Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

 

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

 

For the quarterly period ended June 30, 2015

 

OR

 

 

 

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.   Yes   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).   Yes   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

 

Accelerated filer

 

 

 

Non-accelerated filer

 

Smaller reporting company

(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)   Yes   No

 

The registrant had 277,029,931 shares of common stock outstanding as of July 24,  2015.

 

 

 


 

Table of Contents

TABLE OF CONTENTS

 

 

 

 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 

    

2

PART I—FINANCIAL INFORMATION 

 

4

Item 1. 

    

Financial Statements (Unaudited)

 

4

Item 2. 

 

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

 

30

Item 3. 

 

Quantitative and Qualitative Disclosures about Market Risk

 

52

Item 4. 

 

Controls and Procedures

 

53

PART II—OTHER INFORMATION 

 

55

Item 1. 

 

Legal Proceedings

 

55

Item 1A. 

 

Risk Factors

 

55

Item 2 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

56

Item 5. 

 

Disclosure pursuant to Section 13(r) of the Securities Exchange Act of 1934

 

56

Item 6. 

 

Exhibits

 

57

SIGNATURES 

 

58

 

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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, 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 Quarterly Report on Form 10-Q.  These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.

 

Forward-looking statements may include statements about our:

 

·

business strategy;

 

·

reserves;

 

·

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

 

·

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

 

·

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

 

·

hedging strategy and results;

 

·

ability to utilize or monetize our firm transportation commitments;

 

·

future drilling plans;

 

·

competition and government regulations;

 

·

pending legal or environmental matters;

 

·

marketing of natural gas, NGLs, and oil;

 

·

leasehold or business acquisitions;

 

·

costs of developing our properties;

 

·

operations of Antero Midstream Partners LP;

 

·

general economic conditions;

 

·

credit markets;

 

·

uncertainty regarding our future operating results; and

 

·

plans, objectives, expectations, and intentions.

 

2


 

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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, processing, transportation, and sale of natural gas, NGLs, and oil. These risks include, but are not limited to, commodity price volatility and continued low commodity prices, 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, 2014 (our “2014 Form 10-K”) on file with the Securities and Exchange Commission (the “SEC”) and in “Item 1A. Risk Factors” of this Quarterly Report on 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, or changes in commodity prices, may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of natural gas, NGLs, and oil that are ultimately recovered.

 

Should one or more of the risks or uncertainties described in this 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 Quarterly Report on Form 10-Q.

 

 

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PART I—FINANCIAL INFORMATION

ANTERO RESOURCES CORPORATION

Condensed Consolidated Balance Sheets

December 31, 2014 and June 30, 2015

(Unaudited)

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

    

2014

    

2015

 

Assets

 

Current assets:

 

 

 

 

  

 

 

Cash and cash equivalents

 

$

245,979

 

 

143,286

 

Accounts receivable, net of allowance for doubtful accounts of $1,251 in 2014 and 2015

 

 

116,203

 

 

79,190

 

Accrued revenue

 

 

191,558

 

 

125,467

 

Derivative instruments

 

 

692,554

 

 

664,417

 

Other current assets

 

 

5,866

 

 

4,819

 

Total current assets

 

 

1,252,160

 

 

1,017,179

 

Property and equipment:

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Unproved properties

 

 

2,060,936

 

 

2,080,491

 

Proved properties

 

 

6,515,221

 

 

7,462,080

 

Fresh water distribution systems

 

 

421,012

 

 

441,692

 

Gathering systems and facilities

 

 

1,197,239

 

 

1,341,661

 

Other property and equipment

 

 

37,687

 

 

42,842

 

 

 

 

10,232,095

 

 

11,368,766

 

Less accumulated depletion, depreciation, and amortization

 

 

(879,643)

 

 

(1,238,989)

 

Property and equipment, net

 

 

9,352,452

 

 

10,129,777

 

Derivative instruments

 

 

899,997

 

 

1,305,392

 

Other assets

 

 

68,886

 

 

80,133

 

Total assets

 

$

11,573,495

 

 

12,532,481

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

Current liabilities:

 

 

 

 

  

 

 

Accounts payable

 

$

531,564

 

 

326,638

 

Accrued liabilities

 

 

168,614

 

 

183,319

 

Revenue distributions payable

 

 

182,352

 

 

190,881

 

Deferred income tax liability

 

 

260,373

 

 

251,097

 

Other current liabilities

 

 

12,202

 

 

14,248

 

Total current liabilities

 

 

1,155,105

 

 

966,183

 

Long-term liabilities:

 

 

 

 

 

 

 

Long-term debt

 

 

4,362,550

 

 

4,500,038

 

Deferred income tax liability

 

 

534,423

 

 

706,948

 

Derivative instruments

 

 

 —

 

 

651

 

Other liabilities

 

 

47,587

 

 

49,215

 

Total liabilities

 

 

6,099,665

 

 

6,223,035

 

Contingencies (note 8)

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

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

 

 

 —

 

 

 —

 

Common stock, $0.01 par value; authorized - 1,000,000,000 shares; issued and outstanding 262,071,642 shares and 277,025,288 shares, respectively

 

 

2,621

 

 

2,770

 

Additional paid-in capital

 

 

3,513,725

 

 

4,099,718

 

Accumulated earnings

 

 

867,447

 

 

1,116,505

 

Total stockholders' equity

 

 

4,383,793

 

 

5,218,993

 

Noncontrolling interest in consolidated subsidiary

 

 

1,090,037

 

 

1,090,453

 

Total equity

 

 

5,473,830

 

 

6,309,446

 

Total liabilities and equity

 

$

11,573,495

 

 

12,532,481

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended June 30, 2014 and 2015

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

    

2014

    

2015

 

Revenue:

 

 

 

 

 

 

 

Natural gas sales

 

$

314,151

 

 

242,065

 

Natural gas liquids sales

 

 

79,768

 

 

59,525

 

Oil sales

 

 

35,633

 

 

23,032

 

Gathering, compression, and water distribution

 

 

3,565

 

 

4,490

 

Marketing

 

 

1,987

 

 

49,829

 

Commodity derivative fair value losses

 

 

(123,766)

 

 

(2,227)

 

Total revenue

 

 

311,338

 

 

376,714

 

Operating expenses:

 

 

 

 

 

 

 

Lease operating

 

 

5,021

 

 

6,673

 

Gathering, compression, processing, and transportation

 

 

103,837

 

 

166,669

 

Production and ad valorem taxes

 

 

21,358

 

 

22,519

 

Marketing

 

 

13,946

 

 

79,053

 

Exploration

 

 

6,703

 

 

628

 

Impairment of unproved properties

 

 

1,956

 

 

26,339

 

Depletion, depreciation, and amortization

 

 

105,154

 

 

177,046

 

Accretion of asset retirement obligations

 

 

309

 

 

408

 

General and administrative (including equity-based compensation expense of $32,474 and $27,582 in 2014 and 2015, respectively)

 

 

58,357

 

 

59,191

 

Contract termination and rig stacking

 

 

 —

 

 

1,937

 

Total operating expenses

 

 

316,641

 

 

540,463

 

Operating loss

 

 

(5,303)

 

 

(163,749)

 

Other expenses:

 

 

 

 

 

 

 

Interest

 

 

(37,260)

 

 

(59,823)

 

Loss on early extinguishment of debt

 

 

(20,386)

 

 

 —

 

Total other expenses

 

 

(57,646)

 

 

(59,823)

 

Loss from continuing operations before income taxes and discontinued operations

 

 

(62,949)

 

 

(223,572)

 

Provision for income tax benefit

 

 

18,454

 

 

84,089

 

Loss from continuing operations

 

 

(44,495)

 

 

(139,483)

 

Discontinued operations:

 

 

 

 

 

 

 

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

 

 

2,210

 

 

 —

 

Loss and comprehensive loss including noncontrolling interest

 

 

(42,285)

 

 

(139,483)

 

Net income and comprehensive income attributable to noncontrolling interest

 

 

 —

 

 

5,890

 

Loss and comprehensive loss attributable to Antero Resources Corporation

 

$

(42,285)

 

$

(145,373)

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share

 

 

 

 

 

 

 

Continuing operations

 

$

(0.17)

 

$

(0.52)

 

Discontinued operations

 

 

0.01

 

 

 —

 

Total

 

$

(0.16)

 

$

(0.52)

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share—assuming dilution

 

 

 

 

 

 

 

Continuing operations

 

$

(0.17)

 

$

(0.52)

 

Discontinued operations

 

 

0.01

 

 

 —

 

Total

 

$

(0.16)

 

$

(0.52)

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

262,049,659

 

 

277,002,786

 

Diluted

 

 

262,049,659

 

 

277,002,786

 

 

See accompanying notes to condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Six Months Ended June 30, 2014 and 2015

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

    

2014

    

2015

 

Revenue:

 

 

 

 

  

 

 

Natural gas sales

 

$

626,487

 

 

557,007

 

Natural gas liquids sales

 

 

153,696

 

 

138,311

 

Oil sales

 

 

59,755

 

 

35,489

 

Gathering, compression, and water distribution

 

 

7,089

 

 

10,658

 

Marketing

 

 

5,213

 

 

107,609

 

Commodity derivative fair value gains (losses)

 

 

(372,695)

 

 

757,327

 

Total revenue

 

 

479,545

 

 

1,606,401

 

Operating expenses:

 

 

 

 

 

 

 

Lease operating

 

 

9,890

 

 

14,775

 

Gathering, compression, processing, and transportation

 

 

187,347

 

 

330,331

 

Production and ad valorem taxes

 

 

42,397

 

 

46,737

 

Marketing

 

 

25,927

 

 

152,402

 

Exploration

 

 

13,700

 

 

1,999

 

Impairment of unproved properties

 

 

3,353

 

 

34,916

 

Depletion, depreciation, and amortization

 

 

196,360

 

 

359,346

 

Accretion of asset retirement obligations

 

 

611

 

 

808

 

General and administrative (including equity-based compensation expense of $61,611 and $55,365 in 2014 and 2015, respectively)

 

 

109,342

 

 

118,240

 

Contract termination and rig stacking

 

 

 —

 

 

10,902

 

Total operating expenses

 

 

588,927

 

 

1,070,456

 

Operating income (loss)

 

 

(109,382)

 

 

535,945

 

Other expenses:

 

 

 

 

 

 

 

Interest

 

 

(68,602)

 

 

(113,008)

 

Loss on early extinguishment of debt

 

 

(20,386)

 

 

 —

 

Total other expenses

 

 

(88,988)

 

 

(113,008)

 

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

 

 

(198,370)

 

 

422,937

 

Provision for income tax (expense) benefit

 

 

59,116

 

 

(163,249)

 

Income (loss) from continuing operations

 

 

(139,254)

 

 

259,688

 

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) including noncontrolling interest

 

 

(137,044)

 

 

259,688

 

Net income and comprehensive income attributable to noncontrolling interest

 

 

 —

 

 

10,630

 

Net income (loss) and comprehensive income (loss) attributable to Antero Resources Corporation

 

$

(137,044)

 

 

249,058

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

Continuing operations

 

$

(0.53)

 

 

0.92

 

Discontinued operations

 

 

0.01

 

 

 —

 

Total

 

$

(0.52)

 

 

0.92

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share—assuming dilution

 

 

 

 

 

 

 

Continuing operations

 

$

(0.53)

 

 

0.92

 

Discontinued operations

 

 

0.01

 

 

 —

 

Total

 

$

(0.52)

 

 

0.92

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

262,049,659

 

 

271,181,132

 

Diluted

 

 

262,049,659

 

 

271,192,089

 

 

See accompanying notes to condensed consolidated financial statements.

 

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Equity

Six Months Ended June 30, 2015

(Unaudited)

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Common
Stock

    

Additional
paid-in capital

    

Accumulated
earnings

    

Noncontrolling
interest

    

Total
equity

 

Balances, December 31, 2014

 

$

2,621

 

 

3,513,725

 

 

867,447

 

 

1,090,037

 

 

5,473,830

 

Issuance of 14,700,000 shares of common stock in public offering, net of underwriter discounts and offering costs

 

 

147

 

 

537,546

 

 

 —

 

 

 —

 

 

537,693

 

Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income tax withholdings

 

 

2

 

 

(4,515)

 

 

 —

 

 

 —

 

 

(4,513)

 

Equity-based compensation

 

 

 —

 

 

52,962

 

 

 —

 

 

2,403

 

 

55,365

 

Net income and comprehensive income

 

 

 —

 

 

 —

 

 

249,058

 

 

10,630

 

 

259,688

 

Distributions to non-controlling interests

 

 

 —

 

 

 —

 

 

 —

 

 

(12,617)

 

 

(12,617)

 

Balances, June 30, 2015

 

$

2,770

 

 

4,099,718

 

 

1,116,505

 

 

1,090,453

 

 

6,309,446

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30, 2014 and 2015

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

    

2014

    

2015

 

Cash flows from operating activities:

 

 

 

 

  

 

 

Net income (loss) including noncontrolling interest

 

$

(137,044)

 

 

259,688

 

Adjustment to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depletion, depreciation, amortization, and accretion

 

 

196,971

 

 

360,154

 

Impairment of unproved properties

 

 

3,353

 

 

34,916

 

Derivative fair value (gains) losses

 

 

372,695

 

 

(757,327)

 

Gains (losses) on settled derivatives

 

 

(118)

 

 

380,720

 

Deferred income tax expense (benefit)

 

 

(59,116)

 

 

163,249

 

Equity-based compensation expense

 

 

61,611

 

 

55,365

 

Loss on early extinguishment of debt

 

 

20,386

 

 

 —

 

Gain on sale of discontinued operations

 

 

(3,564)

 

 

 —

 

Deferred income tax expense—discontinued operations

 

 

1,354

 

 

 —

 

Other

 

 

969

 

 

3,999

 

Changes in current assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(15,922)

 

 

(2,987)

 

Accrued revenue

 

 

(42,728)

 

 

66,091

 

Other current assets

 

 

(942)

 

 

1,047

 

Accounts payable

 

 

3,477

 

 

4,579

 

Accrued liabilities

 

 

42,475

 

 

10,904

 

Revenue distributions payable

 

 

57,503

 

 

8,529

 

Other current liabilities

 

 

(3,331)

 

 

1,668

 

Net cash provided by operating activities

 

 

498,029

 

 

590,595

 

Cash flows used in investing activities:

 

 

 

 

 

 

 

Additions to unproved properties

 

 

(239,152)

 

 

(131,683)

 

Drilling and completion costs

 

 

(1,103,017)

 

 

(1,009,421)

 

Additions to fresh water distribution systems

 

 

(99,927)

 

 

(34,076)

 

Additions to gathering systems and facilities

 

 

(261,667)

 

 

(200,045)

 

Additions to other property and equipment

 

 

(11,041)

 

 

(2,794)

 

Change in other assets

 

 

(39,067)

 

 

(759)

 

Proceeds from asset sales

 

 

 —

 

 

40,000

 

Net cash used in investing activities

 

 

(1,753,871)

 

 

(1,338,778)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Issuance of common stock

 

 

 —

 

 

537,693

 

Issuance of senior notes

 

 

600,000

 

 

750,000

 

Repayment of senior notes

 

 

(260,000)

 

 

 —

 

Borrowings (repayments) on bank credit facility, net

 

 

952,000

 

 

(612,000)

 

Make-whole premium on debt extinguished

 

 

(17,383)

 

 

 —

 

Payments of deferred financing costs

 

 

(16,989)

 

 

(15,254)

 

Distributions to noncontrolling interest in consolidated subsidiary

 

 

 —

 

 

(12,617)

 

Other

 

 

 —

 

 

(2,332)

 

Net cash provided by financing activities

 

 

1,257,628

 

 

645,490

 

Net increase (decrease) in cash and cash equivalents

 

 

1,786

 

 

(102,693)

 

Cash and cash equivalents, beginning of period

 

 

17,487

 

 

245,979

 

Cash and cash equivalents, end of period

 

$

19,273

 

 

143,286

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

60,031

 

 

103,133

 

Supplemental disclosure of noncash investing activities:

 

 

 

 

 

 

 

Increase (decrease) in accounts payable and accrued liabilities for additions to property and equipment

 

$

126,657

 

 

(210,217)

 

 

See accompanying notes to condensed consolidated financial statements. 

8


 

Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2014 and June 30, 2015

 

(1)Organization

 

(a)Business and Organization

 

Antero Resources Corporation (individually referred to as “Antero”) and its consolidated subsidiaries (collectively referred to as the “Company”) 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.  The Company targets large, repeatable resource plays where horizontal drilling and advanced fracture stimulation technologies provide the means to economically develop and produce natural gas, NGLs, and oil from unconventional formations.  The Company has fresh water distribution operations in the Appalachian Basin, as well as gathering and compression operations through its consolidated subsidiary, Antero Midstream Partners LP (“Antero Midstream”), a publicly-traded limited partnership.  The Company’s corporate headquarters are in Denver, Colorado.

 

(2)Summary of Significant Accounting Policies

 

(a)Basis of Presentation

 

These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC applicable to interim financial information and should be read in the context of the December 31, 2014 consolidated financial statements and notes thereto for a more complete understanding of the Company’s operations, financial position, and accounting policies.  The December 31, 2014 consolidated financial statements have been filed with the SEC in the Company’s 2014 Form 10-K.

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, and, accordingly, do not include all of the information and footnotes required by GAAP for complete consolidated financial statements.  In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of normal and recurring accruals) considered necessary to present fairly the Company’s financial position as of June 30, 2015, the results of its operations for the three and six months ended June 30, 2014 and 2015, and its cash flows for the six months ended June 30, 2014 and 2015.  The Company has no items of other comprehensive income or loss; therefore, its net income or loss is identical to its comprehensive income or loss.  Operating results for the period ended June 30, 2015 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.

 

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

 

(b)Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of Antero Resources Corporation, its wholly-owned subsidiaries, and any entities in which the Company owns a controlling interest.  All significant intercompany accounts and transactions have been eliminated in the Company’s consolidated financial statements.  Noncontrolling interest in the Company’s consolidated financial statements represents the interests in Antero Midstream which are owned by third-party individuals or entities.  An affiliate of the Company owns the general partner interest in Antero Midstream, as well as all of the incentive distribution rights.  Noncontrolling interest is included as a component of equity in the Company’s consolidated balance sheets.

 

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Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2014 and June 30, 2015

(c)Use of Estimates

 

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

 

(d)Risks and Uncertainties

 

Historically, the market for natural gas, NGLs, and oil has experienced significant price fluctuations.  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 the prices the Company receives for its production could have a significant impact on the Company’s future results of operations and reserve quantities.

 

(e)Cash and Cash Equivalents

 

The Company considers all liquid investments purchased with an initial maturity of three months or less to be cash equivalents.  The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments.

 

(f)Derivative Financial Instruments

 

In order to manage its exposure to natural gas, NGLs, and oil price volatility, the Company enters into derivative transactions from time to time, 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 exists with a counterparty, the Company reports derivative assets and liabilities on a net basis.  The Company has exposure to credit risk to the extent the counterparty is unable to satisfy its settlement obligations.  The fair value of our commodity derivative contracts of approximately $2.0 billion at June 30, 2015 includes the following values by bank counterparty:  Citigroup - $402 million; Barclays - $358 million; JP Morgan - $319 million; Morgan Stanley - $261 million; Wells Fargo - $231 million; BNP Paribas - $193 million; Scotiabank - $115 million; Toronto Dominion - $44 million; Fifth Third - $35 million; Canadian Imperial Bank of Commerce - $8 million; and Bank of Montreal - $3 million.  The credit ratings of certain of these banks were downgraded in recent years because of the sovereign debt crisis in Europe.  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 on the Company’s condensed consolidated statements of operations.  The Company’s derivatives have not been designated as hedges for accounting purposes.

 

(g)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. 

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Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2014 and June 30, 2015

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 for tax-related matters as income tax expense.

 

(h)Fair Value Measurements

 

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 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).  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 inputs 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, which are observable for the asset or liability, either directly or indirectly.  Instruments which are valued using Level 2 inputs include non-exchange traded derivatives such as over-the-counter commodity price swaps and basis 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.

 

(i)Industry Segments and Geographic Information

 

Management has evaluated how the Company is organized and managed and has identified the following segments: (1) the exploration, development, and production of natural gas, NGLs, and oil; (2) gathering and compression; (3) fresh water distribution; and (4) marketing of excess firm transportation capacity.

 

All of the Company’s assets are located in the United States and substantially all of its production revenues are attributable to customers located in the United States.

 

(j)Marketing Revenues and Expenses

 

In 2014, the Company commenced activities to purchase and sell third-party natural gas and NGLs and to market its excess firm transportation capacity in order to utilize this excess capacity.  Marketing revenues include sales of purchased third-party gas and NGLs, as well as revenues from the release of firm transportation capacity to others.  Marketing expenses include the cost of purchased third-party natural gas and NGLs.  The Company classifies firm transportation costs related to capacity contracted for in advance of having sufficient production and infrastructure to fully utilize the capacity (excess capacity) as marketing expenses since it is marketing this excess capacity to third parties.  Firm transportation for which the Company has sufficient production capacity (even though it may not use the transportation capacity because of alternative delivery points with more favorable pricing) is considered unutilized capacity. The costs of unutilized capacity are charged to transportation expense.

 

(k)Earnings (loss) per common share

 

Earnings (loss) per common share for each period is computed by dividing net income (loss) from continuing operations attributable to Antero or income (loss) from discontinued operations, as applicable, by the basic weighted average number of

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Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2014 and June 30, 2015

shares outstanding during such period.  Earnings (loss) per common share—assuming dilution for each period is computed giving consideration to the potential dilution from outstanding equity awards, calculated using the treasury stock method.  During periods in which the Company incurs a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the effect of all equity awards is antidilutive.   The following is a reconciliation of the Company’s basic weighted average shares outstanding to diluted weighted average shares outstanding during the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2014

 

2015

 

2014

 

2015

 

Basic weighted average number of shares outstanding

 

262,049,659

 

277,002,786

 

262,049,659

 

271,181,132

 

Add: Dilutive effect of non-vested restricted stock and restricted stock units

 

 —

 

 —

 

 —

 

10,957

 

Add: Dilutive effect of outstanding stock options

 

 —

 

 —

 

 —

 

 —

 

Diluted weighted average number of shares outstanding

 

262,049,659

 

277,002,786

 

262,049,659

 

271,192,089

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of outstanding equity awards excluded from calculation of diluted earnings (loss) per common share(1):

 

 

 

 

 

 

 

 

 

Non-vested restricted stock and restricted stock units

 

1,956,015

 

2,376,661

 

1,010,182

 

2,140,586

 

Outstanding stock options

 

70,339

 

643,697

 

70,339

 

363,913

 


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

 

(3)Long-Term Debt

 

Long-term debt was as follows at December 31, 2014 and June 30, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

    

2014

    

2015

 

Antero:

 

 

 

 

 

 

 

Bank credit facility(a)

 

$

1,730,000

 

 

1,118,000

 

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)

 

 

1,100,000

 

 

1,100,000

 

5.625% senior notes due 2023(f)

 

 

 —

 

 

750,000

 

Net unamortized premium

 

 

7,550

 

 

7,038

 

 

 

$

4,362,550

 

 

4,500,038

 

Antero Midstream:

 

 

 

 

 

 

 

Bank credit facility(b)

 

$

 —

 

$

 —

 


(a)Senior Secured Revolving Credit Facility

 

Antero has a senior secured revolving bank credit facility (the “Credit Facility”) with a consortium of bank lenders.  Borrowings under the Credit Facility are subject to borrowing base limitations based on the collateral value of Antero’s proved properties and commodity hedge positions and are subject to regular semiannual redeterminations.  At June 30, 2015, the borrowing base was $4.0 billion and lender commitments were $4.0 billion, including $200 million of commitments under the Water Facility described below.  The next redetermination of the borrowing base is scheduled to occur in October 2015.  The maturity date of the Credit Facility is May 5, 2019.

 

On November 10, 2014, Antero and Antero Water LLC (“Antero Water”) entered into a water credit facility (the “Water Facility”), in order to provide for separate borrowings attributable to Antero’s fresh water distribution business, which contains covenants that are substantially identical to those under the Credit Facility.  Borrowings under the Water Facility reduce availability under the Credit Facility on a dollar-for-dollar basis. The Water Facility will mature at the earlier of the sale of Antero Water or its assets to Antero Midstream, or May 12, 2016.

 

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2014 and June 30, 2015

The Credit Facility and the Water Facility are ratably secured by mortgages on substantially all of Antero’s properties and guarantees from Antero’s restricted subsidiaries, as applicable.  The Credit Facility and the Water 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,  determined by Antero’s election at the time of borrowing.  Antero was in compliance with all of the financial covenants under the Credit Facility as of December 31, 2014 and June 30, 2015.

 

As of December 31, 2014, Antero had an outstanding balance under the Credit Facility and Water Facility of $1.73 billion, with a weighted average interest rate of 2.06%, and outstanding letters of credit of $387 million.  As of June 30, 2015, Antero had a total outstanding balance under the Credit Facility and Water Facility of $1.12 billion, with a weighted average interest rate of 2.07%, and outstanding letters of credit of $475 million.  Commitment fees on the unused portion of the Credit Facility and the Water Facility are due quarterly at rates ranging from 0.375% to 0.50% of the unused portion of the facilities based on utilization.

 

(b)Senior Secured Revolving Credit Facility – Antero Midstream

 

On November 10, 2014, Antero Midstream entered into a senior secured revolving bank credit facility (the “Midstream Facility”) with a consortium of bank lenders.  At June 30, 2015, the maximum amount of the facility was $1.0 billion.  The maturity date of the Midstream Facility is November 10, 2019.

The Midstream Facility is ratably secured by mortgages on substantially all of the properties of Antero Midstream and guarantees from its restricted subsidiaries, as applicable.  The Midstream Facility contains certain covenants, including restrictions on indebtedness and certain distributions to owners, and requirements with respect to leverage and interest coverage ratios.  Interest is payable at a variable rate based on LIBOR or the prime rate, determined by election at the time of borrowing.  Antero Midstream was in compliance with all of the financial covenants under the Midstream Facility as of December 31, 2014 and June 30, 2015.

As of December 31, 2014 and June 30, 2015, Antero Midstream did not have a balance outstanding under the Midstream Facility.  Commitment fees on the unused portion of the Midstream Facility are due quarterly at rates ranging from 0.25% to 0.375% of the unused facility based on utilization.

 

(c)6.00% Senior Notes Due 2020

 

On November 19, 2012, Antero issued $300 million of 6.00% senior notes due December 1, 2020 (the “2020 notes”) at par.  On February 4, 2013, Antero issued an additional $225 million of the 2020 notes at 103% of par.  The 2020 notes are unsecured and effectively subordinated to the Credit Facility and the Water Facility to the extent of the value of the collateral securing such facilities.  The 2020 notes rank pari passu to Antero’s other outstanding senior notes.  The 2020 notes are guaranteed on a full and unconditional and joint and several senior unsecured basis by Antero’s wholly-owned subsidiaries and certain of its future restricted subsidiaries.  Interest on the 2020 notes is payable on June 1 and December 1 of each year.  Antero 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, Antero 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, Antero 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 Antero undergoes a change of control, the holders of the 2020 notes will have the right to require Antero 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, Antero 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 Water Facility to the extent of the

13


 

Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2014 and June 30, 2015

value of the collateral securing such facilities.  The 2021 notes rank pari passu to Antero’s other outstanding senior notes.  The 2021 notes are guaranteed on a full and unconditional and joint and several senior unsecured basis by Antero’s wholly-owned subsidiaries and certain of its future restricted subsidiaries.  Interest on the 2021 notes is payable on May 1 and November 1 of each year.  Antero 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, Antero 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, Antero 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 Antero undergoes a change of control, the holders of the 2021 notes will have the right to require Antero to repurchase all or a portion of the notes 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, Antero issued $600 million of 5.125% senior notes due December 1, 2022 (the “2022 notes”) at par.  On September 18, 2014, Antero issued an additional $500 million of the 2022 notes at 100.5% of par.  The 2022 notes are unsecured and effectively subordinated to the Credit Facility and the Water Facility to the extent of the value of the collateral securing such facilities.  The 2022 notes rank pari passu to Antero’s other outstanding senior notes.  The 2022 notes are guaranteed on a full and unconditional and joint and several senior unsecured basis by Antero’s wholly-owned subsidiaries and certain of its future restricted subsidiaries.  Interest on the 2022 notes is payable on June 1 and December 1 of each year.  Antero 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, Antero 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, Antero 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 Antero undergoes a change of control prior to December 1, 2015, it 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 Antero undergoes a change of control, the holders of the 2022 notes will have the right to require Antero 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)5.625% Senior Notes Due 2023

 

On March 17, 2015, Antero issued $750 million of 5.625% senior notes due June 1, 2023 (the “2023 notes”) at par.  The 2023 notes are unsecured and effectively subordinated to the Credit Facility and the Water Facility to the extent of the value of the collateral securing such facilities.  The 2023 notes rank pari passu to Antero’s other outstanding senior notes.  The 2023 notes are guaranteed on a full and unconditional and joint and several senior unsecured basis by Antero’s wholly-owned subsidiaries and certain of its future restricted subsidiaries.  Interest on the 2023 notes is payable on June 1 and December 1 of each year.  Antero may redeem all or part of the 2023 notes at any time on or after June 1, 2018 at redemption prices ranging from 104.219% on or after June 1, 2018 to 100.00% on or after June 1, 2021.  In addition, on or before June 1, 2018, Antero may redeem up to 35% of the aggregate principal amount of the 2023 notes with the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 105.625% of the principal amount of the 2023 notes, plus accrued interest.  At any time prior to June 1, 2018, Antero may also redeem the 2023 notes, in whole or in part, at a price equal to 100% of the principal amount of the 2023 notes plus a “make-whole” premium and accrued interest.  If Antero undergoes a change of control prior to June 1, 2016, it may redeem all, but not less than all, of the 2023 notes at a redemption price equal to 110% of the principal amount of the 2023 notes.  If Antero undergoes a change of control, the holders of the 2023 notes will have the right to require Antero to repurchase all or a portion of the notes at a price equal to 101% of the principal amount of the 2023 notes, plus accrued interest.

 

(g)Treasury Management Facility

 

Antero has a stand-alone revolving note with a lender under the Credit Facility which provides for up to $25 million of cash management obligations in order to facilitate Antero’s daily treasury management.  Borrowings under the revolving note are

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Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2014 and June 30, 2015

secured by the collateral for the Credit Facility.  Borrowings under the facility bear interest at the lender’s prime rate plus 1.0%.  The note matures on May 1, 2016.  At December 31, 2014 and June 30, 2015, 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, 2015 (in thousands).

 

 

 

 

 

Asset retirement obligations at December 31, 2014

 

$

16,614

 

Obligations incurred for wells drilled

 

 

1,846

 

Accretion expense

 

 

808

 

Asset retirement obligations at June 30, 2015

 

$

19,268

 

 

Asset retirement obligations are included in other liabilities on the condensed consolidated balance sheets.

 

(5)Equity-Based Compensation

 

Antero is authorized to grant up to 16,906,500 shares of common stock to employees and directors of the Company under the Antero Resources Corporation Long-Term Incentive Plan (the “Plan”).  The Plan allows equity-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 Antero’s Board of Directors.  A total of 13,420,672 shares were available for future grant under the Plan as of June 30, 2015.

 

In connection with the Antero Midstream IPO, Antero Midstream’s general partner adopted the Antero Midstream Partners LP Long-Term Incentive Plan (the “Midstream Plan”), pursuant to which non-employee directors of Antero Midstream’s general partner and certain officers, employees, and consultants of Antero Midstream’s general partner and its affiliates (which include Antero) are eligible to receive awards representing ownership interests in Antero Midstream.  An aggregate of 10,000,000 common units may be delivered pursuant to awards under the Midstream Plan, subject to customary adjustments.  A total of 7,654,863 common units are available for future grant under the Midstream Plan as of June 30, 2015.

 

The Company’s equity-based compensation expense was as follows for the three and six months ended June 30, 2014 and 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

  

2014

  

2015

  

2014

  

2015

 

Profits interests awards

 

$

24,079

 

 

12,363

 

 

52,768

 

 

27,081

 

Restricted stock awards

 

 

8,287

 

 

10,235

 

 

8,596

 

 

18,671

 

Stock options

 

 

108

 

 

642

 

 

247

 

 

771

 

Antero Midstream phantom and restricted unit awards

 

 

 —

 

 

4,267

 

 

 —

 

 

8,692

 

Common stock issued to directors in lieu of cash compensation

 

 

 —

 

 

75

 

 

 —

 

 

150

 

Total expense

 

$

32,474

 

 

27,582

 

 

61,611

 

 

55,365

 

 

Profits Interests Awards

 

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 the Company’s 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 the Company’s officers and employees.  The Employee Holdings interests in Antero Resources LLC were exchanged for similar interests in Antero Investment in connection with the Company’s initial public offering on October 16, 2013.

 

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Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2014 and June 30, 2015

The limited liability company agreement of Antero Investment provides a mechanism that demonstrates how the shares of the Company’s common stock will be allocated among the members of Antero Investment, including Employee Holdings. 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 interest awards held by Employee Holdings in Antero Investment became probable.  Accordingly, the Company has recognized approximately $476 million of equity-based compensation expense for the vested profits interests through June 30, 2015 and will recognize approximately $10 million over the remaining service period.  Because consideration for the profits interest awards is deemed given by Antero Investment, the charge to equity-based compensation expense is accounted for as a capital contribution by Antero Investment to the Company and credited to additional paid-in capital.  All available profits interest awards were made prior to the date of the IPO, and no additional profits interest awards will be made.

 

Restricted Stock and Restricted Stock Unit Awards

 

Restricted stock and restricted stock unit awards vest subject to the satisfaction of service requirements.  Expense related to each restricted stock and restricted stock unit award is recognized on a straight-line basis over the requisite service period of the entire award, less awards expected to be forfeited.  The grant date fair values of these awards are determined based on the closing 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, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted
average

 

Aggregate

 

 

    

Number of
shares

    

grant date
fair value

    

intrinsic value
(in thousands)

 

Total awarded and unvested—December 31, 2014

 

1,983,673

 

$

64.71

 

$

80,497

 

Granted

 

871,127

 

$

40.95

 

 

 

 

Vested

 

(354,758)

 

$

64.60

 

 

 

 

Forfeited

 

(10,465)

 

$

39.98

 

 

 

 

Total awarded and unvested—June 30, 2015

 

2,489,577

 

$

56.54

 

$

85,492

 

 

Intrinsic values are based on the closing price of the Company’s stock on the referenced dates.  Unamortized expense of $120.4 million at June 30, 2015 is expected to be recognized over a weighted average period of approximately 3.0 years.

 

Stock Options

 

Stock options granted under the Plan vest over periods from one to four years and have a maximum contractual life of 10 years.  Expense related to stock options is recognized on a straight-line basis over the requisite service period of the entire award, less awards expected to be forfeited.  Stock options are granted with an exercise price equal to or greater than the market price of the Company’s common stock on the date of grant.  A summary of stock option activity for the six months ended June 30, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted
average

 

average
remaining

 

Intrinsic

 

 

    

Stock
options

    

exercise
price

    

contractual
life

    

value
(in thousands)

  

Outstanding at December 31, 2014

 

81,021

 

$

53.92

 

8.92

 

$

 —

 

Options granted

 

665,366

 

$

50.00

 

 

 

 

 

 

Options exercised

 

 —

 

 

 —

 

 

 

 

 

 

Options cancelled

 

(3,833)

 

$

50.00

 

 

 

 

 

 

Options expired

 

 —

 

 

 —

 

 

 

 

 

 

Outstanding at June 30, 2015

 

742,554

 

$

50.43

 

9.64

 

$

 —

 

Vested or expected to vest as of  June 30, 2015

 

742,554

 

$

50.43

 

9.64

 

$

 —

 

Exercisable at June 30, 2015

 

25,339

 

$

54.15

 

8.29

 

$

 —

 

 

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

 

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Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2014 and June 30, 2015

A Black-Scholes option-pricing model is used to determine the grant-date fair value of the Company’s 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 available for zero-coupon U.S. government issues with a remaining term approximating the expected life of the options.  A dividend yield of zero was assumed.

 

The following table presents information regarding the weighted average fair value for options granted in 2014 and 2015 and the assumptions used to determine fair value.

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

 

2015

 

 

Dividend yield

 

 

 —

%

 

 

 —

%

 

Volatility

 

 

40

%

 

 

40

%

 

Risk-free interest rate

 

 

1.75

%

 

 

1.66

%

 

Expected life (years)

 

 

5.50

 

 

 

6.25

 

 

Weighted average fair value of options granted

 

$

20.55

 

 

$

14.74

 

 

 

As of June 30, 2015, there was $10.0 million of unrecognized equity-based compensation expense related to nonvested stock options.  That expense is expected to be recognized over a weighted average period of approximately 3.7 years.

 

Antero Midstream Partners Phantom and Restricted Unit Awards

 

Restricted units and phantom units granted by Antero Midstream vest subject to the satisfaction of service requirements, upon the completion of which common units in Antero Midstream are delivered to the holder of the restricted units or phantom units.  These restricted and phantom units are treated, for accounting purposes, as if Antero Midstream distributed the units to Antero.  Antero recognizes compensation expense as the units are granted to employees, and a portion of the expense is allocated to Antero Midstream.  Expense related to each restricted unit and phantom unit award is recognized on a straight-line basis over the requisite service period of the entire award, less awards expected to be forfeited.  The grant date fair values of these awards are determined based on the closing price of Antero Midstream’s common units on the date of grant.  A summary of restricted unit and phantom unit awards activity during the six months ended June 30, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Number of
units

 

Weighted
average
grant date
fair value

 

Aggregate
intrinsic value
(in thousands)

 

Total awarded and unvested—December 31, 2014

 

2,381,440

 

$

29.00

 

$

65,490

 

Granted

 

12,057

 

$

24.88

 

 

 

 

Vested

 

 —

 

$

 —

 

 

 

 

Forfeited

 

(48,360)

 

$

29.00

 

 

 

 

Total awarded and unvested—June 30, 2015

 

2,345,137

 

$

28.98

 

$

67,165

 

 

Intrinsic values are based on the closing price of Antero Midstream’s common units on the referenced dates.  Unamortized expense of $56.7 million at June 30, 2015 is expected to be recognized over a weighted average period of approximately 3.3 years.

 

(6)Financial Instruments

 

The carrying values of accounts receivable and accounts payable at December 31, 2014 and June 30, 2015 approximated market value because of their short-term nature.  The carrying values of the amounts outstanding under the Credit Facility and Water Facility at December 31, 2014 and June 30, 2015 approximated fair value because the variable interest rates are reflective of current market conditions.

 

Based on Level 2 market data inputs, the fair value of the Company’s senior notes was approximately $2.5 billion at December 31, 2014 and $3.3 billion at June 30, 2015.

 

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

 

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2014 and June 30, 2015

(7)Derivative Instruments

 

(a)Commodity Derivatives

 

The Company periodically enters into natural gas, NGLs, and oil 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, NGLs, and oil, 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, NGLs, and oil recognized upon the ultimate sale of the Company’s production.

 

For the six months ended June 30, 2014 and 2015, the Company was party to various natural gas, NGLs, and oil fixed price swap contracts.  When actual commodity prices exceed the fixed price provided by the swap contracts, the Company pays the excess to the counterparty.  When actual commodity prices are below the contractually provided fixed price, the Company receives the difference from the counterparty.  In addition, the Company has entered into basis swap contracts in order to hedge the difference between the New York Mercantile Exchange (“NYMEX”) index price and a local index price.  The Company’s derivative swap contracts have not been designated as hedges for accounting purposes; therefore, all gains and losses are recognized in the Company’s statements of operations.

 

As of June 30, 2015, the Company’s fixed price natural gas, NGLs, and oil swap positions from July 1, 2015 through December 31, 2021 were as follows (abbreviations in the table refer to the index to which the swap position is tied, as

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Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2014 and June 30, 2015

follows: TCO=Columbia Gas Transmission; NYMEX=Henry Hub; CGTLA=Columbia Gas Louisiana Onshore; CCG=Chicago City Gate; NYMEX-WTI=West Texas Intermediate; Mont Belvieu-TET=Mont Belvieu Propane):

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas
MMbtu/day

 

Oil
Bbls/day

 

Propane
Bbls/day

 

Weighted
average index
price

 

Three months ending September 30, 2015:

 

 

 

 

 

 

 

 

 

 

TCO ($/MMBtu)

 

120,000

 

 —

 

 —

 

$

4.93

 

Dominion South ($/MMBtu)

 

230,000

 

 —

 

 —

 

$

5.48

 

NYMEX ($/MMBtu)

 

770,000

 

 —

 

 —

 

$

3.79

 

CGTLA ($/MMBtu)

 

40,000

 

 —

 

 —

 

$

3.93

 

NYMEX-WTI ($/Bbl)

 

 —

 

3,000

 

 —

 

$

64.84

 

Mont Belvieu-TET ($/Gallon)

 

 —

 

 —

 

23,000

 

$

0.62

 

Total

 

1,160,000

 

3,000

 

23,000

 

 

 

 

Three months ending December 31, 2015:

 

 

 

 

 

 

 

 

 

 

TCO ($/MMBtu)

 

120,000

 

 —

 

 —

 

$

5.14

 

Dominion South ($/MMBtu)

 

230,000

 

 —

 

 —

 

$

5.74

 

NYMEX ($/MMBtu)

 

770,000

 

 —

 

 —

 

$

3.92

 

CGTLA ($/MMBtu)

 

40,000