ensura

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, 2019


☐	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)


Securities registered pursuant to section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01	AR	New York Stock Exchange

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 every Interactive Data File required to be submitted 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 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 ☐
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 304,270,444 shares of common stock outstanding as of October 25, 2019.

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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	48
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	70
Item 4.	Controls and Procedures	72
PART II—OTHER INFORMATION		73
Item 1.	Legal Proceedings	73
Item 1A.	Risk Factors	73
Item 2.	Unregistered Sales of Equity Securities	73
Item 6.	Exhibits	74
SIGNATURES		75

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report on Form 10-Q includes “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward looking statements. 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, 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 these forward-looking statements, investors should keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q. These forward-looking statements are management’s belief, based on currently available information, as to the outcome and timing of future events.

Forward looking statements may include statements about:

●

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;

●

our ability to successfully complete our share repurchase program;

●

our ability to meet minimum volume commitments and to utilize or monetize our firm transportation commitments;

●

future drilling plans;

●

projected well costs and cost savings initiatives, including with respect to water handling and treatment services provided by Antero Midstream Corporation;

●

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 Corporation;

●

general economic conditions;

●

credit markets;

●

expectations regarding the amount and timing of jury awards;

●

uncertainty regarding our future operating results; and

●

plans, objectives, expectations, and intentions.

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We caution investors that these forward-looking statements are subject to all of the risks and uncertainties incidental to our business, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, commodity price volatility, inflation, availability of drilling, completion, 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 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, 2018 (the “2018 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q 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 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, 2018 and September 30, 2019

(In thousands, except per share amounts)


			(Unaudited)
	December 31, 2018		September 30, 2019
Assets
Current assets:
Accounts receivable	$	51,073		29,207
Accrued revenue		474,827		281,177
Derivative instruments		245,263		411,774
Other current assets		35,450		7,342
Total current assets		806,613		729,500
Property and equipment:
Oil and gas properties, at cost (successful efforts method):
Unproved properties		1,767,600		1,406,464
Proved properties		12,705,672		11,568,285
Water handling and treatment systems		1,013,818		—
Gathering systems and facilities		2,470,708		5,802
Other property and equipment		65,842		70,965
		18,023,640		13,051,516
Less accumulated depletion, depreciation, and amortization		(4,153,725)		(3,136,767)
Property and equipment, net		13,869,915		9,914,749
Operating leases right-of-use assets		—		3,230,148
Derivative instruments		362,169		405,180
Investments in unconsolidated affiliates		433,642		1,819,323
Other assets		47,125		21,388
Total assets	$	15,519,464		16,120,288

Liabilities and Equity
Current liabilities:
Accounts payable	$	66,289		32,496
Accounts payable, related parties		—		100,437
Accrued liabilities		465,070		392,726
Revenue distributions payable		310,827		231,152
Derivative instruments		532		—
Short-term lease liabilities		2,459		409,990
Other current liabilities		8,363		4,367
Total current liabilities		853,540		1,171,168
Long-term liabilities:
Long-term debt		5,461,688		3,703,828
Deferred income tax liability		650,788		916,031
Long-term lease liabilities		2,873		2,823,197
Other liabilities		63,098		59,366
Total liabilities		7,031,987		8,673,590
Commitments and contingencies (Notes 13 and 14)
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; 308,594 shares and 304,161 shares issued and outstanding at December 31, 2018 and September 30, 2019, respectively		3,086		3,041
Additional paid-in capital		6,485,174		6,124,042
Accumulated earnings		1,177,548		1,319,615
Total stockholders' equity		7,665,808		7,446,698
Noncontrolling interests in consolidated subsidiary		821,669		—
Total equity		8,487,477		7,446,698
Total liabilities and equity	$	15,519,464		16,120,288

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended September 30, 2018 and 2019

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended September 30,
	2018		2019
Revenue and other:
Natural gas sales	$	527,122		524,448
Natural gas liquids sales		338,269		284,958
Oil sales		59,722		40,561
Commodity derivative fair value gains		57,019		220,788
Gathering, compression, water handling and treatment		4,844		—
Marketing		89,598		46,645
Marketing derivative fair value losses		(42)		—
Other income		—		1,481
Total revenue		1,076,532		1,118,881
Operating expenses:
Lease operating		36,269		35,928
Gathering, compression, processing, and transportation		326,504		603,860
Production and ad valorem taxes		30,518		28,863
Marketing		151,764		108,216
Exploration		666		208
Impairment of oil and gas properties		221,094		1,041,469
Impairment of midstream assets		1,157		7,800
Depletion, depreciation, and amortization		243,186		241,503
Accretion of asset retirement obligations		710		927
General and administrative (including equity-based compensation expense of $16,202 and $3,875 in 2018 and 2019, respectively)		59,860		35,923
Contract termination and rig stacking		—		62
Total operating expenses		1,071,728		2,104,759
Operating income (loss)		4,804		(985,878)
Other income (expenses):
Equity in earnings (loss) of unconsolidated affiliates		10,705		(117,859)
Interest expense, net		(74,528)		(47,754)
Total other expenses		(63,823)		(165,613)
Loss before income taxes		(59,019)		(1,151,491)
Provision for income tax (expense) benefit		(18,953)		272,627
Net loss and comprehensive loss including noncontrolling interests		(77,972)		(878,864)
Net income and comprehensive income attributable to noncontrolling interests		76,447		—
Net loss and comprehensive loss attributable to Antero Resources Corporation	$	(154,419)		(878,864)

Loss per common share—basic and diluted	$	(0.49)		(2.86)

Weighted average number of shares outstanding:
Basic and diluted		317,082		307,781

See accompanying notes to the unaudited 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, 2018 and 2019

