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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

 

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

 

For the quarterly period ended September 30, 2016

 

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 313,937,299 shares of common stock outstanding as of October 21, 2016.

 

 

 


 

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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

 

35

Item 3. 

 

Quantitative and Qualitative Disclosures about Market Risk

 

58

Item 4. 

 

Controls and Procedures

 

59

PART II—OTHER INFORMATION 

 

61

Item 1. 

 

Legal Proceedings

 

61

Item 1A. 

 

Risk Factors

 

61

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

62

Item 5. 

 

Other Information

 

62

Item 6. 

 

Exhibits

 

63

SIGNATURES 

 

64

 

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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, 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 our Annual Report on Form 10-K for the year ended December 31, 2015 (our “2015 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.

 

Forward-looking statements may include statements about our:

 

·

ability to successfully integrate the properties recently acquired from a third party with our own assets and realize the anticipated benefits of the transaction;

 

·

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 meet our minimum volume commitments and 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

 

2


 

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·

plans, objectives, expectations, and intentions.

 

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 2015 Form 10-K on file with 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 manner. 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, 2015 and September 30, 2016

(Unaudited)

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

    

December 31, 2015

    

September 30, 2016

 

Assets

 

Current assets:

 

 

 

 

  

 

 

Cash and cash equivalents

 

$

23,473

 

 

18,512

 

Accounts receivable, net of allowance for doubtful accounts of $1,195 in 2015 and 2016

 

 

79,404

 

 

59,462

 

Accrued revenue

 

 

128,242

 

 

196,490

 

Derivative instruments

 

 

1,009,030

 

 

417,605

 

Other current assets

 

 

8,087

 

 

3,402

 

Total current assets

 

 

1,248,236

 

 

695,471

 

Property and equipment:

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Unproved properties

 

 

1,996,081

 

 

2,449,995

 

Proved properties

 

 

8,211,106

 

 

9,180,705

 

Water handling and treatment systems

 

 

565,616

 

 

681,062

 

Gathering systems and facilities

 

 

1,502,396

 

 

1,656,676

 

Other property and equipment

 

 

46,415

 

 

45,571

 

 

 

 

12,321,614

 

 

14,014,009

 

Less accumulated depletion, depreciation, and amortization

 

 

(1,589,372)

 

 

(2,176,793)

 

Property and equipment, net

 

 

10,732,242

 

 

11,837,216

 

Derivative instruments

 

 

2,108,450

 

 

2,015,090

 

Other assets

 

 

26,565

 

 

81,476

 

Total assets

 

$

14,115,493

 

 

14,629,253

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

Current liabilities:

 

 

 

 

  

 

 

Accounts payable

 

$

364,160

 

 

172,293

 

Accrued liabilities

 

 

194,076

 

 

245,174

 

Revenue distributions payable

 

 

129,949

 

 

172,202

 

Derivative instruments

 

 

 —

 

 

3,110

 

Other current liabilities

 

 

19,085

 

 

19,125

 

Total current liabilities

 

 

707,270

 

 

611,904

 

Long-term liabilities:

 

 

 

 

 

 

 

Long-term debt

 

 

4,668,782

 

 

4,759,904

 

Deferred income tax liability

 

 

1,370,686

 

 

1,215,240

 

Derivative instruments

 

 

 —

 

 

40

 

Other liabilities

 

 

82,077

 

 

61,883

 

Total liabilities

 

 

6,828,815

 

 

6,648,971

 

Commitments and contingencies (notes 9 and 13)

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

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

 

 

 —

 

 

 —

 

Common stock, $0.01 par value; authorized - 1,000,000 shares; issued and outstanding 277,036 shares and 307,188 shares, respectively

 

 

2,770

 

 

3,072

 

Additional paid-in capital

 

 

4,122,811

 

 

5,131,909

 

Accumulated earnings

 

 

1,808,811

 

 

1,445,767

 

Total stockholders' equity

 

 

5,934,392

 

 

6,580,748

 

Noncontrolling interest in consolidated subsidiary

 

 

1,352,286

 

 

1,399,534

 

Total equity

 

 

7,286,678

 

 

7,980,282

 

Total liabilities and equity

 

$

14,115,493

 

 

14,629,253

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income

Three Months Ended September 30, 2015 and 2016

(Unaudited)

