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Fee

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, 2022

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

Graphic

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)

(303357-7310

(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 311,085,147 shares of common stock outstanding as of April 22, 2022.

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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

46

Item 4.

Controls and Procedures

47

PART II—OTHER INFORMATION

48

Item 1.

Legal Proceedings

48

Item 1A.

Risk Factors

48

Item 2.

Unregistered Sales of Equity Securities

48

Item 6.

Exhibits

49

SIGNATURES

50

1

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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” 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. 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 based on management’s current beliefs, based on currently available information, as to the outcome and timing of future events. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

our ability to execute our business strategy;
our production and oil and gas reserves;
our financial strategy, liquidity and capital required for our development program;
our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;
ability to execute our share repurchase program;
natural gas, natural gas liquids (“NGLs”) and oil prices;
impacts of geopolitical events and world health events, including the coronavirus (“COVID-19”) pandemic;
timing and amount of future production of natural gas, NGLs and oil;
our hedging strategy and results;
our ability to meet minimum volume commitments and to utilize or monetize our firm transportation commitments;
our future drilling plans;
our projected well costs, including with respect to water handling services provided by Antero Midstream Corporation (“Antero Midstream”);
competition;
government regulations and changes in laws;
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;
our ability to achieve our greenhouse gas reduction targets and the costs associated therewith;
general economic conditions;
credit markets;

2

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uncertainty regarding our future operating results; and
our other plans, objectives, expectations and intentions contained in this Quarterly Report on Form 10-Q.

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 or changes in law, 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, impacts of world health events (including the COVID-19 pandemic), cybersecurity risks, the state of markets for, and availability of, verified quality carbon offsets and the other risks described or referenced under the heading “Item 1A. Risk Factors” herein, including the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), which is 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 or referenced 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.

3

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PART I—FINANCIAL INFORMATION

ANTERO RESOURCES CORPORATION

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

December 31,

March 31,

  

2021

  

2022

Assets

Current assets:

  

Accounts receivable

$

78,998

45,755

Accrued revenue

591,442

660,884

Derivative instruments

757

263

Other current assets

14,922

17,874

Total current assets

686,119

724,776

Property and equipment:

Oil and gas properties, at cost (successful efforts method):

Unproved properties

1,042,118

1,001,420

Proved properties

12,646,303

12,786,692

Gathering systems and facilities

5,802

5,802

Other property and equipment

116,522

123,824

13,810,745

13,917,738

Less accumulated depletion, depreciation, and amortization

(4,283,700)

(4,384,971)

Property and equipment, net

9,527,045

9,532,767

Operating leases right-of-use assets

3,419,912

3,285,337

Derivative instruments

14,369

10,516

Investment in unconsolidated affiliate

232,399

234,390

Other assets

16,684

15,714

Total assets

$

13,896,528

13,803,500

Liabilities and Equity

Current liabilities:

  

Accounts payable

$

24,819

67,769

Accounts payable, related parties

76,240

73,259

Accrued liabilities

457,244

341,692

Revenue distributions payable

444,873

408,347

Derivative instruments

559,851

1,152,299

Short-term lease liabilities

456,347

455,723

Deferred revenue, VPP

37,603

35,864

Other current liabilities

11,140

16,099

Total current liabilities

2,068,117

2,551,052

Long-term liabilities:

Long-term debt

2,125,444

1,959,944

Deferred income tax liability, net

318,126

254,633

Derivative instruments

181,806

311,005

Long-term lease liabilities

2,964,115

2,830,175

Deferred revenue, VPP

118,366

110,832

Other liabilities

54,462

57,175

Total liabilities

7,830,436

8,074,816

Commitments and contingencies

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; 313,930 shares and 311,020 shares issued and outstanding as of December 31, 2021 and March 31, 2022, respectively

3,139

3,110

Additional paid-in capital

6,371,398

6,266,506

Accumulated deficit

(617,377)

(795,830)

Total stockholders' equity

5,757,160

5,473,786

Noncontrolling interests

308,932

254,898

Total equity

6,066,092

5,728,684

Total liabilities and equity

$

13,896,528

13,803,500

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

(In thousands, except per share amounts)

Three Months Ended March 31,

  

2021

  

2022

 

Revenue and other:

Natural gas sales

$

720,369

995,792

Natural gas liquids sales

440,319

660,305

Oil sales

44,686

63,294

Commodity derivative fair value losses

(177,756)

(1,011,380)

Marketing

164,790

69,038

Amortization of deferred revenue, VPP

11,150

9,272

Other income

640

519

Total revenue

1,204,198

786,840

Operating expenses:

Lease operating

24,547

17,780

Gathering, compression, processing, and transportation

605,077

590,278

Production and ad valorem taxes

44,697

52,808

Marketing

162,077

98,896

Exploration

219

898

General and administrative (including equity-based compensation expense of $5,642 and $4,649 in 2021 and 2022, respectively)

44,074

35,691

Depletion, depreciation, and amortization

194,026

168,388

Impairment of oil and gas properties

34,062

22,462

Accretion of asset retirement obligations

788

2,444

Contract termination

91

8

Loss on sale of assets

1,786

Total operating expenses

1,109,658

991,439

Operating income (loss)

94,540

(204,599)

Other income (expense):

Interest expense, net

(42,743)

(37,713)

Equity in earnings of unconsolidated affiliate

18,694

25,178

Loss on early extinguishment of debt

(43,204)

(10,654)

Loss on convertible note equitization

(39,046)

Transaction expense

(2,291)

Total other expense

(108,590)

(23,189)

Loss before income taxes

(14,050)

(227,788)

Income tax benefit

2,946

53,092

Net loss and comprehensive loss including noncontrolling interests

(11,104)

(174,696)

Less: net income (loss) and comprehensive income (loss) attributable to noncontrolling interests

4,395

(18,277)

Net loss and comprehensive loss attributable to Antero Resources Corporation

$

(15,499)

(156,419)

Loss per share—basic

$

(0.05)

(0.50)

Loss per share—diluted

$

(0.05)

(0.50)

Weighted average number of shares outstanding:

Basic

296,746

314,081

Diluted

296,746

314,081

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(In thousands)

Additional

Common Stock

Paid-in

Accumulated

Noncontrolling

Total

  

Shares

  

Amount

  

Capital

  

Deficit

  

Interests

  

Equity

Balances, December 31, 2020

268,672

$

2,686

6,195,497

(430,478)

322,566

6,090,271

Issuance of common shares

31,388

314

238,551

238,865

Issuance of common units in Martica Holdings, LLC

51,000

51,000

Equity component of 2026 Convertible Notes, net

(116,381)

(116,381)

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

1,130

11

(5,656)

(5,645)

Distributions to noncontrolling interest

(24,699)

(24,699)

Equity-based compensation

5,642

5,642

Net income (loss) and comprehensive income (loss)

(15,499)

4,395

(11,104)

Balances, March 31, 2021

301,190

3,011

6,317,653

(445,977)

353,262

6,227,949

Balances, December 31, 2021

313,930

$

3,139

6,371,398

(617,377)

308,932

6,066,092

Equity component of 2026 Convertible Notes, net

(24,411)

3,229

(21,182)

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

780

8

(10,385)

(10,377)

Distributions to noncontrolling interest

(35,757)

(35,757)

Repurchases and retirements of common stock

(3,690)

(37)

(74,745)

(25,263)

(100,045)

Equity-based compensation

4,649

4,649

Net loss and comprehensive loss

(156,419)

(18,277)

(174,696)

Balances, March 31, 2022

311,020

$

3,110

6,266,506

(795,830)

254,898

5,728,684

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

Three Months Ended March 31,

    

2021

  

2022

 

Cash flows provided by (used in) operating activities:

Net loss including noncontrolling interests

$

(11,104)

(174,696)

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

Depletion, depreciation, amortization, and accretion

194,814

170,832

Impairments

34,062

22,462

Commodity derivative fair value losses

177,756

1,011,380

Gains (losses) on settled commodity derivatives

5,322

(285,386)

Deferred income tax benefit

(2,946)

(57,383)

Equity-based compensation expense

5,642

4,649

Equity in earnings of unconsolidated affiliate

(18,694)

(25,178)

Dividends of earnings from unconsolidated affiliate

42,756

31,285

Amortization of deferred revenue

(11,150)

(9,272)

Amortization of debt issuance costs, debt discount and debt premium

4,536

1,451

Settlement of asset retirement obligations

(886)

Loss on sale of assets

1,786

Loss on early extinguishment of debt

43,204

10,654

Loss on convertible note equitizations

39,046

Changes in current assets and liabilities:

Accounts receivable

(7,200)

33,244

Accrued revenue

(21,199)

(69,442)

Other current assets

3,593

(2,952)

Accounts payable including related parties

16,527

37,664

Accrued liabilities

(17,779)

(94,456)

Revenue distributions payable

84,296

(36,526)

Other current liabilities

2,249

(3,557)

Net cash provided by operating activities

563,731

565,673

Cash flows provided by (used in) investing activities:

Additions to unproved properties

(14,691)

(23,789)

Drilling and completion costs

(105,131)

(184,557)

Additions to other property and equipment

(3,336)

(7,530)

Proceeds from asset sales

195

Change in other assets

262

564

Change in other liabilities

(79)

Net cash used in investing activities

(122,975)

(215,117)

Cash flows provided by (used in) financing activities:

Repurchases of common stock

(100,045)

Issuance of senior notes

1,200,000

Repayment of senior notes

(660,516)

(591,943)

Borrowings (repayments) on bank credit facilities, net

(873,800)

387,700

Payment of debt issuance costs

(15,370)

Distributions to noncontrolling interests in Martica Holdings LLC

(24,699)

(35,757)

Employee tax withholding for settlement of equity compensation awards

(5,645)

(10,377)

Convertible note equitizations

(60,461)

Other

(265)

(134)

Net cash used in financing activities

(440,756)

(350,556)

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

$

Supplemental disclosure of cash flow information:

Cash paid during the period for interest

$

35,097

80,454

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

$

35,882

(14,449)

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(1) Organization

Antero Resources Corporation (individually referred to as “Antero” and together with its consolidated subsidiaries “Antero Resources,” or the “Company”) is engaged in the development, production, exploration 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. The Company’s corporate headquarters is located in Denver, Colorado.

(2) Summary of Significant Accounting Policies

(a)

Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information and should be read in the context of the Company’s December 31, 2021 consolidated financial statements and notes thereto for a more complete understanding of the Company’s operations, financial position and accounting policies. The Company’s December 31, 2021 consolidated financial statements were included in Antero Resources’ 2021 Annual Report on Form 10-K, which was filed with the SEC.

These 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, these 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, 2021 and March 31, 2022 and its results of operations and cash flows for the three months ended March 31, 2021 and 2022. 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, 2022 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, the impacts of COVID-19 and other factors.

(b)

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Antero Resources Corporation, its wholly owned subsidiaries and its variable interest entity (“VIE”), Martica Holdings LLC, (“Martica”), for which the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in the Company’s unaudited condensed consolidated financial statements.

(c)

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 in accounts payable and revenue distributions payable within its condensed consolidated balance sheets, and classifies the change in accounts payable associated with book overdrafts as an operating activity within its unaudited condensed consolidated statements of cash flows. As of December 31, 2021, the book overdrafts included within accounts payable and revenue distributions payable were $5 million and $52 million, respectively. As of March 31, 2022, the book overdrafts included within accounts payable and revenue distributions payable were $47 million and $41 million, respectively.

(d)

Earnings (Loss) Per Common Share

Earnings (loss) per common share—basic for each period is computed by dividing net income (loss) attributable to Antero by the basic weighted average number of shares outstanding during the period. Earnings (loss) per common share—diluted for each period is computed after giving consideration to the potential dilution from outstanding equity awards and shares of common stock issuable upon conversion of the 2026 Convertible Notes (as defined below in Note 7—Long-Term Debt). The Company includes restricted stock unit (“RSU”) awards, performance share unit (“PSU”) awards and stock options 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

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ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

the performance period required for the vesting of the awards. The potential dilutive effect of the 2026 Convertible Notes is calculated using the (i) treasury stock method for the three months ended March 31, 2021 as a result of the Company’s intent to settle the principal amount of such convertible notes in cash upon conversion, and (ii) if-converted method for the three months ended March 31, 2022, as a result of the partial equitizations of the 2026 Convertible Notes during 2021. See Note 7—Long-Term Debt for further discussion on the equitization transactions. 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 effects of all equity awards and the 2026 Convertible Notes are anti-dilutive.

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,

   

2021

   

2022

Basic weighted average number of shares outstanding

296,746

314,081

Add: Dilutive effect of RSUs

Add: Dilutive effect of PSUs

Add: Dilutive effect of outstanding stock options

Add: Dilutive effect of 2026 Convertible Notes

Diluted weighted average number of shares outstanding

296,746

314,081

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

RSUs

6,455

4,878

PSUs

1,863

3,443

Outstanding stock options

427

351

2026 Convertible Notes

15,307

18,778

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

(e)

Recently Issued Accounting Standard

Convertible Debt Instruments

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which eliminates the cash conversion model in Accounting Standards Codification (“ASC”) 470-20, Debt with Conversion and Other Options, that required separate accounting for conversion features, and instead, allows the debt instrument and conversion features to be accounted for as a single debt instrument. It is effective for interim and annual reporting periods beginning after December 31, 2021. The Company adopted the standard effective January 1, 2022 under the modified retrospective transition method, which impacts only the debt instruments outstanding on the adoption date.

Upon adoption of this new standard, the Company reclassified $24 million, net of deferred income taxes and equity issuance costs, from additional paid-in capital and increased long-term debt by $27 million, reduced deferred income tax liability by $6 million and reduced accumulated deficit by $3 million as of January 1, 2022. Additionally, annual interest expense for the 2026 Convertible Notes beginning January 1, 2022 is based on an effective interest rate of 4.9% as compared to 15.1% for the three months ended March 31, 2021.

Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. This ASU removes certain exceptions to the general principles in ASC 740, Income Taxes (“ASC 740”) and also simplifies portions of ASC 740 by clarifying and amending existing guidance. It is effective for interim and annual reporting periods beginning after December 15, 2020. The Company adopted this ASU on January 1, 2021, and it did not have a material impact on the Company's consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(3) Transactions

(a)

Conveyance of Overriding Royalty Interest

On June 15, 2020, the Company announced the consummation of a transaction with an affiliate of Sixth Street Partners, LLC (“Sixth Street”) relating to certain overriding royalty interests across the Company’s existing asset base (the “ORRIs”). In connection with the transaction, the Company contributed the ORRIs to Martica and Sixth Street contributed $300 million in cash (subject to customary adjustments) and agreed to contribute up to an additional $102 million in cash if certain production thresholds attributable to the ORRIs are achieved in the third quarter of 2020 and first quarter of 2021. All cash contributed by Sixth Street at the initial closing was distributed to the Company. The Company met the applicable production thresholds related to the third quarter of 2020 and the first quarter of 2021 as of September 30, 2020 and March 31, 2021, respectively. The Company received a $51 million cash distribution during each of the fourth quarter of 2020 and the second quarter of 2021.

(b)

Drilling Partnership

On February 17, 2021, Antero Resources announced the formation of a drilling partnership with QL Capital Partners (“QL”), an affiliate of Quantum Energy Partners, for the Company’s 2021 through 2024 drilling program. Under the terms of the arrangement, each year in which QL participates represents an annual tranche, and QL will be conveyed a working interest in any wells spud by Antero Resources during such tranche year. For 2021 and 2022, Antero Resources and QL agreed to the estimated internal rate of return (“IRR”) of the Company’s capital budget for each annual tranche, and QL agreed to participate in the 2021 and 2022 tranches. For each subsequent year through 2024, Antero Resources will propose a capital budget and estimated IRR for all wells to be spud during such year and, subject to the mutual agreement of the parties that the estimated IRR for the year exceeds a specified return, QL will be obligated to participate in such tranche. Antero Resources develops and manages the drilling program associated with each tranche, including the selection of wells. Additionally, for each annual tranche in which QL participates, Antero Resources and QL will enter into assignments, bills of sale and conveyances pursuant to which QL will be conveyed a proportionate working interest percentage in each well spud in that year, which conveyances will not be subject to any reversion.

Under the terms of the arrangement, QL funded 20% of development capital for wells spud in 2021, is expected to fund 15% in 2022 and between 15% and 20% of development capital spending for wells spud on an annual basis in 2023 and 2024, which funding amounts represent QL’s proportionate working interest in such wells. Additionally, Antero Resources may receive a carry in the form of a one-time payment from QL for each annual tranche if the IRR for such tranche exceeds certain specified returns, which will be determined no earlier than October 31 and no later than December 1 following the end of each tranche year. All of the wells spud during each calendar year period will be a separate annual tranche. Capital costs in excess of, and cost savings below, a specified percentage of budgeted amounts for each annual tranche will be for Antero Resources’ account.

Subject to the preceding sentence, for any wells included in a tranche, QL is obligated and responsible for its working interest share of costs and liabilities, and is entitled to its working interest share of revenues, associated with such wells for the life of such wells. If Antero Resources presents a capital budget for an annual tranche with an estimated IRR equal to or exceeding a specified return that QL in good faith believes is less than such specified return and QL elects not to participate, Antero Resources will not be obligated to offer QL the opportunity to participate in subsequent annual tranches.

The Company has accounted for the drilling partnership as a conveyance under ASC 932 and such conveyances are recorded in the unaudited condensed consolidated financial statements as QL obtains its proportionate working interest in each well. No gain or loss was recognized for the interests conveyed during the three months ended March 31, 2021 and 2022.

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ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(4) Revenue

(a)

Disaggregation of Revenue

The table set forth below presents revenue disaggregated by type and reportable segment to which it relates (in thousands). See Note 16—Reportable Segments to the unaudited condensed financial statements for more information on reportable segments.

Three Months Ended March 31,

   

2021

   

2022

   

Reportable Segment

Revenues from contracts with customers:

Natural gas sales

$

720,369

995,792

Exploration and production

Natural gas liquids sales (ethane)

36,110

67,063

Exploration and production

Natural gas liquids sales (C3+ NGLs)

404,209

593,242

Exploration and production

Oil sales

44,686

63,294

Exploration and production

Marketing

164,790

69,038

Marketing

Total revenue from contracts with customers

1,370,164

1,788,429

Loss from derivatives, deferred revenue and other sources, net

(165,966)

(1,001,589)

Total revenue

$

1,204,198

786,840

(b)

Transaction Price Allocated to Remaining Performance Obligations

For the Company’s product sales that have a contract term greater than one year, the Company utilized the practical expedient in ASC 606, Revenue from Contracts with Customers (“ASC 606”), which does not require the disclosure of the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under the Company’s 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 the Company’s product sales that have a contract term of one year or less, the Company utilized the practical expedient in ASC 606, which does not require the disclosure of 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.

(c) Contract Balances

Under the Company’s sales contracts, the Company invoices customers after its performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s contracts do not give rise to contract assets or liabilities. As of December 31, 2021 and March 31, 2022, the Company’s receivables from contracts with customers were $591 million and $661 million, respectively.

(5) Equity Method Investment

(a)

Summary of Equity Method Investment

As of March 31, 2022, Antero owned approximately 29.1% of Antero Midstream Corporation’s (“Antero Midstream”) common stock, which is reflected in Antero’s unaudited condensed consolidated financial statements using the equity method of accounting.

The following table sets forth a reconciliation of Antero’s investment in unconsolidated affiliate (in thousands):

Balance as of December 31, 2021 (1)

$

232,399

Equity in earnings of unconsolidated affiliate

25,178

Dividends from unconsolidated affiliate

(31,285)

Elimination of intercompany profit

8,098

Balance as of March 31, 2022 (1)

$

234,390

(1)The fair value of the Company’s investment in Antero Midstream as of December 31, 2021 and March 31, 2022 was $1.3 billion and $1.5 billion, respectively, based on the quoted market share price of Antero Midstream.

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ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(b)

Summarized Financial Information of Antero Midstream

The tables set forth below present summarized financial information of Antero Midstream (in thousands):

Balance Sheet

(Unaudited)

December 31,

March 31,

   

2021

   

2022

Current assets

$

83,804

80,290

Noncurrent assets

5,460,197

5,500,304

Total assets

$

5,544,001

5,580,594

Current liabilities

$

114,009

139,129

Noncurrent liabilities

3,143,294

3,181,511

Stockholders' equity

2,286,698

2,259,954

Total liabilities and stockholders' equity

$

5,544,001

5,580,594

Statement of Operations

Three Months Ended March 31,

   

2021

   

2022

Revenues

$

224,121

218,491

Operating expenses

90,534

89,337

Income from operations

133,587

129,154

Net income

$

83,441

80,040

(6) Accrued Liabilities

Accrued liabilities consisted of the following items (in thousands):

(Unaudited)

December 31,

March 31,

    

2021

    

2022

Capital expenditures

$

46,983

 

34,576

Gathering, compression, processing, and transportation expenses

164,900

160,707

Marketing expenses

50,589

35,054

Interest expense, net

 

65,093

 

21,284

Accrued production and ad valorem taxes

44,298

26,882

Derivative settlements payable

35,202

28,743

Accrued general and administrative expense

27,740

17,732

Other

 

22,439

 

16,714

Total accrued liabilities

$

457,244

 

341,692

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ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(7) Long-Term Debt

Long-term debt consisted of the following items (in thousands):

(Unaudited)

December 31,

March 31,

   

2021

    

2022

Credit Facility (a)

$

387,700

5.00% senior notes due 2025 (d)

584,635

8.375% senior notes due 2026 (e)

325,000

325,000

7.625% senior notes due 2029 (f)

584,000

584,000

5.375% senior notes due 2030 (g)

600,000

600,000

4.25% convertible senior notes due 2026 (h)

81,570

81,570

Total principal

2,175,205

1,978,270

Unamortized discount, net

(27,772)

Unamortized debt issuance costs

(21,989)

(18,326)

Long-term debt

$

2,125,444

1,959,944

(a)Senior Secured Revolving Credit Facility

Antero Resources has a senior secured revolving credit facility with a consortium of bank lenders. On October 26, 2021, Antero Resources entered into an amended and restated senior secured revolving credit facility (the “Credit Facility”). As of December 31, 2021 and March 31, 2022, the Credit Facility had a borrowing base of $3.5 billion and lender commitments of $1.5 billion. The borrowing base was re-affirmed in the semi-annual redetermination in April 2022. The maturity date of the Credit Facility is the earlier of (i) October 26, 2026 and (ii) the date that is 180 days prior to the earliest stated redemption date of any series of the Company’s then outstanding senior notes. As of March 31, 2022, the Credit Facility had an available borrowing capacity of $581 million.

The Credit Facility contains requirements with respect to leverage and current ratios, and certain covenants, including restrictions on our ability to incur debt and limitations on our ability to pay dividends unless certain customary conditions are met, in each case, subject to customary carve-outs and exceptions. Antero Resources was in compliance with all of the financial covenants under the Credit Facility as of December 31, 2021 and March 31, 2022.

The senior secured revolving credit facility agreement in effect prior to October 26, 2021 provided for borrowing under either an Alternate Base Rate or as a Eurodollar Loan (as each term is defined in the agreement), and the Credit Facility provides for borrowing at either an Adjusted Term Secured Overnight Financing Rate (“SOFR”), an Adjusted Daily Simple SOFR or an Alternate Base Rate (each as defined in the Credit Facility). The Credit Facility provides for interest only payments until maturity at which time all outstanding borrowings are due. Interest was payable at a variable rate based on LIBOR or the Alternative Base Rate (as defined in the agreement), determined by election at the time of borrowing, plus an applicable margin rate under the senior secured revolving credit facility agreement in effect prior to October 26, 2021. Interest is payable at a variable rate based on SOFR or the Alternate Base Rate, determined by election at the time of borrowing, plus an applicable margin rate under the Credit Facility. Interest at the time of borrowing is determined with reference to the Antero Resources’ then-current leverage ratio subject to certain exceptions. Commitment fees on the unused portion of the Credit Facility are due quarterly at rates ranging from