(Unaudited)

(In thousands, except per share amounts)


	Nine Months Ended September 30,
	2018		2019
Revenue and other:
Natural gas sales	$	1,498,324		1,735,086
Natural gas liquids sales		828,424		902,606
Oil sales		128,869		137,675
Commodity derivative fair value gains		134,793		471,847
Gathering, compression, water handling and treatment		15,298		4,479
Marketing		394,189		200,911
Marketing derivative fair value gains		94,081		—
Other income		—		3,348
Total revenue and other		3,093,978		3,455,952
Operating expenses:
Lease operating		93,155		118,517
Gathering, compression, processing, and transportation		926,228		1,595,223
Production and ad valorem taxes		82,232		95,509
Marketing		560,924		408,839
Exploration		4,022		648
Impairment of oil and gas properties		406,068		1,253,712
Impairment of midstream assets		9,658		14,782
Depletion, depreciation, and amortization		709,480		724,006
Loss on sale of assets		—		951
Accretion of asset retirement obligations		2,101		2,821
General and administrative (including equity-based compensation expense of $56,429 and $19,327 in 2018 and 2019, respectively)		181,576		146,507
Contract termination and rig stacking		—		14,026
Total operating expenses		2,975,444		4,375,541
Operating income (loss)		118,534		(919,589)
Other income (expenses):
Equity in earnings (loss) of unconsolidated affiliates		27,832		(90,193)
Interest expense, net		(208,303)		(173,868)
Gain on deconsolidation of Antero Midstream Partners LP		—		1,406,042
Total other income (expenses)		(180,471)		1,141,981
Income (loss) before income taxes		(61,937)		222,392
Provision for income tax expense		(2,500)		(33,332)
Net income (loss) and comprehensive income (loss) including noncontrolling interests		(64,437)		189,060
Net income and comprehensive income attributable to noncontrolling interests		211,534		46,993
Net income (loss) and comprehensive income (loss) attributable to Antero Resources Corporation	$	(275,971)		142,067

Earnings (loss) per common share—basic	$	(0.87)		0.46

Earnings (loss) per common share—assuming dilution	$	(0.87)		0.46

Weighted average number of shares outstanding:
Basic		316,850		308,509
Diluted		316,850		308,646

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Equity

Three and Nine Months Ended September 30, 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
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes		528		6		(5,589)		—		—		(5,583)
Issuance of common units in Antero Midstream Partners LP upon vesting of equity-based compensation awards, net of units withheld for income taxes		—		—		(4,007)		—		2,707		(1,300)
Equity-based compensation		—		—		16,930		—		2,141		19,071
Net income (loss) and comprehensive income (loss)		—		—		—		(136,385)		69,110		(67,275)
Effects of changes in ownership interests in consolidated subsidiaries		—		—		2,121		—		(2,121)		—
Distributions to noncontrolling interests		—		—		—		—		(63,108)		(63,108)
Other		—		—		—		—		8		8
Balances, June 30, 2018		317,052	$	3,171		6,597,537		1,453,513		748,690		8,802,911
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes		34		—		(157)		—		—		(157)
Issuance of common units in Antero Midstream Partners LP upon vesting of equity-based compensation awards, net of units withheld for income taxes		—		—		(306)		—		226		(80)
Equity-based compensation		—		—		14,646		—		1,556		16,202
Net income (loss) and comprehensive income (loss)		—		—		—		(154,419)		76,447		(77,972)
Effects of changes in ownership interests in consolidated subsidiaries		—		—		(372)		—		372		—
Distributions to noncontrolling interests		—		—		—		—		(69,752)		(69,752)
Balances, September 30, 2018		317,086	$	3,171		6,611,348		1,299,094		757,539		8,671,152

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Equity

Three and Nine Months Ended September 30, 2019

(Unaudited)

(In thousands)


	Common Stock				Additional paid-		Accumulated		Noncontrolling		Total
	Shares		Amount		in capital		earnings		interests		equity
Balances, December 31, 2018		308,594	$	3,086		6,485,174		1,177,548		821,669		8,487,477
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes		147		1		(451)		—		—		(450)
Issuance of common units in Antero Midstream Partners LP upon vesting of equity-based compensation awards, net of units withheld for income taxes		—		—		(85)		—		56		(29)
Equity-based compensation		—		—		7,801		—		1,102		8,903
Net income and comprehensive income		—		—		—		978,763		46,993		1,025,756
Distributions to noncontrolling interests		—		—		—		—		(85,076)		(85,076)
Effect of deconsolidation of Antero Midstream Partners LP		—		—		(359,039)		—		(784,744)		(1,143,783)
Balances, March 31, 2019		308,741	$	3,087		6,133,400		2,156,311		—		8,292,798
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes		382		4		(1,819)		—		—		(1,815)
Equity-based compensation		—		—		6,549		—		—		6,549
Net income and comprehensive income		—		—		—		42,168		—		42,168
Balances, June 30, 2019		309,123	$	3,091		6,138,130		2,198,479		—		8,339,700
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes		99		1		(86)		—		—		(85)
Repurchases and retirements of common stock		(5,061)		(51)		(17,877)		—		—		(17,928)
Equity-based compensation		—		—		3,875		—		—		3,875
Net loss and comprehensive loss		—		—		—		(878,864)		—		(878,864)
Balances, September 30, 2019		304,161	$	3,041		6,124,042		1,319,615		—		7,446,698

See accompanying notes to the unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2018 and 2019

(Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2018		2019
Cash flows provided by (used in) operating activities:
Net income (loss) including noncontrolling interests	$	(64,437)		189,060
Adjustments to reconcile net income (loss) to net cash provided by operating activities: