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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 March 31, 2018

 

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, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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)

Emerging growth company ☐

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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 317,050,077 shares of common stock outstanding as of April 20, 2018.

 

 

 


 

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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

 

51

Item 4. 

 

Controls and Procedures

 

52

PART II—OTHER INFORMATION 

 

53

Item 1. 

 

Legal Proceedings

 

53

Item 1A. 

 

Risk Factors

 

55

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

55

Item 6. 

 

Exhibits

 

55

SIGNATURES 

 

56

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the information in this Quarterly Report on Form 10-Q may contain forward-looking statements. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking statements. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

·

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;

·

costs and outcomes associated with the ongoing review of potential transactions by the special committee of our board of directors as described herein;

·

ability to meet 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 (“Antero Midstream”), including the operations of its unconsolidated affiliates;

·

general economic conditions;

·

credit markets;

·

uncertainty regarding our future operating results; and

·

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, incidental to our business. These risks include, but are not limited to, commodity price volatility, inflation, availability of drilling and production equipment and services, environmental risks, drilling and completion 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 flows and access to capital, the timing of

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development expenditures, conflicts of interest among our stockholders, 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, 2017 (the “2017 Form 10-K”) on file with the Securities and Exchange Commission (“SEC”).

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 the 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, 2017 and March 31, 2018

(Unaudited)

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

    

December 31, 2017

    

March 31, 2018

 

Assets

 

Current assets:

 

 

 

 

  

 

 

Cash and cash equivalents

 

$

28,441

 

 

23,153

 

Accounts receivable, net of allowance for doubtful accounts of $1,320 at December 31, 2017 and $1,195 at March 31, 2018, respectively

 

 

34,896

 

 

26,692

 

Accrued revenue

 

 

300,122

 

 

279,923

 

Derivative instruments

 

 

460,685

 

 

459,892

 

Other current assets

 

 

8,943

 

 

10,374

 

Total current assets

 

 

833,087

 

 

800,034

 

Property and equipment:

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Unproved properties

 

 

2,266,673

 

 

2,265,727

 

Proved properties

 

 

11,096,462

 

 

11,471,428

 

Water handling and treatment systems

 

 

946,670

 

 

974,389

 

Gathering systems and facilities

 

 

2,050,490

 

 

2,132,803

 

Other property and equipment

 

 

57,429

 

 

59,499

 

 

 

 

16,417,724

 

 

16,903,846

 

Less accumulated depletion, depreciation, and amortization

 

 

(3,182,171)

 

 

(3,410,098)

 

Property and equipment, net

 

 

13,235,553

 

 

13,493,748

 

Derivative instruments

 

 

841,257

 

 

760,562

 

Investments in unconsolidated affiliates

 

 

303,302

 

 

321,468

 

Other assets

 

 

48,291

 

 

47,037

 

Total assets

 

$

15,261,490

 

 

15,422,849

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

Current liabilities:

 

 

 

 

  

 

 

Accounts payable

 

$

62,982

 

 

73,221

 

Accrued liabilities

 

 

443,225

 

 

422,617

 

Revenue distributions payable

 

 

209,617

 

 

237,907

 

Derivative instruments

 

 

28,476

 

 

41,907

 

Other current liabilities

 

 

17,796

 

 

14,201

 

Total current liabilities

 

 

762,096

 

 

789,853

 

Long-term liabilities:

 

 

 

 

 

 

 

Long-term debt

 

 

4,800,090

 

 

4,876,706

 

Deferred income tax liability

 

 

779,645

 

 

788,765

 

Derivative instruments

 

 

207

 

 

 —

 

Other liabilities

 

 

43,316

 

 

46,427

 

Total liabilities

 

 

6,385,354

 

 

6,501,751

 

Commitments and contingencies (notes 12 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; 316,379 shares and 316,524 shares issued and outstanding at December 31, 2017 and March 31, 2018, respectively

 

 

3,164

 

 

3,165

 

Additional paid-in capital

 

 

6,570,952

 

 

6,588,082

 

Accumulated earnings

 

 

1,575,065

 

 

1,589,898

 

Total stockholders' equity

 

 

8,149,181

 

 

8,181,145

 

Noncontrolling interests in consolidated subsidiary

 

 

726,955

 

 

739,953

 

Total equity

 

 

8,876,136

 

 

8,921,098

 

Total liabilities and equity

 

$

15,261,490

 

 

15,422,849

 

 

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 March 31, 2017 and 2018

(Unaudited)

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

    

2017

    

2018

 

Revenue and other:

 

 

 

 

  

 

 

Natural gas sales

 

$

466,664

 

 

497,663

 

Natural gas liquids sales

 

 

194,652

 

 

234,170

 

Oil sales

 

 

26,960

 

 

30,273

 

Commodity derivative gains

 

 

438,775

 

 

22,437

 

Gathering, compression, water handling and treatment

 

 

2,604

 

 

4,935

 

Marketing

 

 

65,924

 

 

144,389

 

Marketing derivative gains

 

 

 —

 

 

94,234

 

Total revenue and other

 

 

1,195,579

 

 

1,028,101

 

Operating expenses:

 

 

 

 

 

 

 

Lease operating

 

 

15,551

 

 

26,722

 

Gathering, compression, processing, and transportation

 

 

266,829

 

 

291,938

 

Production and ad valorem taxes

 

 

24,793

 

 

25,823

 

Marketing

 

 

89,993

 

 

195,739

 

Exploration

 

 

2,107

 

 

1,885

 

Impairment of unproved properties

 

 

26,899

 

 

50,536

 

Depletion, depreciation, and amortization

 

 

202,729

 

 

228,244

 

Accretion of asset retirement obligations

 

 