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

    

2015

    

2016

 

Revenue:

 

 

 

 

 

 

 

Natural gas sales

 

$

253,975

 

 

364,373

 

Natural gas liquids sales

 

 

50,092

 

 

106,958

 

Oil sales

 

 

20,138

 

 

14,793

 

Gathering, compression, and water handling and treatment

 

 

4,426

 

 

2,969

 

Marketing

 

 

35,633

 

 

97,076

 

Commodity derivative fair value gains

 

 

1,079,071

 

 

530,334

 

Total revenue

 

 

1,443,335

 

 

1,116,503

 

Operating expenses:

 

 

 

 

 

 

 

Lease operating

 

 

10,786

 

 

13,854

 

Gathering, compression, processing, and transportation

 

 

160,302

 

 

234,915

 

Production and ad valorem taxes

 

 

10,721

 

 

15,554

 

Marketing

 

 

61,799

 

 

114,611

 

Exploration

 

 

1,087

 

 

1,166

 

Impairment of unproved properties

 

 

8,754

 

 

11,753

 

Depletion, depreciation, and amortization

 

 

188,667

 

 

199,113

 

Accretion of asset retirement obligations

 

 

419

 

 

628

 

General and administrative (including equity-based compensation expense of $23,915 and $26,381 in 2015 and 2016, respectively)

 

 

59,685

 

 

57,577

 

Total operating expenses

 

 

502,220

 

 

649,171

 

Operating income

 

 

941,115

 

 

467,332

 

Other income (expenses):

 

 

 

 

 

 

 

Equity in earnings of unconsolidated affiliate

 

 

 —

 

 

1,543

 

Interest

 

 

(60,921)

 

 

(59,755)

 

Total other expenses

 

 

(60,921)

 

 

(58,212)

 

Income before income taxes

 

 

880,194

 

 

409,120

 

Provision for income tax expense

 

 

(335,460)

 

 

(140,924)

 

Net income and comprehensive income including noncontrolling interest

 

 

544,734

 

 

268,196

 

Net income and comprehensive income attributable to noncontrolling interest

 

 

10,892

 

 

29,941

 

Net income and comprehensive income attributable to Antero Resources Corporation

 

$

533,842

 

 

238,255

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share—basic

 

$

1.93

 

 

0.78

 

 

 

 

 

 

 

 

 

Earnings per common share—assuming dilution

 

$

1.93

 

 

0.77

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

277,007

 

 

306,785

 

Diluted

 

 

277,015

 

 

308,657

 

 

See accompanying notes to condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Nine Months Ended September 30, 2015 and 2016

(Unaudited)

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

    

2015

    

2016

 

Revenue:

 

 

 

 

  

 

 

Natural gas sales

 

$

810,982

 

 

848,936

 

Natural gas liquids sales

 

 

188,403

 

 

274,736

 

Oil sales

 

 

55,627

 

 

41,712

 

Gathering, compression, and water handling and treatment

 

 

15,084

 

 

10,107

 

Marketing

 

 

143,242

 

 

287,194

 

Commodity derivative fair value gains

 

 

1,836,398

 

 

125,624

 

Total revenue

 

 

3,049,736

 

 

1,588,309

 

Operating expenses:

 

 

 

 

 

 

 

Lease operating

 

 

25,561

 

 

37,190

 

Gathering, compression, processing, and transportation

 

 

490,633

 

 

649,713

 

Production and ad valorem taxes

 

 

57,458

 

 

52,296

 

Marketing

 

 

214,201

 

 

378,521

 

Exploration

 

 

3,086

 

 

3,289

 

Impairment of unproved properties

 

 

43,670

 

 

47,223

 

Depletion, depreciation, and amortization

 

 

548,013

 

 

588,057

 

Accretion of asset retirement obligations

 

 

1,227

 

 

1,846

 

General and administrative (including equity-based compensation expense of $79,280 and $75,667 in 2015 and 2016, respectively)

 

 

177,925

 

 

173,966

 

Contract termination and rig stacking

 

 

10,902

 

 

 —

 

Total operating expenses

 

 

1,572,676

 

 

1,932,101

 

Operating income (loss)

 

 

1,477,060

 

 

(343,792)

 

Other income (expenses):

