting policies. The December 31, 2013 consolidated financial statements have been filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, and, accordingly, do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of normal and recurring accruals) considered necessary to present fairly the Company’s financial position as of June 30, 2014, and the results of its operations for the three and six months ended June 30, 2013 and 2014, and its cash flows for the six months ended June 30, 2013 and 2014. The Company has no items of other comprehensive income or loss; therefore, our net loss is identical to our comprehensive loss. All significant intercompany accounts and transactions have been eliminated. Operating results for the period ended June 30, 2014 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, and other factors.

 

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

 

Income from discontinued operations for the three and six months ended June 30, 2014 results from the downward adjustment of certain liabilities recorded upon the sale of our Arkoma Basin assets in 2012 because of resolution of such liabilities.

 

As of the date these financial statements were filed with the SEC, the Company completed its evaluation of potential subsequent events for disclosure and no items requiring disclosure were identified, except an amendment to our senior secured revolving bank credit facility as described in note 3.

 

(b)         Use of Estimates

 

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. 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 consolidated financial statements are based on a number of significant estimates including estimates of gas and oil reserve quantities, which are the basis for the calculation of depreciation, depletion, amortization and impairment of oil and gas properties. Reserve estimates by their nature are inherently imprecise.

 

(c)          Risks and Uncertainties

 

Historically, the market for natural gas, NGLs, and oil has experienced significant price fluctuations.  The price fluctuations can result from variations in weather, levels of production in the region, availability of transportation capacity to other regions of the country, and various other factors. Increases or decreases in prices received could have a significant impact on the Company’s future results of operations.

 

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(d)         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.

 

(e)          Derivative Financial Instruments

 

In order to manage its exposure to oil and gas price volatility, the Company enters into derivative transactions from time to time, including commodity swap agreements, basis swap agreements, collar agreements, and other similar agreements relating to the price risk associated with a portion of its production. To the extent legal right of offset with a counterparty exists, the Company reports derivative assets and liabilities on a net basis. The Company has exposure to credit risk to the extent the counterparty is unable to satisfy its settlement obligation. The Company actively monitors the creditworthiness of counterparties and assesses the impact, if any, on its derivative position.

 

The Company records derivative instruments on the consolidated balance sheets as either an asset or liability 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 are classified as revenues.

 

(f)            Income Taxes

 

The Company recognizes deferred tax assets and liabilities for temporary differences resulting from net operating loss carryforwards for income tax purposes and the differences between the financial statement and tax basis of assets and liabilities. The effect of changes in the tax laws or tax rates is recognized in income in the period such changes are enacted. Deferred tax assets are reduced by a valuation allowance, when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

Unrecognized tax benefits represent potential future tax obligations for uncertain tax positions taken on previously filed tax returns that may not ultimately be sustained. The Company recognizes interest expense related to unrecognized tax benefits in interest expense and fines and penalties as income tax expense.

 

(g)         Fair Value Measurements

 

FASB ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance also relates to all nonfinancial assets and liabilities that are not recognized or disclosed on a recurring basis (e.g., those measured at fair value in a business combination, the initial recognition of asset retirement obligations, and impairments of proved oil and gas properties, and other long-lived assets). The fair value is the price that the Company estimates would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is used to prioritize input to valuation techniques used to estimate fair value. An asset or liability subject to the fair value requirements is categorized within the hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The highest priority (Level 1) is given to unadjusted quoted market prices in active markets for identical assets or liabilities, and the lowest priority (Level 3) is given to unobservable inputs. Level 2 inputs are data, other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Instruments which are valued using Level 2 inputs include nonexchange traded derivatives such as over-the-counter commodity price swaps, basis swaps, and interest rate swaps. Valuation models used to measure fair value of these instruments consider various Level 2 inputs including (i) quoted forward prices for commodities, (ii) time value, (iii) quoted forward interest rates, (iv) current market prices and contractual prices for the underlying instruments, (v) risk of nonperformance by the Company and the counterparty, and (vi) other relevant economic measures.

 

(h)         Industry Segments and Geographic Information

 

Management has evaluated how the Company is organized and managed and have identified the following operating segments: (1) the exploration, development, and production of natural gas, NGLs, and oil, (2) gathering and compression, and (3) fresh water distribution.

 

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All of our assets are located in the United States and all of our revenues are attributable to customers located in the United States.

 

(i)            Marketing Revenues and Expenses

 

In 2014 the Company began activities to purchase and sell third-party natural gas and to market its excess firm transportation capacity in order to utilize excess firm transportation capacity.  Marketing revenues include sales of third-party gas and revenues from the release of firm transportation capacity to others.  Marketing expenses include the cost of purchased third-party natural gas.  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 capacity because of alternative delivery points with favorable pricing) is considered unutilized capacity. The costs of unutilized capacity are charged to transportation expense.

 

(j)            Reclassifications

 

Certain reclassifications have been made to prior periods’ financial information related to fresh water distribution assets to conform to the 2014 presentation.

 

(k)         Earnings (loss) per share

 

Because of the losses incurred for both the three and six months ended June 30, 2014, the effect of options and restricted stock awards is antidilutive and loss per share and loss per share-assuming dilution was calculated based on the weighted average number of shares outstanding of 262,049,659.  Earnings per common share and earnings per common share—assuming dilution for the three and six months ended June 30, 2013 were calculated as if the shares issued in the corporate reorganization and IPO described in note 1 were outstanding as of January 1, 2013.

 

(3)         Long-Term Debt

 

The Company had long-term debt as follows at December 31, 2013 and June 30, 2014 (in thousands):

 

 

 

2013

 

2014

 

Bank credit facility(a)

 

$

288,000

 

1,240,000

 

7.25% senior notes due 2019(b)

 

260,000

 

 

6.00% senior notes due 2020(c)

 

525,000

 

525,000

 

5.375% senior notes due 2021(d)

 

1,000,000

 

1,000,000

 

5.125% senior notes due 2022(e)

 

 

600,000

 

Net unamortized premium

 

5,999

 

5,636

 

 

 

$

2,078,999

 

3,370,636

 

 


(a)         Senior Secured Revolving Credit Facility

 

The Company has a senior secured revolving bank credit facility (the “Credit Facility”) with a consortium of bank lenders.  The maximum amount of the Credit Facility was $3.5 billion at June 30, 2014. Borrowings under the Credit Facility are subject to borrowing base limitations based on the collateral value of our proved properties and commodity hedge positions and are subject to regular semiannual redeterminations. At June 30, 2014, the borrowing base was $3.0 billion and lender commitments were $2.0 billion. On July 28, 2014, lender commitments were increased to $2.5 billion, including $400 million of commitments under the Midstream Facility described below.  Lender commitments can be increased to the full amount of the borrowing base upon approval of the lending group.  The maturity date of the Credit Facility is May 5, 2019.  The next redetermination of the borrowing base is scheduled to occur in October 2014.

 

On February 28, 2014, the Company and Midstream Operating entered into a new midstream credit facility (the “Midstream Facility”) in order to provide for separate borrowings attributable to our midstream business which contains covenants that are substantially identical to those under the Credit Facility. In accordance with the Credit Facility and the Midstream Facility, borrowings under the Midstream Facility reduce availability under the Credit Facility on a dollar-for-dollar basis. The Midstream Facility will mature at the earlier of the closing of the MLP’s initial public offering or May 12, 2016. If the MLP’s initial public offering is completed, it is expected that the MLP will enter into its own revolving credit facility in connection with the completion thereof.

 

The Credit Facility and the Midstream Facility are ratably secured by mortgages on substantially all of the Company’s properties and guarantees from the Company or its subsidiaries, as applicable. The Credit Facility and the Midstream Facility contain certain covenants, including restrictions on indebtedness and dividends, and, in the case of the Credit Facility, requirements with respect to working capital and interest coverage ratios. Interest is payable at a variable rate based on LIBOR or the prime rate based on the Company’s election at the time of borrowing. The Company was in compliance with all of the financial covenants under the Credit Facility as of December 31, 2013 and June 30, 2014.

 

As of June 30, 2014, the Company had a total outstanding balance under the Credit Facility and Midstream Facility of $1.24 billion, with a weighted average interest rate of 2.03%, and outstanding letters of credit of $237 million.  As of December 31, 2013, the Company had an outstanding balance under the Credit Facility of $288 million, with a weighted average interest rate of 1.61%, and outstanding letters of credit of $32 million. Commitment fees on the unused portion of the Credit Facility are due quarterly at rates ranging from 0.375% to 0.50% of the unused facility based on utilization.

 

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(b)         7.25% Senior Notes Due 2019

 

On May 23, 2014, the Company redeemed the outstanding 7.25% senior notes due 2019 (the “2019 notes”) having a principal balance of $260 million at a redemption price of 100% of the principal amount plus a make-whole premium of $17.4 million. The make-whole premium along with the write-off of $3 million of deferred financing costs was charged to Loss on early extinguishment of debt in the accompanying statements of operations.  The redemption was financed using a portion of the proceeds from the offering of the Company’s 5.125% senior notes due 2022 (the “2022 notes”) described below.

 

(c)          6.00% Senior Notes Due 2020

 

On November 19, 2012, the Company issued $300 million of 6.00% senior notes due December 1, 2020 (the “2020 notes”) at par. On February 4, 2013, the Company issued an additional $225 million of 2020 notes at 103% of par. The 2020 notes are unsecured and effectively subordinated to the Company’s Credit Facility and the Midstream Facility to the extent of the value of the collateral securing such facilities. The 2020 notes rank pari passu to our other outstanding senior notes. The 2020 notes are guaranteed on a senior unsecured basis by the Company’s existing subsidiaries and certain of its future restricted subsidiaries. Interest on the 2020 notes is payable on June 1 and December 1 of each year. The Company may redeem all or part of the 2020 notes at any time on or after December 1, 2015 at redemption prices ranging from 104.50% on or after December 1, 2015 to 100.00% on or after December 1, 2018. In addition, on or before December 1, 2015, the Company may redeem up to 35% of the aggregate principal amount of the 2020 notes with the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 106.00% of the principal amount of the 2020 notes, plus accrued interest. At any time prior to December 1, 2015, the Company may redeem the 2020 notes, in whole or in part, at a price equal to 100% of the principal amount of the 2020 notes plus a “make-whole” premium and accrued interest. If the Company undergoes a change of control, the holders of the 2020 notes will have the right to require the Company to repurchase all or a portion of the notes at a price equal to 101% of the principal amount of the 2020 notes, plus accrued interest.

 

(d)         5.375% Senior Notes Due 2021

 

On November 5, 2013, the Company issued $1 billion of 5.375% senior notes due November 21, 2021 (the “2021 notes”) at par. The 2021 notes are unsecured and effectively subordinated to the Credit Facility and the Midstream Facility to the extent of the value of the collateral securing such facilities. The 2021 notes rank pari passu to our other outstanding senior notes. The 2021 notes are guaranteed on a full and unconditional and joint and several basis by the Company’s existing subsidiaries and certain of its future restricted subsidiaries. Interest on the 2021 notes is payable on May 1 and November 1 of each year. The Company may redeem all or part of the 2021 notes at any time on or after November 1, 2016 at redemption prices ranging from 104.031% on or after November 1, 2016 to 100.00% on or after November 1, 2019. In addition, on or before November 1, 2016, the Company may redeem up to 35% of the aggregate principal amount of the 2021 notes with the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 105.375% of the principal amount of the 2021 notes, plus accrued interest. At any time prior to November 1, 2016, the Company may also redeem the 2021 notes, in whole or in part, at a price equal to 100% of the principal amount of the 2021 notes plus a “make-whole” premium and accrued interest. If the Company undergoes a change of control prior to May 1, 2015, it may redeem all, but not less than all, of the 2021 notes at a redemption price equal to 110% of the principal amount of the 2021 notes. If the Company undergoes a change of control, it may be required to offer to purchase the 2021 notes from the holders at a price equal to 101% of the principal amount of the 2021 notes, plus accrued interest.

 

(e)          5.125% Senior Notes Due 2022

 

On May 6, 2014, the Company issued $600 million of 5.125% senior notes due December 1, 2022 (the “2022 notes”) at par. The 2022 notes are unsecured and effectively subordinated to the Credit Facility and the Midstream Facility to the extent of the value of the collateral securing such facilities. The 2022 notes rank pari passu to our other outstanding senior notes. The 2022 notes are guaranteed on a full and unconditional and joint and several basis by the Company’s existing subsidiaries and certain of its future restricted subsidiaries. Interest on the 2022 notes is payable on June 1 and December 1 of each year. The Company may redeem all or part of the 2022 notes at any time on or after June 1, 2017 at redemption prices ranging from 103.844% on or after June 1, 2017 to 100.00% on or after June 1, 2020. In addition, on or before June 1, 2017, the Company may redeem up to 35% of the aggregate principal amount of the 2022 notes with the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 105.125% of the principal amount of the 2022 notes, plus accrued interest. At any time prior to June 1, 2017, the Company may also redeem the 2022 notes, in whole or in part, at a price equal to 100% of the principal amount of the 2022 notes plus a “make-whole” premium and accrued interest. If the Company undergoes a change of control prior to December 1, 2015, it

 

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may redeem all, but not less than all, of the 2022 notes at a redemption price equal to 110% of the principal amount of the 2022 notes.  If the Company undergoes a change of control, the holders of the 2022 notes will have the right to require the Company to repurchase all or a portion of the notes at a price equal to 101% of the principal amount of the 2022 notes, plus accrued interest.

 

(f)            Treasury Management Facility

 

The Company has a stand-alone revolving note with a lender under the Credit Facility which provides for up to $25.0 million of cash management obligations in order to facilitate the Company’s daily treasury management. Borrowings under the revolving note are secured by the collateral for the revolving credit facility. Borrowings under the facility bear interest at the lender’s prime rate plus 1.0%. The note matures on June 1, 2015. At December 31, 2013 and June 30, 2014, there were no outstanding borrowings under this facility.

 

(4)         Asset Retirement Obligations

 

The following is a reconciliation of the Company’s asset retirement obligations for the six months ended June 30, 2014 (in thousands).  This amount is included in other long-term liabilities on the accompanying Condensed Consolidated Balance Sheet.

 

Asset retirement obligations—beginning of period

 

$

11,859

 

Obligations incurred

 

618

 

Accretion expense

 

611

 

Asset retirement obligations—end of period

 

$

13,088

 

 

(5)         Stock-Based Compensation

 

The Company is authorized to grant up to 16,906,500 stock-based compensation awards to employees and directors of the Company under the Antero Resources Corporation Long-Term Incentive Plan (the “Plan”). The Plan allows stock-based compensation awards to be granted in a variety of forms, including stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, dividend equivalent awards, and other types of awards. The terms and conditions of the awards granted are established by the Compensation Committee of the Company’s Board of Directors. A total of 14,870,943 shares are available for future grant under the Plan as of June 30, 2014.

 

Our stock-based compensation expense is as follows for the six months ended June 30, 2014 (in thousands):

 

Profits interests awards (see note 1)

 

$

52,768

 

Restricted stock awards

 

8,596

 

Stock options

 

247

 

Total expense

 

$

61,611

 

 

Restricted Stock and Restricted Stock Unit Awards

 

Restricted stock awards vest subject to the satisfaction of service requirements. The grant date fair value of these awards are determined based on the price of the Company’s common stock on the date of the grant. A summary of restricted stock and restricted stock unit awards activity during the six months ended June 30, 2014 is as follows:

 

 

 

Number of
shares

 

Weighted
average
grant date
fair value

 

Aggregate
intrinsic value
(in thousands)

 

Total granted and unvested, December 31, 2013

 

45,093

 

$

54.27

 

$

2,861

 

Granted

 

1,923,448

 

$

65.00

 

126,236

 

Vested

 

 

 

 

Forfeited

 

(3,323

)

$

58.40

 

(218

)

Total awarded and unvested—June 30, 2014

 

1,965,218

 

$

64.82

 

$

128,977

 

 

Unamortized expense of $118.6 million at June 30, 2014 is expected to be recognized over approximately 3.5 to 4 years. Intrinsic value is based on the closing price of the Company’s stock on the referenced dates.

 

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Stock Options

 

Stock options granted under the Plan to date vest over periods from one to four years and have a maximum contractual life of 10 years. We recognize expense related to stock options on a straight-line basis over the requisite service period, less awards expected to be forfeited. Stock options are granted with an exercise price equal to the market price of our common stock on the date of grant. A summary of stock option activity for the six months ended June 30, 2014 is as follows:

 

 

 

Stock
options

 

Weighted
average
exercise
price

 

Weighted
average
remaining
contractual
life

 

Intrinsic
value
(in thousands)

 

Outstanding at December 31, 2013

 

70,339

 

$

54.15

 

9.79

 

$

653

 

Options granted

 

 

 

 

 

Options exercised

 

 

 

 

 

Options cancelled

 

 

 

 

 

Options expired

 

 

 

 

 

Outstanding at June 30, 2014

 

70,339

 

$

54.15

 

9.29

 

$

807

 

Expected to vest as of June 30, 2014

 

70,339

 

$

54.15

 

9.29

 

$

807

 

Exercisable at June 30, 2014

 

 

 

 

 

 

Intrinsic value is based on the closing price of the Company’s stock on the referenced dates.

 

We use a Black-Scholes option-pricing model to determine the fair value of our stock options. Expected volatility was derived from the volatility of the historical stock prices of a peer group of similar publicly traded companies’ stock prices. The risk-free interest rate was determined using the implied yield currently available for zero-coupon U.S. government issues with a remaining term approximating the expected life of the options. We assumed no dividend yield.

 

The following table presents information regarding the weighted average fair value for options granted and the assumptions used to determine fair value.

 

Dividend yield

 

%

Volatility

 

35

%

Risk-free interest rate

 

1.48

%

Expected life (years)

 

6.17

 

Weighted average fair value of options granted

 

$

20.20

 

 

As of June 30, 2014, there was $1.1 million of unrecognized stock-based compensation expense related to nonvested stock options. That expense is expected to be recognized over a weighted average period of 3 years.

 

(6)        Financial Instruments

 

The carrying values of trade receivables and trade payables at December 31, 2013 and June 30, 2014 approximated market value because of their short-term nature. The carrying value of the bank credit facility at December 31, 2013 and June 30, 2014 approximated fair value because the variable interest rates are reflective of current market conditions.

 

The fair value of the Company’s senior notes was approximately $1.9 billion, based on Level 2 market data inputs at December 31, 2013 and $2.2 billion at June 30, 2014.

 

See note 7 for information regarding the fair value of derivative financial instruments.

 

(7)         Derivative Instruments

 

(a)         Commodity Derivatives

 

The Company periodically enters into oil and natural gas derivative contracts with counterparties to hedge the price risk associated with a portion of its production. These derivatives are not held for trading purposes. To the extent that changes occur in the market prices of natural gas, the Company is exposed to market risk on these open contracts. This market risk exposure is generally offset by the change in market prices of natural gas recognized upon the ultimate sale of the oil and natural gas produced.

 

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For the six months ended June 30, 2013 and 2014, the Company was party to natural gas and oil fixed price swaps. When actual commodity prices exceed the fixed price provided by the swap contracts, the Company pays the excess to the counterparty, and when actual commodity prices are below the contractually provided fixed price the Company receives the difference from the counterparty. The Company’s natural gas and oil swaps have not been designated as hedges for accounting purposes; therefore, all gains and losses were recognized in income currently.

 

As of June 30, 2014, the Company’s fixed price natural gas and oil swaps positions from July 1, 2014 through December 31, 2019 are summarized in the following table.

 

 

 

Natural gas
MMbtu/day

 

Oil
Bbls/day

 

Weighted
average index
price

 

Three Months ending September 30, 2014:

 

 

 

 

 

 

 

TCO

 

210,000

 

 

$

5.01

 

Dominion South

 

160,000

 

 

$

5.04

 

NYMEX

 

340,000

 

 

$

4.08

 

CGTLA

 

10,000

 

 

$

3.82

 

NYMEX-WTI

 

 

3,000

 

$

94.13

 

Total

 

720,000

 

3,000

 

 

 

 

 

 

 

 

 

 

 

Three Months ending December 31, 2014:

 

 

 

 

 

 

 

TCO

 

210,000

 

 

$

5.24

 

Dominion South

 

160,000

 

 

$

5.27

 

NYMEX

 

340,000

 

 

$

4.18

 

CGTLA

 

10,000

 

 

$

3.98

 

NYMEX-WTI

 

 

3,000

 

$

94.13

 

Total

 

720,000

 

3,000

 

 

 

 

 

 

 

 

 

 

 

Year ending December 31, 2015:

 

 

 

 

 

 

 

TCO

 

120,000

 

 

 

$

5.01

 

Dominion South

 

230,000

 

 

 

$

5.60

 

NYMEX

 

260,000

 

 

 

$

4.13

 

CGTLA

 

40,000

 

 

 

$

4.00

 

2015 Total

 

650,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ending December 31, 2016:

 

 

 

 

 

 

 

TCO

 

60,000

 

 

 

$

4.91

 

Dominion South

 

272,500

 

 

 

$

5.35

 

NYMEX

 

140,000

 

 

 

$

4.17

 

CGTLA

 

170,000

 

 

 

$

4.09

 

2016 Total

 

642,500

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ending December 31, 2017:

 

 

 

 

 

 

 

NYMEX

 

290,000

 

 

 

$

4.38

 

CGTLA

 

420,000

 

 

 

$

4.27

 

CCG

 

70,000

 

 

 

$

4.57

 

2017 Total

 

780,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ending December 31, 2018:

 

 

 

 

 

 

 

NYMEX

 

710,000

 

 

 

$

4.60

 

 

 

 

 

 

 

 

 

Year ending December 31, 2019:

 

 

 

 

 

 

 

NYMEX

 

467,500

 

 

 

$

4.41

 

 

In addition, the Company has entered into natural gas basis differential positions which settle on the pricing index to basis differential of Columbia Gas (TCO) to the NYMEX Henry Hub natural gas price as follows:

 

 

 

Natural gas
MMbtu/day

 

Hedged
Differential

 

 

 

 

 

 

 

Year ending December 31, 2015:

 

390,000

 

$

(0.35

)

 

 

 

 

 

 

Year ending December 31, 2016:

 

170,000

 

$

(0.41

)

 

 

 

 

 

 

Year ending December 31, 2017:

 

90,000

 

$

(0.50

)

 

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(b)         Summary

 

The following is a summary of the fair values of derivative instruments not designated as hedges for accounting purposes and where such values are recorded in the consolidated balance sheets as of December 31, 2013 and June 30, 2014. None of the Company’s derivative instruments are designated as hedges for accounting purposes.

 

 

 

December 31, 2013

 

June 30, 2014

 

 

 

Balance sheet
location

 

Fair value

 

Balance sheet
location

 

Fair value

 

 

 

 

 

(In thousands)

 

 

 

(In thousands)

 

Asset derivatives not designated as hedges for accounting purposes:

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Current assets

 

$

183,000

 

Current assets

 

$

175,286

 

Commodity contracts

 

Long-term assets

 

677,780

 

Long-term assets

 

354,254

 

 

 

 

 

 

 

 

 

 

 

Total asset derivatives

 

 

 

860,780

 

 

 

529,540

 

 

 

 

 

 

 

 

 

 

 

Liability derivatives not designated as hedges for accounting purposes:

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Current liabilities

 

646

 

Current liabilities

 

11,907

 

Commodity contracts

 

Long-term liabilities

 

 

Long-term liabilities

 

30,076

 

 

 

 

 

 

 

 

 

 

 

Total liability derivatives

 

 

 

646

 

 

 

41,983

 

 

 

 

 

 

 

 

 

 

 

Net derivatives

 

 

 

$

860,134

 

 

 

$

487,557

 

 

The following tables present the gross amounts of recognized derivative assets and liabilities, the amounts offset under netting arrangements with counterparties, and the resulting net amounts presented in the condensed consolidated balance sheets for the periods presented, all at fair value (in thousands):

 

 

 

December 31, 2013

 

June 30, 2014

 

 

 

Gross
amounts on
balance sheet

 

Gross amounts
offset on
balance sheet

 

Net amounts
of assets
(liabilities)
on balance
sheet

 

Gross
amounts on
balance sheet

 

Gross amounts
offset on
balance sheet

 

Net amounts
of assets
(liabilities)
on balance
sheet

 

Commodity derivative assets

 

$

887,034

 

(26,254

)

860,780

 

$

632,885

 

(103,345

)

529,540

 

Commodity derivative liabilities

 

$

(646

)

 

(646

)

$

(55,818

)

13,835

 

(41,983

)

 

The following is a summary of derivative fair value gains (losses) and where such values are recorded in the consolidated statements of operations for the three and six months ended June 30, 2013 and 2014 (in thousands):

 

 

 

Statement of

 

Three months ended

 

Six months ended

 

 

 

operations

 

June 30

 

June 30

 

 

 

location

 

2013

 

2014

 

2013

 

2014

 

Commodity derivative fair value gains (losses)

 

Revenue

 

$

195,483

 

(123,766

)

123,542

 

(372,695

)

 

The fair value of commodity derivative instruments was determined using Level 2 inputs.

 

15



Table of Contents

 

(8)         Contingencies

 

The Company is party to various legal proceedings and claims in the ordinary course of its business.  The Company believes certain of these matters will be covered by insurance and that the outcome of other matters will not have a material adverse effect on its consolidated financial position, results of operations, or liquidity.

 

(9)        Segment Information

 

The operating results and assets of the Company’s reportable segments were as follows for the three months ended June 30, 2013 and 2014 (in thousands):

          

 

 

Exploration
and
production

 

Gathering and
compression

 

Fresh water
distribution

 

Elimination of
intersegment
transactions

 

Consolidated
total

 

2013:

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Third-party

 

$

387,144

 

 

 

 

387,144

 

Intersegment

 

 

3,539

 

8,441

 

(11,980

)

 

 

 

$

387,144

 

3,539

 

8,441

 

(11,980

)

387,144

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

250,038

 

(762

)

6,525

 

(7,415

)

248,386

 

Segment assets

 

$

4,802,643

 

332,782

 

57,251

 

(367,528

)

4,825,148

 

Capital expenditures for segment assets

 

$

516,673

 

95,762

 

27,947

 

(7,652

)

632,730

 

 

 

 

Exploration
and
production

 

Gathering and
compression

 

Fresh water
distribution

 

Elimination of
intersegment
transactions

 

Consolidated
total

 

2014:

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Third-party

 

$

307,773

 

2,017

 

1,548

 

 

311,338

 

Intersegment

 

 

14,906

 

38,970

 

(53,876

)

 

 

 

$

307,773

 

16,923

 

40,518

 

(53,876

)

311,338

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

(2,023

)

290

 

23,498

 

(27,068

)

(5,303

)

Segment assets

 

$

7,641,668

 

898,269

 

348,629

 

(843,358

)

8,045,208

 

Capital expenditures for segment assets

 

$

817,833

 

154,144

 

39,897

 

(28,776

)

983,098

 

 

The operating results and assets of the Company’s reportable segments were as follows for the six months ended June 30, 2013 and 2014 (in thousands):

 

 

 

Exploration
and
production

 

Gathering and
compression

 

Fresh water
distribution

 

Elimination of
intersegment
transactions

 

Consolidated
total

 

2013:

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Third-party

 

$

448,598

 

 

 

 

448,598

 

Intersegment

 

 

5,492

 

12,806

 

(18,298

)

 

 

 

$

448,598

 

5,492

 

12,806

 

(18,298

)

448,598

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

203,128

 

(1,793

)

9,696

 

(11,114

)

199,917

 

Segment assets

 

$

4,802,643

 

332,782

 

57,251

 

(367,528

)

4,825,148

 

Capital expenditures for segment assets

 

$

1,005,152

 

151,737

 

36,967

 

(11,473

)

1,182,383

 

 

16



Table of Contents

 

 

 

Exploration
and
production

 

Gathering and
compression

 

Fresh water
distribution

 

Elimination of
intersegment
transactions

 

Consolidated
total

 

2014:

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Third-party

 

$

472,456

 

2,947

 

4,142

 

 

479,545

 

Intersegment

 

 

25,749

 

61,135

 

(86,884

)

 

 

 

$

472,456

 

28,696

 

65,277

 

(86,884

)

479,545

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

$

(106,403

)

1,239

 

38,115

 

(42,333

)

(109,382

)

Segment assets

 

$

7,641,668

 

898,269

 

348,629

 

(843,358

)

8,045,208

 

Capital expenditures for segment assets

 

$

1,399,877

 

261,667

 

99,927

 

(46,667

)

1,714,804

 

 

(10)  Subsidiary Guarantors

 

The Company’s wholly owned subsidiaries each have fully and unconditionally guaranteed the Company’s outstanding senior notes. The following Condensed Consolidating Balance Sheets as of December 31, 2013 and June 30, 2014 present financial information for Antero Resources Corporation as the Parent on a stand-alone basis (carrying its investment in subsidiaries using the equity method), combined financial information for the subsidiary guarantors (Antero Resources Midstream LLC and Antero Midstream LLC) as a group, and the consolidation and elimination entries necessary to arrive at the information for the Company on a consolidated basis. The guarantor subsidiaries had no revenues, expenses, or cash flow during the year ended December 31, 2013 or the three and six months ended June 30, 2014. The guarantor subsidiaries are not restricted from making distributions to the Company.

 

17



Table of Contents

 

Condensed Consolidating Balance Sheets

 

December 31, 2013

 

(In thousands)

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,487

 

 

 

17,487

 

Other

 

316,077

 

1

 

(1

)

316,077

 

Total current assets

 

333,564

 

1

 

(1

)

333,564

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

5,559,656

 

 

 

5,559,656

 

Other long-term assets

 

720,361

 

 

 

720,361

 

Investment in subsidiary

 

1

 

 

(1

)

 

 

 

$

6,613,582

 

1

 

(2

)

6,613,581

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

622,229

 

 

 

622,229

 

Long-term debt

 

2,078,999

 

 

 

2,078,999

 

Other long-term liabilities

 

313,693

 

 

 

313,693

 

Due to subsidiary

 

1

 

 

(1

)

 

Total liabilities

 

3,014,922

 

 

(1

)

3,014,921

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

3,598,660

 

1

 

(1

)

3,598,660

 

Total liabilities and equity

 

$

6,613,582

 

1

 

(2

)

6,613,581

 

 

June 30, 2014

 

(In thousands)

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Eliminations

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,273

 

 

 

19,273

 

Other

 

367,955

 

1

 

(1

)

367,955

 

Total current assets

 

387,228

 

1

 

(1

)

387,228

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

7,211,793

 

 

 

7,211,793

 

Other long-term assets

 

446,187

 

 

 

446,187

 

Investment in subsidiary

 

1

 

 

(1

)

 

 

 

$

8,045,209

 

1

 

(2

)

8,045,208

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

860,714

 

 

 

860,714

 

Long-term debt

 

3,370,636

 

 

 

3,370,636

 

Other long-term liabilities

 

290,631

 

 

 

290,631

 

Due to subsidiary

 

1

 

 

(1

)

 

Total liabilities

 

4,521,982

 

 

(1

)

4,521,981

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

3,523,227

 

1

 

(1

)

3,523,227

 

Total liabilities and equity

 

$

8,045,209

 

1

 

(2

)

8,045,208

 

 

18



Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material. Some of the key factors that could cause actual results to vary from our expectations include changes in natural gas, NGLs and oil prices, the timing of planned capital expenditures,our ability to fund our development programs, availability of acquisitions, uncertainties in estimating proved reserves and forecasting production results, operational factors affecting the commencement or maintenance of producing wells, the condition of the capital markets generally, as well as our ability to access them, and uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting our business, as well as those factors discussed below, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. See “Cautionary Statement Regarding Forward-Looking Statements.” Also, see the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors.” We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

 

In this section, references to “Antero,” “Antero Resources,” “we,” “us,” and “our” refer to Antero Resources Corporation and its subsidiaries, unless otherwise indicated or the context otherwise requires.

 

Our Company

 

Antero Resources Corporation is an independent oil and natural gas company engaged in the exploitation, development and acquisition of natural gas, NGLs, and oil properties located in the Appalachian Basin. We focus on unconventional reservoirs, which can generally be characterized as fractured shale formations. As of June 30, 2014, we held approximately 486,000 net acres of rich gas and dry gas properties located in the Appalachian Basin in West Virginia, Ohio, and Pennsylvania. Our corporate headquarters are in Denver, Colorado.

 

Our management team has worked together for many years and has a successful track record of reserve and production growth as well as significant expertise in unconventional resource plays. Our strategy is to leverage our team’s experience delineating and developing natural gas resource plays to profitably grow our reserves and production, primarily on our existing multi-year project inventory.

 

We have assembled a portfolio of long-lived properties that are characterized by what we believe to be low geologic risk and repeatability. Our drilling opportunities are focused in the Marcellus Shale and Utica Shale of the Appalachian Basin.  As of June 30, 2014, our estimated proved reserves were approximately 9.1 Tcfe, consisting of 7.9 Tcf of natural gas, 186 MMBbl of NGLs, and 16 MMBbl of oil. This represents a 19% increase from proved reserve volumes at December 31, 2013.  These reserve estimates have been prepared by our internal reserve engineers and management without review by our independent reserve engineers.  As of June 30, 2014, we had approximately 5,400 potential horizontal well locations on our existing leasehold acreage, both proven and unproven.

 

We believe we have secured sufficient long-term firm takeaway capacity on major pipelines that are operating or are currently under construction in each of our core operating areas to accommodate our current development plans.

 

We operate in the following industry segments: (i) the exploration, development and production of natural gas, NGLs, and oil, (ii) gathering and compression and (iii) fresh water distribution. All of our operations are conducted in the United States.

 

Address, Internet Website and Availability of Public Filings

 

Our principal executive offices are at 1615 Wynkoop Street, Denver, Colorado 80202.  Our telephone number is (303) 357-7310. Our website is located at www.anteroresources.com.

 

We make available our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. These documents are located www.anteroresources.com under the “Investors Relations” link.

 

Information on our website is not incorporated into this Quarterly Report on Form 10-Q or our other filings with the SEC and is not a part of them.

 

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Table of Contents

 

2014 Developments and Highlights

 

Production and Financial Results

 

For the three months ended June 30, 2014, we generated cash flow from operations of $224 million, a net loss from continuing operations of $44 million, and Adjusted EBITDAX of $266 million. The net loss from continuing operations of $44 million for the three months ended June 30, 2014 included $124 million of net commodity derivative losses, of which $1 million related to cash settled derivative gains, a $20 million loss on the early extinguishment of debt, a deferred tax benefit of $18 million, and stock compensation expense of $32 million.  This compares to cash flow from operations of $82 million, net income of $131 million, and Adjusted EBITDAX of $133 million for the three months ended June 30, 2013.  See “—Non-GAAP Financial Measure” for a definition of Adjusted EBITDAX (a non-GAAP measure) and a reconciliation of Adjusted EBITDAX to net income (loss).

 

For the six months ended June 30, 2014, we generated cash flow from operations of $498 million, a net loss from continuing operations of $139 million, and Adjusted EBITDAX of $540 million. The net loss from continuing operations of $139 million for the six months ended June 30, 2014 included $373 million of commodity derivative losses, a $20 million loss on the early extinguishment of debt, a deferred tax benefit of $59 million, and stock compensation expense of $62 million.  This compares to cash flow from operations of $192 million, net income of $83 million, and Adjusted EBITDAX of $251 million for the six months ended June 30, 2013.  See “—Non-GAAP Financial Measure” for a definition of Adjusted EBITDAX (a non-GAAP measure) and a reconciliation of Adjusted EBITDAX to net income (loss).

 

For the three months ended June 30, 2014, our production totaled approximately 81 Bcfe, or 891 MMcfe per day, a 94% increase compared to 42 Bcfe, or 458 MMcfe per day for the three months ended June 30, 2013.  The average price received for production for the three months ended June 30, 2014 was $5.30 per Mcfe before the effects of cash settled commodity hedges compared to $4.60 per Mcfe for the three months ended June 30, 2013.  Average prices after the effects of cash settled commodity hedges were $5.31 per Mcfe for the three months ended June 30, 2014 compared to $4.94 for the three months ended June 30, 2013.

 

For the six months ended June 30, 2014, our production totaled approximately 152 Bcfe, or 838 MMcfe per day, a 99% increase compared to 76 Bcfe, or 421 MMcfe per day for the six months ended June 30, 2013.  The average price received for production for the six months ended June 30, 2014 was $5.54 per Mcfe before the effects of cash settled commodity hedges compared to $4.27 per Mcfe for the six months ended June 30, 2013.  Average prices after the effects of cash settled commodity hedges were $5.53 per Mcfe for the six months ended June 30, 2014 compared to $5.09 for the six months ended June 30, 2013.

 

Proved Reserves

 

As of June 30, 2014, our estimated proved reserves were 9.1 Tcfe, consisting of 7.9 Tcf of natural gas, 186 MMBbls of NGLs, and 16 MMBbls of oil.  This represents a 19% increase from proved reserve volumes at December 31, 2013 as a result of our successful ongoing drilling and development program.  The percentage of proved reserves classified as proved developed increased to 30% at June 30, 2014 compared to 27% at December 31, 2013.  Proved reserves at both dates were prepared assuming ethane rejection.  Estimates of proved reserves at June 30, 2014 were prepared by our internal reserve engineers and management without review by our independent reserve engineers.  Our December 31, 2013 proved reserves were audited by independent reserve engineers.

 

2014 Capital Budget

 

For the six months ended June 30, 2014, our total capital expenditures were approximately $1.7 billion, including drilling and completion costs of $1.1 billion, gathering and compression costs of $262 million, fresh water distribution project costs of $100 million, leasehold acquisition costs of $ 239 million (including approximately $95 million for an acquisition transaction of 6,363 Utica acres), and other capital expenditures of $11 million. Our capital expenditure budget for 2014 is $2.85 billion and includes: $1.8 billion for drilling and completion; $750 million for the expansion of midstream facilities, including $200 million for fresh water distribution infrastructure; and $300 million for core leasehold acreage acquisitions.  We do not budget for producing property acquisitions.  Substantially all of the $1.8 billion allocated for drilling and completion is allocated to our operated drilling in rich gas areas.  Approximately 75% of our drilling and completion budget is allocated to the Marcellus Shale, and the remaining 25% is allocated to the Utica Shale.  Our 2014 capital budget assumes a drilling and completion program that averages 18 rigs during the year, and we are currently reviewing the capital budget for 2014.  We are monitoring the construction of additional third party midstream capacity, including processing, and expect to provide updated production and capital guidance during the third quarter of 2014.  Additionally, we periodically review capital expenditures and adjust the budget based on liquidity, drilling results, leasehold acquisition opportunities, and commodity prices.

 

Credit Facility Amendment

 

On July 28, 2014, our revolving credit facility was amended to increase lender commitments from $2.0 billion to $2.5 billion, including $400 million of commitments under the midstream credit facility.  The letter of credit sublimit was increased from $500 million to $650 million.  Maximum borrowings under the facility are $3.5 billion and the current borrowing base is $3.0 billion.  Lender commitments can be increased to the full $3.0 billion upon the approval of the lenders.  The maturity date of the facility is

 

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Table of Contents

 

May 5, 2019.  The borrowing base under the Credit Facility is redetermined semiannually and is based on the lenders’ judgment of the volume of our proved oil and gas reserves and the estimated future cash flows from these reserves and the value of our hedge positions.  The next redetermination is scheduled to occur in October 2014.

 

At June 30, 2014, we had $1.24 billion of borrowings and $237 million of letters of credit outstanding under the Credit Facility and $523 million of available borrowing capacity, based on $2.0 billion of lender commitments at that date.

 

Issuance of 5.125% Notes due 2022

 

In May 2014, we issued $600 million of 5.125% senior notes due December 1, 2022.  The proceeds of the notes were used to retire the remaining $260 million principal amount of our 7.25% notes due 2019 and for general corporate purposes, including paying down amounts outstanding under our revolving credit facility and funding our drilling and development program.  We incurred a loss on early extinguishment of debt of $20 million on the retirement of the 7.25% notes.  Our outstanding senior notes totaling $2.125 billion now have interest rates ranging from 5.125% to 6.00% and have due dates ranging from December 1, 2020 to December 1, 2022.

 

Hedge Position

 

As of June 30, 2014, we had entered into hedging contracts for July 1, 2014 through December 31, 2019 for 1.32 Tcf of our projected natural gas production at a weighted average index price of $4.58 per MMbtu and 552,000 Bbls of oil at a weighted average price of $94.13 per Bbl.  These hedging contracts include contracts for the year ended December 31, 2014 of approximately 132 Bcf of natural gas at a weighted average index price of $4.65 per Mcf and 552,000 Bbls of oil at $94.13 per Bbl.

 

In addition, we had entered into natural gas basis differential positions for 2015 through 2017 for 237 Bcf at a weighted average index price of $(0.39) which settle on the pricing index to basis differential of Columbia Gas (TCO) to the NYMEX Henry Hub natural gas price.

 

Pending Midstream MLP IPO

 

On February 7, 2014, our subsidiary, Antero Resources Midstream LLC filed a Registration Statement on Form S-1 with the SEC relating to an initial public offering of common units representing limited partner interests.  If the offering is closed, Antero Resources Midstream LLC will convert from a limited liability company into a Delaware master limited partnership and we intend to contribute midstream assets to the MLP as well as the right to develop additional midstream infrastructure to service our growing production.  The proposed offering has not yet commenced, in part, because we have not yet received the required Internal Revenue Service (the “IRS”) ruling due to the temporary suspension of such rulings with respect to qualifying income by the IRS.  However, we cannot provide any assurance that we will be able to complete the proposed initial public offering of the MLP in a timely fashion, or at all.

 

21



Table of Contents

 

Results of Operations

 

Three months ended June 30, 2013 Compared to Three months ended June 30, 2014

 

The following table sets forth selected operating data for the three months ended June 30, 2013 compared to the three months ended June 30, 2014:

 

 

 

Three Months Ended
June 30,

 

Amount of
Increase

 

 

 

 

 

2013

 

2014

 

(Decrease)

 

Percent Change

 

 

 

(in thousands, except per unit and production data)

 

Operating revenues:

 

 

 

 

 

 

 

 

 

Natural gas sales

 

$

172,332

 

314,151

 

141,819

 

82

%

NGL sales

 

17,244

 

79,768

 

62,524

 

363

%

Oil sales

 

2,085

 

35,633

 

33,548

 

1,609

%

Gathering, compression, and water distribution

 

 

3,565

 

3,565

 

*

 

Marketing

 

 

1,987

 

1,987

 

*

 

Commodity derivative fair value gains (losses)

 

195,483

 

(123,766

)

(319,249

)

*

 

Total operating revenues

 

387,144

 

311,338

 

(75,806

)

(20

)%

Operating expenses:

 

 

 

 

 

 

 

 

 

Lease operating

 

1,454

 

5,021

 

3,567

 

245

%

Gathering, compression, processing, and transportation

 

48,670

 

103,837

 

55,167

 

113

%

Production and ad valorem taxes

 

10,108

 

21,358

 

11,250

 

111

%

Marketing

 

 

13,946

 

13,946

 

*

 

Exploration

 

7,300

 

6,703

 

(597

)

(8

)%

Impairment of unproved properties

 

4,803

 

1,956

 

(2,847

)

(59

)%

Depletion, depreciation, and amortization

 

52,589

 

105,154

 

52,565

 

100

%

Accretion of asset retirement obligations

 

267

 

309

 

42

 

16

%

General and administrative (before stock compensation expense)

 

13,567

 

25,883

 

12,316

 

91

%

Stock compensation

 

 

32,474

 

32,474

 

*

 

Total operating expenses

 

138,758

 

316,641

 

177,883

 

128

%

Operating income (loss)

 

248,386

 

(5,303

)

(253,689

)

*

 

 

 

 

 

 

 

 

 

 

 

Other Expenses:

 

 

 

 

 

 

 

 

 

Interest expense

 

(33,468

)

(37,260

)

(3,792

)

11

%

Loss on early extinguishment of debt

 

 

(20,386

)

(20,386

)

*

 

Total other expenses

 

(33,468

)

(57,646

)

(24,178

)

72

%

Income (loss) before income taxes and discontinued operations

 

214,918

 

(62,949

)

(277,867

)

*

 

Income tax (expense) benefit

 

(83,725

)

18,454

 

102,179

 

*

 

Income (loss) from continuing operations

 

131,193

 

(44,495

)

(175,688

)

*

 

Income from discontinued operations

 

 

2,210

 

2,210

 

*

 

Net income (loss)

 

$

131,193

 

(42,285

)

(173,478

)

*

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDAX (1) 

 

$

132,608

 

266,462

 

133,854

 

101

%

 

 

 

 

 

 

 

 

 

 

Production data:

 

 

 

 

 

 

 

 

 

Natural gas (Bcf)

 

39

 

70

 

31

 

78

%

NGLs (MBbl)

 

354

 

1,451

 

1,097

 

310

%

Oil (MBbl)

 

25

 

391

 

366

 

1,495

%

Combined (Bcfe)

 

42

 

81

 

39

 

94

%

Daily combined production (MMcfe/d)

 

458

 

891

 

433

 

94

%

Average prices before effects of hedges(2):

 

 

 

 

 

 

 

 

 

Natural gas (per Mcf)

 

$

4.37

 

$

4.49

 

$

0.12

 

3

%

NGLs (per Bbl)

 

$

48.70

 

$

54.98

 

$

6.28

 

13

%

Oil (per Bbl)

 

$

85.07

 

$

91.20

 

$

6.13

 

7

%

Combined (per Mcfe)

 

$

4.60

 

$

5.30

 

$

0.70

 

15

%