637

 

 

690

 

General and administrative (including equity-based compensation expense of $25,503 and $21,156 in 2017 and 2018, respectively)

 

 

64,698

 

 

60,030

 

Total operating expenses

 

 

694,236

 

 

881,607

 

Operating income

 

 

501,343

 

 

146,494

 

Other income (expenses):

 

 

 

 

 

 

 

Equity in earnings of unconsolidated affiliates

 

 

2,231

 

 

7,862

 

Interest

 

 

(66,670)

 

 

(64,426)

 

Total other expenses

 

 

(64,439)

 

 

(56,564)

 

Income before income taxes

 

 

436,904

 

 

89,930

 

Provision for income tax expense

 

 

(131,346)

 

 

(9,120)

 

Net income and comprehensive income including noncontrolling interests

 

 

305,558

 

 

80,810

 

Net income and comprehensive income attributable to noncontrolling interests

 

 

37,162

 

 

65,977

 

Net income and comprehensive income attributable to Antero Resources Corporation

 

$

268,396

 

 

14,833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share—basic

 

$

0.85

 

 

0.05

 

 

 

 

 

 

 

 

 

Earnings per common share—assuming dilution

 

$

0.85

 

 

0.05

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

314,954

 

 

316,471

 

Diluted

 

 

315,769

 

 

316,911

 

 

See accompanying notes to condensed consolidated financial statements.

 

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Equity

Three Months Ended March 31, 2018

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Additional paid-

 

Accumulated

 

Noncontrolling

 

Total

 

 

    

Shares

    

Amount

    

in capital

    

earnings

    

interests

    

equity

 

Balances, December 31, 2017

 

 

316,379

 

$

3,164

 

 

6,570,952

 

 

1,575,065

 

 

726,955

 

 

8,876,136

 

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

 

 

145

 

 

 1

 

 

(1,067)

 

 

 —

 

 

 —

 

 

(1,066)

 

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

 

 

 —

 

 

 —

 

 

(50)

 

 

 —

 

 

32

 

 

(18)

 

Equity-based compensation

 

 

 —

 

 

 —

 

 

18,802

 

 

 —

 

 

2,354

 

 

21,156

 

Net income and comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

14,833

 

 

65,977

 

 

80,810

 

Effects of changes in ownership interests in consolidated subsidiaries

 

 

 —

 

 

 —

 

 

(555)

 

 

 —

 

 

555

 

 

 —

 

Distributions to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(55,915)

 

 

(55,915)

 

Other

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(5)

 

 

(5)

 

Balances, March 31, 2018

 

 

316,524

 

$

3,165

 

 

6,588,082

 

 

1,589,898

 

 

739,953

 

 

8,921,098

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2017 and 2018

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

    

2017

    

2018

 

Cash flows provided by (used in) operating activities:

 

 

 

 

  

 

 

Net income including noncontrolling interests

 

$

305,558

 

 

80,810

 

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

 

 

 

 

 

 

 

Depletion, depreciation, amortization, and accretion

 

 

203,366

 

 

228,934

 

Impairment of unproved properties

 

 

26,899

 

 

50,536

 

Commodity derivative gains

 

 

(438,775)

 

 

(22,437)

 

Gains on settled commodity derivatives

 

 

44,849

 

 

101,341

 

Marketing derivative gains

 

 

 —

 

 

(94,234)

 

Gains on settled marketing derivatives

 

 

 —

 

 

110,042

 

Deferred income tax expense

 

 

131,346

 

 

9,120

 

Equity-based compensation expense

 

 

25,503

 

 

21,156

 

Equity in earnings of unconsolidated affiliates

 

 

(2,231)

 

 

(7,862)

 

Distributions of earnings from unconsolidated affiliates

 

 

 —

 

 

7,085

 

Other

 

 

87

 

 

969

 

Changes in current assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(7,192)

 

 

8,204

 

Accrued revenue

 

 

41,901

 

 

20,199

 

Other current assets

 

 

(3,366)

 

 

(1,431)

 

Accounts payable

 

 

12,545

 

 

(8,042)

 

Accrued liabilities

 

 

19,339

 

 

10,359

 

Revenue distributions payable

 

 

34,786

 

 

28,290

 

Other current liabilities

 

 

(676)

 

 

(1,490)

 

Net cash provided by operating activities

 

 

393,939

 

 

541,549

 

Cash flows used in investing activities:

 

 

 

 

 

 

 

Additions to proved properties

 

 

(49,664)

 

 

 —

 

Additions to unproved properties

 

 

(55,542)

 

 

(49,569)

 

Drilling and completion costs

 

 

(306,925)

 

 

(359,868)

 

Additions to water handling and treatment systems

 

 

(36,954)

 

 

(40,285)

 

Additions to gathering systems and facilities

 

 

(66,559)

 

 

(93,670)

 

Additions to other property and equipment

 

 

(590)

 

 

(2,571)

 

Investments in unconsolidated affiliates

 

 

(159,889)

 

 

(17,389)

 

Change in other assets

 

 

(12,350)

 

 

(217)

 

Net cash used in investing activities

 

 

(688,473)

 

 

(563,569)

 

Cash flows provided by (used in) financing activities:

 

 

 

 

 

 

 

Issuance of common units by Antero Midstream Partners LP

 

 

223,119

 

 

 —

 

Borrowings on bank credit facilities, net

 

 

70,000

 

 

75,000

 

Distributions to noncontrolling interests in consolidated subsidiary

 

 

(27,149)

 

 

(55,915)

 

Employee tax withholding for settlement of equity compensation awards

 

 

(1,657)

 

 

(1,084)

 

Other

 

 

(1,389)

 

 

(1,269)

 

Net cash provided by financing activities

 

 

262,924

 

 

16,732

 

Net decrease in cash and cash equivalents

 

 

(31,610)

 

 

(5,288)

 

Cash and cash equivalents, beginning of period

 

 

31,610

 

 

28,441

 

Cash and cash equivalents, end of period

 

$

 —

 

 

23,153

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

35,770

 

 

42,010

 

Supplemental disclosure of noncash investing activities:

 

 

 

 

 

 

 

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

 

$

10,020

 

 

12,691

 

 

See accompanying notes to condensed consolidated financial statements.

 

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2017 and March 31, 2018

(1)Organization

 

Antero Resources Corporation (individually referred to as “Antero” or the “Parent”) 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 and Ohio.  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”), the Company has gathering and compression, as well as water handling and treatment 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, 2017 consolidated financial statements and notes thereto for a more complete understanding of the Company’s operations, financial position, and accounting policies.  The December 31, 2017 consolidated financial statements have been filed with the Securities and Exchange Commission (“SEC”) in the Company’s 2017 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, 2017 and March 31, 2018, the results of its operations for the three months ended March 31, 2017 and 2018, and its cash flows for the three months ended March 31, 2017 and 2018.  The Company has no items of other comprehensive income or loss; therefore, its net income or loss is equal to its comprehensive income or loss.  Operating results for the period ended March 31, 2018 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.

(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 (“VIEs”) for which the Company is the primary beneficiary. 

We have determined that Antero Midstream is a VIE for which Antero is the primary beneficiary.  Therefore, Antero Midstream’s accounts are included in the Company’s condensed consolidated financial statements.  Antero is the primary beneficiary of Antero Midstream based on its power to direct the activities that most significantly impact Antero Midstream’s economic performance, and its obligation to absorb losses of, or right to receive benefits from, Antero Midstream that could be significant to Antero Midstream.  In reaching the determination that Antero is the primary beneficiary of Antero Midstream, the Company considered the following:

·

Antero Midstream was formed to own, operate, and develop midstream energy assets to service Antero’s production and completion activities under long-term service contracts.

·

Antero owned 52.9% of the outstanding limited partner interests in Antero Midstream at March 31, 2018.

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2017 and March 31, 2018

·

Antero Midstream GP LP (“AMGP”) indirectly controls the general partnership interest in Antero Midstream and directly controls Antero IDR Holdings LLC (“IDR LLC”), which owns the incentive distribution rights in Antero Midstream.  However, AMGP has not provided, and is not expected to provide, financial support to Antero Midstream.  Antero does not control AMGP and does not have any investment in AMGP. 

·

Antero’s officers and management group also act as management of Antero Midstream and AMGP.

·

Antero and Antero Midstream have contracts with 20-year initial terms and automatic renewal provisions, whereby Antero has dedicated the rights for gathering and compression, and water delivery and treatment services to Antero Midstream.  Such dedications cover a substantial portion of Antero’s current acreage and future acquired acreage, in each case, except for acreage that was already dedicated to other parties prior to entering into the service contracts or that was acquired subject to a pre-existing dedication.  The contracts call for Antero to present, in advance, its drilling and completion plans in order for Antero Midstream to develop gathering and compression and water delivery and handling assets to service Antero’s operations.  Consequently, the drilling and completion capital investment decisions made by Antero control the development and operation of all of Antero Midstream’s assets.  Because of these contractual obligations and the capital requirements related to these obligations, Antero Midstream has and, for the foreseeable future, will devote substantially all of its resources to servicing Antero’s operations.

·

Revenues from Antero provide substantially all of Antero Midstream’s financial support and, therefore, its ability to finance its operations.

·

As a result of the long-term contractual commitment to support Antero’s substantial growth plans, Antero Midstream will be practically and physically constrained from providing any substantive amount of services to third-parties.

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 the incentive distribution rights in Antero Midstream.  Noncontrolling interests in consolidated subsidiaries 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 Investments in unconsolidated affiliates on the Company’s condensed consolidated balance sheets.  Income from investees that are accounted for under the equity method is included in Equity in earnings of unconsolidated affiliates on the Company’s condensed consolidated statements of operations and cash flows.

(c)Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions which affect revenues, expenses, assets, and liabilities, as well as the disclosure of contingent assets and liabilities.  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 condensed 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

The markets for natural gas, NGLs, and oil have, and continue to, experience significant price fluctuations.  Price fluctuations can result from variations in weather, levels of production, availability of transportation capacity to other regions of the country, the level of imports to and exports from the United States, 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.

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2017 and March 31, 2018

(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.  From time to time, the Company may be in the position of a “book overdraft” in which outstanding checks exceed cash and cash equivalents.  The Company classifies book overdrafts within accounts payable within its condensed consolidated balance sheets, and classifies the change in accounts payable associated with book overdrafts as an operating activity within its condensed consolidated statements of cash flows.

(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, which may include commodity swap agreements, basis swap agreements, collar agreements, and other similar agreements related to the price risk associated with 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 positions.

The Company records derivative instruments on the condensed consolidated balance sheets as either assets or liabilities 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.

(g)Asset Retirement Obligations

The Company is obligated to dispose of certain long‑lived assets upon their abandonment.  The Company’s asset retirement obligations (“ARO”) relate primarily to its obligation to plug and abandon oil and gas wells at the end of their lives, as well as Antero Midstream’s future closure and postclosure costs associated with the landfill at its wastewater treatment facility.  An ARO is recorded at its estimated fair value, measured by reference to the expected future cash outflows required to satisfy the retirement obligation, which is then discounted at the Company’s credit‑adjusted, risk‑free interest rate.  Revisions to estimated AROs often result from changes in retirement cost estimates or changes in the estimated timing of abandonment.  The fair value of the liability is added to the carrying amount of the associated asset, and this additional carrying amount is depreciated over the life of the asset.  The liability is accreted at the end of each period through charges to operating expense.  If an obligation is settled for an amount other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement.

(h)Income Taxes

For the three months ended March 31, 2017, the Company’s overall effective tax rate was different than the statutory rate of 35% primarily due to the effects of noncontrolling interest income, state tax rates, and permanent differences on vested equity compensation awards.  For the three months ended March 31, 2018, the Company’s overall effective tax rate was different than the statutory rate of 21% primarily due to the effects of noncontrolling interest income, state tax rates, and permanent differences on vested equity compensation awards.

(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 processing; (3) water handling and treatment; and (4) marketing and utilization 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; however, some of the Company’s production revenues are attributable to customers who resell the Company’s production to third parties located in foreign countries.

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2017 and March 31, 2018

(j)Earnings per Common Share

Earnings per common share—basic for each period is computed by dividing net income attributable to Antero by the basic weighted average number of shares outstanding during the period.  Earnings per common share—assuming dilution for each period is computed after giving consideration to the potential dilution from outstanding equity awards, calculated using the treasury stock method.  The Company includes performance share unit awards in the calculation of diluted weighted average shares outstanding based on the number of common shares that would be issuable if the end of the period was also the end of the performance period required for the vesting of the awards.  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 March 31,

 

 

 

2017

 

2018

 

Basic weighted average number of shares outstanding

 

314,954

 

316,471

 

Add: Dilutive effect of restricted stock units

 

770

 

401

 

Add: Dilutive effect of outstanding stock options

 

 —

 

 —

 

Add: Dilutive effect of performance stock units

 

45

 

39

 

Diluted weighted average number of shares outstanding

 

315,769

 

316,911

 

 

 

 

 

 

 

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

 

 

 

 

 

Restricted stock units

 

1,509

 

421

 

Outstanding stock options

 

683

 

653

 

Performance stock units

 

660

 

1,189

 


(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.

(k)Adoption of New Accounting Principle

On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.  The ASU replaced most existing revenue recognition guidance in GAAP when it became effective and was incorporated into GAAP as Accounting Standards Codification (“ASC”) Topic 606.  The new standard became effective for the Company on January 1, 2018.  The standard permits the use of either the retrospective or cumulative effect transition method.  The Company elected the cumulative effect transition method.  The adoption of this standard had no impact on the Company’s consolidated financial statements.  See Note 4 to the condensed consolidated financial statements for the Company’s disclosures under ASC 606.

(l)Recently Issued Accounting Standard

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to present nearly all leasing arrangements on the balance sheet as liabilities along with a corresponding right-of-use asset.  The ASU will replace most existing lease guidance in GAAP when it becomes effective.  The new standard becomes effective for the Company on January 1, 2019.  Although early application is permitted, the Company does not plan to early adopt the ASU.  The standard requires the use of the modified retrospective transition method.  The Company is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures.  Currently, the Company is evaluating the standard’s applicability to its various contractual arrangements.  The Company believes that adoption of the standard will result in increases to its assets and liabilities on its consolidated balance sheet as well as changes to the presentation of certain operating expenses on its consolidated statement of operations, including the accelerated recognition of expenses attributable to certain of is leasing arrangements.  However, the Company has not yet determined the extent of the adjustments that will be required upon implementation of the standard.  The Company continues to monitor relevant industry guidance regarding the implementation of ASU 2016-02 and will adjust its implementation strategies as necessary.  The Company does not believe that adoption of the standard will impact its operational strategies, growth prospects, or cash flows.

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2017 and March 31, 2018

 

(3)Antero Midstream Partners LP

In 2014, the Company formed Antero Midstream to own, operate, and develop midstream energy assets that service Antero’s production.  Antero Midstream’s assets consist of gathering systems and facilities, water handling and treatment facilities, and interests in processing and fractionation plants, through which it provides services to Antero under long-term, fixed-fee contracts.  AMGP indirectly owns the general partnership interest in Antero Midstream and directly owns capital interests in IDR LLC, which owns the incentive distribution rights in Antero Midstream.  Antero Midstream is an unrestricted subsidiary as defined by Antero’s senior secured revolving bank credit facility (the “Credit Facility”).  As an unrestricted subsidiary, 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 16).

In connection with Antero’s contribution of its water handling and treatment assets to Antero Midstream in September 2015, Antero Midstream 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 has an Equity Distribution Agreement (the “Distribution Agreement”) pursuant to which Antero Midstream 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 Antero Midstream and the sales agents.  Proceeds are used for general partnership purposes, which may include repayment of indebtedness and funding working capital or capital expenditures.  Antero Midstream is under no obligation to offer and sell common units under the Distribution Agreement.

During the three months ended March 31, 2018, Antero Midstream did not sell any common units under the Distribution Agreement.  As of March 31, 2018, Antero Midstream had the capacity to issue additional common units under the Distribution Agreement up to an aggregate sales price of $157.3 million.

On February 6, 2017, Antero Midstream formed a joint venture (the “Joint Venture”) to develop processing assets in Appalachia with MarkWest Energy Partners, L.P. (“MarkWest”), a wholly owned subsidiary of MPLX, L.P. (see note 3).  In conjunction with the formation of the Joint Venture, on February 10, 2017, Antero Midstream issued 6,900,000 common units, including common units issued pursuant to the underwriters’ option to purchase additional common units, generating net proceeds of approximately $223 million.  Antero Midstream used the net proceeds to fund the initial contribution to the Joint Venture, repay outstanding borrowings under its credit facility, and for general partnership purposes.

Antero owned approximately 52.9% of the limited partner interests of Antero Midstream at December 31, 2017 and March 31, 2018.

 

(4)Revenue

(a)   Revenue from Contracts with Customers

Product revenue

Our revenues are primarily derived from the sale of natural gas and oil production, as well as the sale of NGLs that are extracted from our natural gas. Sales of natural gas, NGLs, and oil are recognized when we satisfy a performance obligation by transferring control of a product to a customer. Payment is generally received one month after the sale has occurred.

Under our natural gas sales contracts, we deliver natural gas to the purchaser at an agreed upon delivery point. Natural gas is transported from our wellheads to delivery points specified under sales contracts. To deliver natural gas to these points, Antero Midstream or third parties gather, compress, process and transport our natural gas. We maintain control of the natural gas during gathering, compression, processing, and transportation. Our sales contracts provide that we receive a specific index price adjusted for pricing differentials. We transfer control of the product at the delivery point and recognize revenue based on the contract price. The costs to gather, compress, process and transport the natural gas are recorded as Gathering, compression, processing and transportation expenses.

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2017 and March 31, 2018

NGLs, which are extracted from natural gas through processing, are either sold by us directly or by the processor under processing contracts. For NGLs sold by us directly, our sales contracts provide that we deliver the product to the purchaser at an agreed upon delivery point and that we receive a specific index price adjusted for pricing differentials. We transfer control of the product to the purchaser at the delivery point and recognize revenue based on the contract price. The costs to further process and transport NGLs are recorded as Gathering, compression, processing, and transportation expenses. For NGLs sold by the processor, our processing contracts provide that we transfer control to the processor at the tailgate of the processing plant and we recognize revenue based on the price received from the processor.

Under our oil sales contracts, we generally sell oil to the purchaser from storage tanks near the wellhead and collect a contractually agreed upon index price, net of pricing differentials. We transfer control of the product from the storage tanks to the purchaser and recognize revenue based on the contract price.

Gathering, compression, water handling and treatment revenue

Substantially all revenues from our gathering, compression, water handling and treatment operations are derived from intersegment transactions for services Antero Midstream provides to our exploration and production operations. The portion of such fees shown in our consolidated financial statements represent amounts charged to interest owners in Antero-operated wells, as well as fees charged to other third parties for water handling and treatment services provided by Antero Midstream or usage of Antero Midstream’s gathering and compression systems. For gathering and compression revenue, Antero Midstream satisfies its performance obligations and recognizes revenue when low pressure volumes are delivered to a compressor station, high pressure volumes are delivered to a processing plant or transmission pipeline, and compression volumes are delivered to a high pressure line. Revenue is recognized based on the per Mcf gathering or compression fee charged by Antero Midstream in accordance with the gathering and compression agreement. For water handling and treatment revenue, Antero Midstream satisfies its performance obligations and recognizes revenue when the fresh water volumes have been delivered to the hydration unit of a specified well pad and the wastewater volumes have been delivered to its wastewater treatment facility. For services contracted through third party providers, Antero Midstream’s performance obligation is satisfied when the service performed by the third party provider has been completed. Revenue is recognized based on the per barrel fresh water delivery or wastewater treatment fee charged by Antero Midstream in accordance with the water services agreement.

Marketing revenue

Marketing revenues are derived from activities to purchase and sell third-party natural gas and NGLs and to market excess firm transportation capacity to third parties. We retain control of the purchased natural gas and NGLs prior to delivery to the purchaser. The Company has concluded that we are the principal in these arrangements and therefore we recognize revenue on a gross basis, with costs to purchase and transport natural gas and NGLs presented as marketing expenses. Contracts to sell third party gas and NGLs are generally subject to similar terms as contracts to sell our produced natural gas and NGLs. We satisfy performance obligations to the purchaser by transferring control of the product at the delivery point and recognize revenue based on the price received from the purchaser.

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2017 and March 31, 2018

(b)   Disaggregation of Revenue

In the following table, revenue is disaggregated by type (in thousands). The table also identifies the reportable segment to which the disaggregated revenues relate. For more information on reportable segments, see Note 15—Reportable Segments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

Segment to which

 

 

 

2017

 

2018

 

revenues relate

 

Revenues from contracts with customers:

 

 

 

 

 

 

 

 

 

Natural gas sales

 

$

466,664

 

$

497,663

 

Exploration and production

 

Natural gas liquids sales (ethane)

 

 

18,469

 

 

27,075

 

Exploration and production

 

Natural gas liquids sales (C3+ NGLs)

 

 

176,183

 

 

207,095

 

Exploration and production

 

Oil sales

 

 

26,960

 

 

30,273

 

Exploration and production

 

Gathering and compression

 

 

2,539

 

 

4,145

 

Gathering and processing

 

Water handling and treatment

 

 

65

 

 

790

 

Water handling and treatment

 

Marketing

 

 

65,924

 

 

144,389

 

Marketing

 

Total

 

 

756,804

 

 

911,430

 

 

 

Revenues from derivatives and other sources

 

 

438,775

 

 

116,671

 

 

 

Total revenue and other

 

$

1,195,579

 

$

1,028,101

 

 

 

 

(c)   Transaction Price Allocated to Remaining Performance Obligations

For our product sales that have a contract term greater than one year, we have utilized the practical expedient in ASC 606, which states that a company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under our product sales contracts, each unit of product delivered to the customer represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required. For our product sales that have a contract term of one year or less, we have utilized the practical expedient in ASC 606, which states that a company is not required to disclose the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

(d)   Contract Balances

Under our sales contracts, we invoice customers after our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our contracts do not give rise to contract assets or liabilities under ASC 606. At December 31, 2017 and March 31, 2018, our receivables from contracts with customers were $300 million and $280 million, respectively.

 

(5)Equity Method Investments

In 2016, Antero Midstream acquired a 15% equity interest in Stonewall Gas Gathering LLC (“Stonewall”), which operates a regional gathering pipeline on which Antero is an anchor shipper.

On February 6, 2017, Antero Midstream formed the Joint Venture to develop gas processing and fractionation assets in Appalachia with MarkWest, a wholly owned subsidiary of MPLX. Antero Midstream and MarkWest each own a 50% equity interest in the Joint Venture and MarkWest operates the Joint Venture assets. The Joint Venture assets consist of processing plants in West Virginia, and a one-third interest in a MarkWest fractionator in Ohio.

The Company’s consolidated statements of operations and comprehensive income includes Antero Midstream’s proportionate share of the net income of equity method investees. When Antero Midstream records its proportionate share of net income, it increases equity income in the consolidated statements of operations and comprehensive income and the carrying value of that investment on the Company’s consolidated balance sheet.  When a distribution is received, it is recorded as a reduction to the carrying value of that investment on the consolidated balance sheet.  The Company uses the equity method of accounting to account for its investments in Stonewall and the Joint Venture because Antero Midstream exercises significant influence, but not control, over the entities.  The Company’s judgment regarding the level of influence over its equity investments includes considering key factors such as Antero Midstream’s ownership interest, representation on the board of directors, and participation in the policy-making decisions of Stonewall and the Joint Venture.

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2017 and March 31, 2018

The following table is a reconciliation of investments in unconsolidated affiliates for the three months ended March 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Stonewall

 

MarkWest
Joint Venture

 

Total

 

Balance at December 31, 2017

 

$

67,128

 

 

236,174

 

 

303,302

 

Investments

 

 

 —

 

 

17,389

 

 

17,389

 

Equity in net income of unconsolidated affiliates

 

 

2,738

 

 

5,124

 

 

7,862

 

Distributions from unconsolidated affiliates

 

 

(870)

 

 

(6,215)

 

 

(7,085)

 

Balance at March 31, 2018

 

$

68,996

 

 

252,472

 

 

321,468

 

 

Investments in the Joint Venture during the three months ended March 31, 2018 relate to capital contributions for construction of additional processing facilities.

 

(6)Accrued Liabilities

Accrued liabilities as of December 31, 2017 and March 31, 2018 consisted of the following items (in thousands):

 

 

 

 

 

 

 

 

 

    

December 31, 2017

    

March 31, 2018

 

Capital expenditures

 

$

155,300

 

 

123,911

 

Gathering, compression, processing, and transportation expenses

 

 

88,850

 

 

94,693

 

Marketing expenses

 

 

59,049

 

 

61,917

 

Interest expense

 

 

40,861

 

 

63,451

 

Other

 

 

99,165

 

 

78,645

 

 

 

$

443,225

 

 

422,617

 

 

 

(7)Long-Term Debt

 

Long-term debt was as follows at December 31, 2017 and March 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

    

December 31, 2017

    

March 31, 2018

 

Antero Resources:

 

 

 

 

 

 

 

Credit Facility(a)

 

$

185,000

 

 

155,000

 

5.375% senior notes due 2021(b)

 

 

1,000,000

 

 

1,000,000

 

5.125% senior notes due 2022(c)

 

 

1,100,000

 

 

1,100,000

 

5.625% senior notes due 2023(d)

 

 

750,000

 

 

750,000

 

5.00% senior notes due 2025(e)

 

 

600,000

 

 

600,000

 

Net unamortized premium

 

 

1,520

 

 

1,452

 

Net unamortized debt issuance costs

 

 

(32,430)

 

 

(31,026)

 

Antero Midstream:

 

 

 

 

 

 

 

Midstream Credit Facility(g)

 

 

555,000

 

 

660,000

 

5.375% senior notes due 2024(h)

 

 

650,000

 

 

650,000

 

Net unamortized debt issuance costs

 

 

(9,000)

 

 

(8,720)

 

 

 

$

4,800,090

 

 

4,876,706

 

 

Antero Resources Corporation

(a)Senior Secured Revolving Credit Facility

Antero’s Credit Facility is 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 annual redeterminations.  At March 31, 2018, the borrowing base under the Credit Facility was $4.5 billion and lender commitments were $2.5 billion.  The next redetermination of the borrowing base is scheduled to occur by the end of April 2018.  The maturity date of the Credit Facility is the

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2017 and March 31, 2018

earlier of (i) October 26, 2022 and (ii) the date that is 91 days prior to the earliest stated redemption date of any series of Antero’s senior notes, unless such series of notes is refinanced.

Under the Credit Facility, “Investment Grade Period” is a period that, as long as no event of default has occurred, commences when Antero elects to give notice to the Administrative Agent that Antero has received at least one of (i) a BBB- or better rating from Standard and Poor’s and (ii) a Baa3 or better rating from Moody’s (an “Investment Grade Rating”).  An Investment Grade Period can end at Antero’s election.

During any period that is not an Investment Grade Period, the Credit Facility is ratably secured by mortgages on substantially all of Antero’s properties and guarantees from Antero’s restricted subsidiaries, as applicable.  During an Investment Grade Period, the liens securing the obligations under the Credit Facility shall be automatically released (subject to the provisions of the Credit Facility).  The Credit Facility contains certain covenants, including restrictions on indebtedness and dividends, and requirements with respect to working capital and interest coverage ratios.  During any period that is not an Investment Grade Period, interest is payable at a variable rate based on LIBOR or the prime rate determined by Antero’s election at the time of borrowing, plus an applicable rate based on Antero’s borrowing base utilization which ranges from 25 basis points to 225 basis points. During an Investment Grade Period, interest is payable at a variable rate based on LIBOR or the prime rate determined by Antero’s election at the time of borrowing, plus an applicable rate based on Antero’s credit rating which ranges from 12.5 basis points to 175 basis points.  Antero was in compliance with all of the financial covenants under the Credit Facility as of December 31, 2017 and March 31, 2018.

As of March 31, 2018, Antero had an outstanding balance under the Credit Facility of $155 million, with a weighted average interest rate of 2.90%, and outstanding letters of credit of $692 million.  As of December 31, 2017, Antero had an outstanding balance under the Credit Facility of $185 million, with a weighted average interest rate of 2.96%, and outstanding letters of credit of $705 million.  Commitment fees on the unused portion of the Credit Facility are due quarterly at rates ranging from (i) 0.300% to 0.375% (during any period that is not an Investment Grade Period) of the unused portion based on utilization and (ii) 0.150% to 0.300% (during an Investment Grade Period) of the unused portion based on Antero’s credit rating.

(b)5.375% Senior Notes Due 2021

On November 5, 2013, Antero issued $1 billion of 5.375% senior notes due November 1, 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 at redemption prices ranging from 102.688% currently to 100.00% on or after November 1, 2019.  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.

(c)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 at redemption prices ranging from 103.844% currently to 100.00% on or after June 1, 2020.  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.

(d)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

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2017 and March 31, 2018

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 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.

(e) 5.00% Senior Notes Due 2025

On December 21, 2016, Antero issued $600 million of 5.00% senior notes due March 1, 2025 (the “2025 notes”) at par.  The 2025 notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility.  The 2025 notes rank pari passu to Antero’s other outstanding senior notes.  The 2025 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 2025 notes is payable on March 1 and September 1 of each year.  Antero may redeem all or part of the 2025 notes at any time on or after March 1, 2020 at redemption prices ranging from 103.750% on or after March 1, 2020 to 100.00% on or after March 1, 2023.  In addition, on or before March 1, 2020, Antero may redeem up to 35% of the aggregate principal amount of the 2025 notes with the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 105.00% of the principal amount of the 2025 notes, plus accrued and unpaid interest.  At any time prior to March 1, 2020, Antero may also redeem the 2025 notes, in whole or in part, at a price equal to 100% of the principal amount of the 2025 notes plus a “make-whole” premium and accrued and unpaid interest.  If Antero undergoes a change of control, the holders of the 2025 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 2025 notes, plus accrued and unpaid interest.

(f)Treasury Management Facility

Antero has a stand-alone revolving note with a lender 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 revolving note bear interest at the lender’s prime rate plus 1.0%.  The note matures on June 1, 2018.  At December 31, 2017 and March 31, 2018, 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 Credit Facility”) with a syndicate of bank lenders.  At March 31, 2018, lender commitments under the Midstream Credit Facility were $1.5 billion.  The maturity date of the Midstream Credit Facility is October 26, 2022.

During any period that is not an Investment Grade Period (as such term is defined in the Midstream Credit Facility), the Midstream Credit Facility is ratably secured by mortgages on substantially all of the properties of Antero Midstream and guarantees from its restricted subsidiaries, as applicable.  During an Investment Grade Period under the Midstream Credit Facility, the liens securing the Midstream Credit Facility are automatically released (subject to the provisions of the Midstream Credit Facility).  The Midstream Credit Facility contains certain covenants, including restrictions on indebtedness and certain distributions to owners, and requirements with respect to leverage and interest coverage ratios.  During any period that is not an Investment Grade Period under the Midstream Credit Facility, interest is payable at a variable rate based on LIBOR or the prime rate determined by Antero Midstream’s election at the time of borrowing, plus an applicable rate based on Antero Midstream’s borrowing base utilization which ranges from 25 basis points to 225 basis points. During an Investment Grade Period under the Midstream Credit Facility, interest is payable at a variable rate based on LIBOR or the prime rate determined by Antero Midstream’s election at the time of borrowing, plus an applicable rate based on Antero Midstream’s credit rating which ranges from 12.5 basis points to 200 basis points.  Antero Midstream was in compliance with all of the financial covenants under the Midstream Credit Facility as of December 31, 2017 and March 31, 2018.

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2017 and March 31, 2018

As of March 31, 2018, Antero Midstream had an outstanding balance under the Midstream Credit Facility of $660 million with a weighted average interest rate of 2.95%, and no letters of credit outstanding.  As of December 31, 2017, Antero Midstream had an outstanding balance under the Midstream Credit Facility of $555 million with a weighted average interest rate of 2.81%.  Commitment fees on the unused portion of the Midstream Credit Facility are due quarterly at rates ranging from (i) 0.25% to 0.375% of the unused portion (during an period that is not an Investment Grade Period) based on the leverage ratio and (ii) 0.175% to 0.375% of the unused portion (during an Investment Grade Period) based on Antero Midstream’s credit rating.

(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 Credit Facility to the extent of the value of the collateral securing the Midstream Credit 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.

 

(8)Asset Retirement Obligations

The following is a reconciliation of the Company’s asset retirement obligations for the three months ended March 31, 2018 (in thousands):

 

 

 

 

 

Asset retirement obligations—December 31, 2017

 

$

34,610

 

Obligations incurred

 

 

3,525

 

Accretion expense

 

 

690

 

Asset retirement obligations—March 31, 2018

 

$

38,825

 

 

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

 

(9)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 8,524,884 shares were available for future grant under the Plan as of March 31, 2018.

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 its general partner and certain officers, employees, and consultants of Antero Midstream and its affiliates (which include Antero).  A total of 7,876,693 common units were available for future grant under the Midstream Plan as of March 31, 2018.

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2017 and March 31, 2018

The Company’s equity-based compensation expense, by type of award, was as follows for the three months ended March 31, 2017 and 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

  

2017

  

2018

 

Restricted stock unit awards

 

$

18,225

 

 

13,444

 

Stock options

 

 

620

 

 

481

 

Performance share unit awards

 

 

2,135

 

 

2,511

 

Antero Midstream phantom unit awards

 

 

4,043

 

 

4,218

 

Equity awards issued to directors

 

 

480

 

 

502

 

Total expense

 

$

25,503

 

 

21,156

 

 

Restricted Stock Unit Awards

Restricted stock unit awards vest subject to the satisfaction of service requirements.  Expense related to each 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 by reversing the expense previously recognized for 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 unit awards activity for the three months ended March 31, 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted
average

 

Aggregate

 

 

    

Number of
shares

    

grant date
fair value

    

intrinsic value
(in thousands)

 

Total awarded and unvested—December 31, 2017

 

3,424,084

 

$

28.51

 

$

65,058

 

Granted

 

63,313

 

$

19.87

 

 

 

 

Vested

 

(145,493)

 

$

28.42

 

 

 

 

Forfeited

 

(119,599)

 

$

30.19

 

 

 

 

Total awarded and unvested—March 31, 2018

 

3,222,305

 

$

28.28

 

$

63,963

 

 

Intrinsic values are based on the closing price of the Company’s stock on the referenced dates.  As of March 31, 2018, there was $50.5 million of unamortized equity-based compensation expense related to unvested restricted stock units.  That expense is expected to be recognized over a weighted average period of approximately 1.7 years.

Stock Options

Stock options granted under the Plan 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 by reversing the expense previously recognized for awards that were forfeited during the period.  Stock options were granted with an exercise price equal to or greater than the market price of the Company’s common stock on the dates of grant.

A summary of stock option activity for the three months ended March 31, 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted
average

 

average
remaining

 

Intrinsic

 

 

    

Stock
options

    

exercise
price

    

contractual
life

    

value
(in thousands)

  

Outstanding at December 31, 2017

 

660,512

 

$

50.48

 

7.06

 

$

 —

 

Granted

 

 —

 

$

 —

 

 

 

 

 

 

Exercised

 

 —

 

$

 —

 

 

 

 

 

 

Forfeited

 

(12,374)

 

$

50.00

 

 

 

 

 

 

Expired

 

 —

 

$

 —

 

 

 

 

 

 

Outstanding at March 31, 2018

 

648,138

 

$

50.49

 

6.82

 

$

 —

 

Vested or expected to vest as of  March 31, 2018

 

648,138

 

$

50.49

 

6.82

 

$

 —

 

Exercisable at March 31, 2018

 

367,065

 

$

50.87

 

6.64

 

$

 —

 

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2017 and March 31, 2018

 

Intrinsic values are based on the exercise price of the options and the closing price of the Company’s stock on the referenced dates.  As of March 31, 2018, there was $2.2 million of unamortized equity-based compensation expense related to unvested stock options.  That expense is expected to be recognized over a weighted average period of approximately 1.0 year.

Performance Share Unit Awards

Performance Share Unit Awards Based on Price Targets

In 2016, the Company granted performance share unit awards (“PSUs”) to certain of its executive officers that are based on price targets.  The vesting of these PSUs is conditioned on the closing price of the Company’s common stock achieving specific price thresholds over 10-day periods, subject to the following vesting restrictions: no PSUs may vest before the first anniversary of the grant date; no more than one-third of the PSUs may vest before the second anniversary of the grant date; and no more than two-thirds of the PSUs may vest before the third anniversary of the grant date.  Any PSUs which have not vested by the fifth anniversary of the grant date will expire.  Expense related to these PSUs is recognized on a graded basis over three years.

Performance Share Unit Awards Based on Total Shareholder Return

In 2016 and 2017, the Company also granted PSUs to certain of its employees and executive officers which vest based on the total shareholder return (“TSR”) of the Company’s common stock relative to the TSR of a peer group of companies over a three-year performance period.  The number of common shares which may ultimately be earned ranges from zero to 200% of the PSUs granted.  Expense related to these PSUs is recognized on a straight-line basis over three years.

Summary Information for Performance Share Unit Awards

A summary of PSU activity for the three months ended March 31, 2018 is as follows:

 

 

 

 

 

 

 

 

 

Number of
units

 

Weighted
average
grant date
fair value

 

Total awarded and unvested—December 31, 2017

 

1,283,843

 

$

28.29

 

Granted

 

 —

 

$

 —

 

Vested

 

(41,666)

 

$

27.38

 

Forfeited

 

(12,186)

 

$

29.83

 

Total awarded and unvested—March 31, 2018

 

1,229,991

 

$

28.30

 

 

As of March 31, 2018, there was $15.1 million of unamortized equity-based compensation expense related to unvested PSUs.  That expense is expected to be recognized over a weighted average period of approximately 1.7 years.

Antero Midstream Partners Phantom Unit Awards

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 phantom units.  Phantom units also contain distribution equivalent rights which entitle the holder of vested common units to receive a “catch up” payment equal to common unit distributions paid by Antero Midstream during the vesting period of the phantom unit award.  These 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 its employees, and a portion of the expense is allocated to Antero Midstream.  Expense related to each phantom 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 by reversing the expense previously recognized for awards that were forfeited during the period.  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.

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ANTERO RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements

December 31, 2017 and March 31, 2018

A summary of phantom unit awards activity for the three months ended March 31, 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Number of
units

 

Weighted
average
grant date
fair value

 

Aggregate
intrinsic value
(in thousands)