 

 

 

 

 

 

 

Equity in earnings of unconsolidated affiliate

 

 

 —

 

 

2,027

 

Interest

 

 

(173,929)

 

 

(185,634)

 

Total other expenses

 

 

(173,929)

 

 

(183,607)

 

Income (loss) before income taxes

 

 

1,303,131

 

 

(527,399)

 

Provision for income tax (expense) benefit

 

 

(498,709)

 

 

230,755

 

Net income (loss) and comprehensive income (loss) including noncontrolling interest

 

 

804,422

 

 

(296,644)

 

Net income and comprehensive income attributable to noncontrolling interest

 

 

21,522

 

 

66,400

 

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

 

$

782,900

 

 

(363,044)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share—basic

 

$

2.87

 

 

(1.26)

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share—assuming dilution

 

$

2.87

 

 

(1.26)

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

273,145

 

 

288,607

 

Diluted

 

 

273,154

 

 

288,607

 

 

See accompanying notes to condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Equity

Nine Months Ended September 30, 2016

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Additional paid-

 

Accumulated

 

Noncontrolling

 

Total

 

 

    

Shares

    

Amount

    

in capital

    

earnings

    

interest

    

equity

 

Balances, December 31, 2015

 

 

277,036

 

$

2,770

 

 

4,122,811

 

 

1,808,811

 

 

1,352,286

 

 

7,286,678

 

Issuance of common stock in public offering, net of offering costs

 

 

29,762

 

 

298

 

 

837,116

 

 

 —

 

 

 —

 

 

837,414

 

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

 

 

390

 

 

4

 

 

(4,863)

 

 

 —

 

 

 —

 

 

(4,859)

 

Issuance of common units by Antero Midstream Partners LP, net of offering costs

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

19,605

 

 

19,605

 

Issuance of common units in Antero Midstream Partners LP upon vesting of equity-based compensation awards, net of units withheld for income taxes

 

 

 —

 

 

 —

 

 

(158)

 

 

 —

 

 

141

 

 

(17)

 

Sale of common units of Antero Midstream Partners LP held by Antero Resources Corporation, net of tax

 

 

 —

 

 

 —

 

 

107,257

 

 

 —

 

 

6,419

 

 

113,676

 

Equity-based compensation

 

 

 —

 

 

 —

 

 

69,746

 

 

 —

 

 

5,921

 

 

75,667

 

Net income (loss) and comprehensive income (loss)

 

 

 —

 

 

 —

 

 

 —

 

 

(363,044)

 

 

66,400

 

 

(296,644)

 

Distributions to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(51,238)

 

 

(51,238)

 

Balances, September 30, 2016

 

 

307,188

 

$

3,072

 

 

5,131,909

 

 

1,445,767

 

 

1,399,534

 

 

7,980,282

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2015 and 2016

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

    

2015

    

2016

 

Cash flows from operating activities:

 

 

 

 

  

 

 

Net income (loss) including noncontrolling interest

 

$

804,422

 

 

(296,644)

 

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

 

 

 

 

 

 

 

Depletion, depreciation, amortization, and accretion

 

 

549,240

 

 

589,903

 

Impairment of unproved properties

 

 

43,670

 

 

47,223

 

Derivative fair value gains

 

 

(1,836,398)

 

 

(125,624)

 

Gains on settled derivatives

 

 

586,639

 

 

813,559

 

Deferred income tax expense (benefit)

 

 

498,709

 

 

(230,755)

 

Equity-based compensation expense

 

 

79,280

 

 

75,667

 

Equity in earnings of unconsolidated affiliate

 

 

 —

 

 

(2,027)

 

Other

 

 

12,129

 

 

(1,544)

 

Changes in current assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

15,299

 

 

10,077

 

Accrued revenue

 

 

75,765

 

 

(68,248)

 

Other current assets

 

 

4,127

 

 

4,685

 

Accounts payable

 

 

(1,302)

 

 

(7,415)

 

Accrued liabilities

 

 

34,091

 

 

54,484

 

Revenue distributions payable

 

 

(20,839)

 

 

42,253

 

Other current liabilities

 

 

(3,678)

 

 

103

 

Net cash provided by operating activities

 

 

841,154

 

 

905,697

 

Cash flows used in investing activities:

 

 

 

 

 

 

 

Additions to proved properties

 

 

 —

 

 

(64,789)

 

Additions to unproved properties

 

 

(170,291)

 

 

(559,572)

 

Drilling and completion costs

 

 

(1,350,498)

 

 

(1,009,851)

 

Additions to water handling and treatment systems

 

 

(79,227)

 

 

(137,355)

 

Additions to gathering systems and facilities

 

 

(282,813)

 

 

(154,136)

 

Additions to other property and equipment

 

 

(5,225)

 

 

(1,747)

 

Investment in unconsolidated affiliate

 

 

 —

 

 

(45,044)

 

Change in other assets

 

 

11,190

 

 

(2,173)

 

Proceeds from asset sales

 

 

40,000

 

 

 —

 

Net cash used in investing activities

 

 

(1,836,864)

 

 

(1,974,667)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Issuance of common stock

 

 

537,832

 

 

837,414

 

Issuance of common units by Antero Midstream Partners LP

 

 

240,972

 

 

19,605

 

Proceeds from sale of common units of Antero Midstream Partners LP held by Antero Resources Corporation

 

 

 —

 

 

178,000

 

Issuance of senior notes

 

 

750,000

 

 

650,000

 

Repayments on bank credit facilities, net

 

 

(705,000)

 

 

(552,000)

 

Payments of deferred financing costs

 

 

(17,190)

 

 

(9,029)

 

Distributions to noncontrolling interest in consolidated subsidiary

 

 

(21,358)

 

 

(51,238)

 

Employee tax withholding for settlement of equity compensation awards

 

 

(4,554)

 

 

(4,876)

 

Other

 

 

(3,561)

 

 

(3,867)

 

Net cash provided by financing activities

 

 

777,141

 

 

1,064,009

 

Net decrease in cash and cash equivalents

 

 

(218,569)

 

 

(4,961)

 

Cash and cash equivalents, beginning of period

 

 

245,979

 

 

23,473

 

Cash and cash equivalents, end of period

 

$

27,410

 

 

18,512

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

116,579

 

 

132,928

 

Supplemental disclosure of noncash investing activities:

 

 

 

 

 

 

 

Decrease in accounts payable and accrued liabilities for additions to property and equipment

 

$

(193,288)

 

 

(189,234)

 

 

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2015 and September 30, 2016

(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 exploration, development, and acquisition of natural gas, 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.  Through its consolidated subsidiary, Antero Midstream Partners LP, a publicly-traded limited partnership (“Antero Midstream” or “the Partnership”), the Company has water handling and treatment operations and gathering and compression operations in the Appalachian Basin.  The Company’s corporate headquarters are located 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, 2015 consolidated financial statements and notes thereto for a more complete understanding of the Company’s operations, financial position, and accounting policies.  The December 31, 2015 consolidated financial statements have been filed with the SEC in the Company’s 2015 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 December 31, 2015 and September 30, 2016, the results of its operations for the three and nine months ended September 30, 2015 and 2016, and its cash flows for the nine months ended September 30, 2015 and 2016.  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 September 30, 2016 are not necessarily indicative of the results that may be expected for the full year because of the impact of fluctuations in prices received for natural gas, NGLs, and oil, natural production declines, the uncertainty of exploration and development drilling results, fluctuations in the fair value of derivative instruments, 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 except for the following items:

·

On October 7, 2016, the Company issued 6,730,769 shares of the Company’s common stock in a private placement, resulting in gross proceeds of approximately $175 million.  The Company used the proceeds to repay a portion of outstanding borrowings under its revolving credit facility and for general corporate purposes.

·

On October 12, 2016, Antero Midstream declared a distribution of $0.265 per unit that will be paid in November 2016.

·

As discussed in note 4(a), in October 2016 the borrowing base under the Company’s revolving credit facility was increased from $4.5 billion to $4.75 billion.

 

(b)Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of Antero, its wholly-owned subsidiaries, any entities in which the Company owns a controlling interest, and variable interest entities for which the Company is the primary beneficiary.  The Company consolidates Antero Midstream as it determined that it is the primary beneficiary based on its significant ownership interest in Antero Midstream, the significance of the Company’s activities to

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Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2015 and September 30, 2016

Antero Midstream, and its influence over Antero Midstream through the presence of Company executives and directors that serve on the board of directors of Antero Midstream’s general partner.  All significant intercompany accounts and transactions have been eliminated in the Company’s condensed consolidated financial statements.  Noncontrolling interest in the Company’s condensed consolidated financial statements represents the interests in Antero Midstream which are owned by the public and Antero Midstream’s general partner.  An affiliate of the Company owns the general partner interest in Antero Midstream.  Noncontrolling interest is included as a component of equity in the Company’s condensed consolidated balance sheets.

 

Investments in entities for which the Company exercises significant influence, but not control, are accounted for under the equity method.  Such investments are included in other assets on the Company’s condensed consolidated balance sheets.  Income from such investments is included in equity in earnings of unconsolidated affiliate on the Company’s condensed consolidated statements of operations and cash flows.

 

(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, as well as 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 markets for natural gas, NGLs, and oil have experienced significant price fluctuations.  Price fluctuations can result from variations in weather, regional levels of production, 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)Derivative Financial Instruments

 

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

 

The Company records derivative instruments on the condensed 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, including gains or losses on settled 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.

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2015 and September 30, 2016

 

(f)Industry Segments and Geographic Information

 

Management has evaluated how the Company is organized and managed and has identified the following segments: (1) the exploration and production of natural gas, NGLs, and oil; (2) gathering and compression; (3) water handling and treatment; 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.

 

(g)Earnings (Loss) per Common Share

 

Earnings (loss) per common share—basic for each period is computed by dividing net income (loss) attributable to Antero by the basic weighted average number of shares outstanding during 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 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

 

2015

 

2016

 

2015

 

2016

 

Basic weighted average number of shares outstanding

 

277,007

 

306,785

 

273,145

 

288,607

 

Add: Dilutive effect of non-vested restricted stock units

 

8

 

1,835

 

9

 

 —

 

Add: Dilutive effect of outstanding stock options

 

 —

 

 —

 

 —

 

 —

 

Add: Dilutive effect of performance stock units

 

 —

 

37

 

 —

 

 —

 

Diluted weighted average number of shares outstanding

 

277,015

 

308,657

 

273,154

 

288,607

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Non-vested restricted stock and restricted stock units

 

2,483

 

1,251

 

2,240

 

6,899

 

Outstanding stock options

 

743

 

693

 

492

 

706

 

Performance stock units

 

 —

 

660

 

 —

 

577

 


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

 

(h)Adoption of New Accounting Principle

 

On March 30, 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-09, Stock Compensation–Improvements to Employee Share-Based Payment Accounting.  This standard simplifies or clarifies several aspects of the accounting for equity-based payment awards, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  Certain of these changes are required to be applied retrospectively, while other changes are required to be applied prospectively.  The Company elected to early-adopt the standard as of January 1, 2016.

 

As permitted by this standard, the Company has elected to account for forfeitures in compensation cost as they occur.  This standard also permits an entity to withhold income taxes upon settlement of equity-classified awards at up to the maximum statutory tax rate and requires that such payments be classified as financing activities on the statement of cash flows.

 

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2015 and September 30, 2016

As a result of adopting this standard, cash outflows attributable to tax withholdings on the net settlement of equity-classified awards have been reclassified from operating cash flows to financing cash flows.  The retrospective adjustment to the condensed consolidated statement of cash flows for the nine months ended September 30, 2015 is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

As Previously Reported

 

 

 

As Adjusted

 

 

 

Nine Months Ended September 30, 2015

 

Adjustment
Effect

 

Nine Months Ended September 30, 2015

 

Changes in accrued liabilities

 

$

29,537

 

 

4,554

 

 

34,091

 

Employee tax withholding for settlement of equity compensation awards

 

 

 —

 

 

(4,554)

 

 

(4,554)

 

 

 

(3)Antero Midstream Partners LP

 

In 2014, the Company formed Antero Midstream to own, operate, and develop midstream assets to service Antero’s production.  Antero Midstream’s assets consist of gathering pipelines, compressor stations, and water handling and treatment facilities, through which it provides services to Antero under long-term, fixed-fee contracts.  Antero Resources Midstream Management LLC (“Midstream Management”), a wholly-owned subsidiary of Antero Resources Investment LLC, owns the general partnership interest in Antero Midstream, which allows Midstream Management to manage the business and affairs of Antero Midstream.  Midstream Management also holds incentive distribution rights in Antero Midstream.  Antero Midstream is an unrestricted subsidiary as defined by Antero’s bank credit facility and, as such, Antero Midstream and its subsidiaries are not guarantors of Antero’s obligations, and Antero is not a guarantor of Antero Midstream’s obligations (see note 12).

 

On September 23, 2015, Antero contributed (i) all of the outstanding limited liability company interests of Antero Water LLC (“Antero Water”) to Antero Midstream and (ii) all of the assets, contracts, rights, permits and properties owned or leased by Antero and used primarily in connection with the construction, ownership, operation, use or maintenance of Antero’s advanced waste water treatment complex under construction in Doddridge County, West Virginia, to Antero Treatment LLC (“Antero Treatment”), a subsidiary of Antero Midstream (collectively, (i) and (ii) are referred to herein as the “Contributed Assets”).

 

In consideration for the Contributed Assets, Antero Midstream (i) paid to Antero a cash distribution equal to $552 million, less $171 million of assumed debt, (ii) issued to Antero 10,988,421 common units representing limited partner interests in Antero Midstream, (iii) distributed to Antero proceeds of approximately $241 million from a private placement of Antero Midstream common units, and (iv) has agreed to pay Antero (a) $125 million in cash if Antero Midstream delivers 176,295,000 barrels or more of fresh water during the period between January 1, 2017 and December 31, 2019 and (b) an additional $125 million in cash if Antero Midstream delivers 219,200,000 barrels or more of fresh water during the period between January 1, 2018 and December 31, 2020.  Antero Midstream borrowed $525 million on its bank credit facility in connection with this transaction.

 

On March 30, 2016, Antero sold 8,000,000 of its Antero Midstream common units for $178 million.  The sale of the units is reflected in stockholders’ equity as additional paid-in capital, net of taxes.

 

On May 26, 2016, Antero Midstream purchased a 15% equity interest in a regional gathering pipeline, in which Antero is an anchor shipper, for approximately $45 million.  This investment is accounted for under the equity method.

 

During the third quarter of 2016, the Partnership entered into an Equity Distribution Agreement (the “Distribution Agreement”).  Pursuant to the terms of the agreement, the Partnership may sell, from time to time through brokers acting as its sales agents, common units representing limited partner interests having an aggregate offering price of up to $250 million.  Sales of the common units are made by means of ordinary brokers’ transactions on the New York Stock Exchange, at market prices, in block transactions, or as otherwise agreed to between the Partnership and the sales agents.  Proceeds are used for general partnership purposes, which may include repayment of indebtedness and funding working capital or capital expenditures.  The Partnership is under no obligation to offer and sell common units under the Distribution Agreement.  During the three months ended September 30, 2016, the Partnership issued and sold 764,739 common units under the Distribution Agreement, resulting in net proceeds of $19.6 million after deducting commissions and other offering costs.  The Partnership used the net proceeds from the

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2015 and September 30, 2016

sales for general partnership purposes.  As of September 30, 2016, Antero Midstream had the capacity to issue additional common units under the Distribution Agreement up to an aggregate sales price of $229.8 million.

 

Antero owned approximately 66.3% and 61.5% of the limited partner interests of Antero Midstream at December 31, 2015 and September 30, 2016, respectively.

 

(4)Long-Term Debt

 

Long-term debt was as follows at December 31, 2015 and September 30, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

    

December 31, 2015

    

September 30, 2016

 

Antero:

 

 

 

 

 

 

 

Bank credit facility(a)

 

$

707,000

 

 

605,000

 

6.00% senior notes due 2020(b)

 

 

525,000

 

 

525,000

 

5.375% senior notes due 2021(c)

 

 

1,000,000

 

 

1,000,000

 

5.125% senior notes due 2022(d)

 

 

1,100,000

 

 

1,100,000

 

5.625% senior notes due 2023(e)

 

 

750,000

 

 

750,000

 

Net unamortized premium

 

 

6,513

 

 

5,698

 

Net unamortized debt issuance costs

 

 

(39,731)

 

 

(35,560)

 

Antero Midstream:

 

 

 

 

 

 

 

Bank credit facility(g)

 

 

620,000

 

 

170,000

 

5.375% senior notes due 2024 (h)

 

 

 —

 

 

650,000

 

Net unamortized debt issuance costs

 

 

 —

 

 

(10,234)

 

 

 

$

4,668,782

 

 

4,759,904

 


Antero Resources Corporation

 

(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 assets and are subject to regular semiannual redeterminations.  At September 30, 2016, the borrowing base was $4.5 billion and lender commitments were $4.0 billion.  In October 2016, the borrowing base was increased to $4.75 billion, and lender commitments remain at $4.0 billion.  The next redetermination of the borrowing base is scheduled to occur in April 2017.  The maturity date of the Credit Facility is May 5, 2019.

 

The Credit Facility is ratably secured by mortgages on substantially all of Antero’s properties and guarantees from Antero’s restricted subsidiaries, as applicable.  The Credit Facility contains certain covenants, including restrictions on indebtedness and dividends, and 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, 2015 and September 30, 2016.

 

As of September 30, 2016, Antero had a total outstanding balance under the Credit Facility of $605 million, with a weighted average interest rate of 2.31%, and outstanding letters of credit of $709 million.  As of December 31, 2015, Antero had an outstanding balance under the Credit Facility of $707 million, with a weighted average interest rate of 2.32%, and outstanding letters of credit of $702 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 portion based on utilization.

 

(b)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 to the extent of the value of the collateral securing the Credit Facility.  The 2020 notes rank pari passu to Antero’s other outstanding senior notes.  The 2020 notes are guaranteed on a full

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Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2015 and September 30, 2016

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 at redemption prices ranging from 104.50% currently to 100.00% on or after December 1, 2018.  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 and unpaid interest.

 

(c)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 to the extent of the value of the collateral securing the Credit Facility.  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 and unpaid 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 and unpaid 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 and unpaid interest.

 

(d)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 to the extent of the value of the collateral securing the Credit Facility.  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 and unpaid 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 accrued and unpaid interest.  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 and unpaid interest.

 

(e)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 to the extent of the value of the collateral securing the Credit Facility.  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 and unpaid 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 and unpaid interest.  If

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2015 and September 30, 2016

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 and unpaid interest.

 

(f)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 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, 2017.  At December 31, 2015 and September 30, 2016, there were no outstanding borrowings under this note

 

Antero Midstream Partners LP

 

(g)Senior Secured Revolving Credit Facility – Antero Midstream

 

Antero Midstream has a secured revolving credit facility (the “Midstream Facility”) with a syndicate of bank lenders.  At September 30, 2016, lender commitments were $1.5 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, 2015 and September 30, 2016.

As of September 30, 2016, Antero Midstream had an outstanding balance under the Midstream Facility of $170 million with a weighted average interest rate of 2.03%.  As of December 31, 2015, Antero Midstream had a total outstanding balance under the Midstream Facility of $620 million with a weighted average interest rate of 1.92%.  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 portion based on utilization.

(h)5.375% Senior Notes Due 2024 – Antero Midstream

 

On September 13, 2016, Antero Midstream and its wholly-owned subsidiary, Antero Midstream Finance Corporation (“Midstream Finance Corp.”) as co-issuers, issued $650 million in aggregate principal amount of 5.375% senior notes due September 15, 2024 (the “2024 Midstream notes”) at par.  The 2024 Midstream notes are unsecured and effectively subordinated to the Midstream Facility to the extent of the value of the collateral securing the Midstream Facility.  The 2024 Midstream notes are guaranteed on a full and unconditional and joint and several senior unsecured basis by Antero Midstream’s wholly-owned subsidiaries, excluding Midstream Finance Corp., and certain of Antero Midstream’s future restricted subsidiaries.  Interest on the 2024 Midstream notes is payable on March 15 and September 15 of each year.  Antero Midstream may redeem all or part of the 2024 Midstream notes at any time on or after September 15, 2019 at redemption prices ranging from 104.031% on or after September 15, 2019 to 100.00% on or after September 15, 2022.  In addition, prior to September 15, 2019, Antero Midstream may redeem up to 35% of the aggregate principal amount of the 2024 Midstream notes with an amount of cash not greater than 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 2024 Midstream notes, plus accrued and unpaid interest.  At any time prior to September 15, 2019, Antero Midstream may also redeem the 2024 Midstream notes, in whole or in part, at a price equal to 100% of the principal amount of the 2024 Midstream notes plus a “make-whole” premium and accrued and unpaid interest.  If Antero Midstream undergoes a change of control, the holders of the 2024 Midstream notes will have the right to require Antero Midstream to repurchase all or a portion of the notes at a price equal to 101% of the principal amount of the 2024 Midstream notes, plus accrued and unpaid interest.

 

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2015 and September 30, 2016

(5)Asset Retirement Obligations

 

The following is a reconciliation of the Company’s asset retirement obligations for the nine months ended September 30, 2016 (in thousands):

 

 

 

 

 

Asset retirement obligations—December 31, 2015

 

$

30,612

 

Obligations incurred for wells drilled and producing properties acquired

 

 

3,945

 

Accretion expense

 

 

1,846

 

Asset retirement obligations—September 30, 2016

 

$

36,403

 

 

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

 

(6)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 7,809,464 shares were available for future grant under the Plan as of September 30, 2016.

 

Antero Midstream’s general partner is authorized to grant up to 10,000,000 common units representing limited partner interests in Antero Midstream under the Antero Midstream Partners LP Long-Term Incentive Plan (the “Midstream Plan”) to 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).  A total of 7,737,934 common units were available for future grant under the Midstream Plan as of September 30, 2016.

 

The Company’s equity-based compensation expense was as follows for the three and nine months ended September 30, 2015 and 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

  

2015

  

2016

  

2015

  

2016

 

Profits interests awards

 

$

8,140

 

 

 —

 

$

35,221

 

 

 —

 

Restricted stock unit awards

 

 

10,686

 

 

18,618

 

 

29,357

 

 

54,231

 

Stock options

 

 

743

 

 

638

 

 

1,514

 

 

1,939

 

Performance share unit awards

 

 

 —

 

 

2,668

 

 

 —

 

 

6,017

 

Antero Midstream phantom unit awards

 

 

4,271

 

 

3,977

 

 

12,963

 

 

11,978

 

Equity awards issued to directors

 

 

75

 

 

480

 

 

225

 

 

1,502

 

Total expense

 

$

23,915

 

 

26,381

 

$

79,280

 

 

75,667

 

 

Profits Interests Awards

 

The profits interest awards were fully vested as of December 31, 2015.  All available profits interest awards were made prior to the date of the Company’s IPO, and no additional profits interest awards have been made since the Company’s IPO.

 

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Table of Contents

ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2015 and September 30, 2016

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.  Forfeitures are accounted for as they occur through reversal of expense on awards that were forfeited during the period.  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 for the nine months ended September 30, 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted
average

 

Aggregate

 

 

    

Number of
shares

    

grant date
fair value

    

intrinsic value
(in thousands)

 

Total awarded and unvested—December 31, 2015

 

6,529,459

 

$

33.48

 

$

142,342

 

Granted

 

1,228,587

 

$

27.05

 

 

 

 

Vested

 

(533,512)

 

$

55.37

 

 

 

 

Forfeited

 

(270,382)

 

$

26.70

 

 

 

 

Total awarded and unvested—September 30, 2016

 

6,954,152

 

$

30.92

 

$

187,414

 

 

Intrinsic values are based on the closing price of the Company’s stock on the referenced dates.  Unamortized expense of $149.4 million at September 30, 2016 is expected to be recognized over a weighted average period of approximately 2.2 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.  Forfeitures are accounted for as they occur through reversal of expense on awards that were forfeited during the period.  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 nine months ended September 30, 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted
average

 

average
remaining

 

Intrinsic

 

 

    

Stock
options

    

exercise
price

    

contractual
life

    

value
(in thousands)

  

Outstanding at December 31, 2015

 

720,887

 

$

50.44

 

9.14

 

$

 —

 

Granted

 

 —

 

$

 —

 

 

 

 

 

 

Exercised

 

 —

 

 

 —

 

 

 

 

 

 

Forfeited

 

(31,625)

 

$

50.00

 

 

 

 

 

 

Expired

 

 —

 

 

 —

 

 

 

 

 

 

Outstanding at September 30, 2016

 

689,262

 

$

50.46