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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, 2023

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 300,135,248 shares of common stock outstanding as of April 21, 2023.

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TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

    

1

PART I—FINANCIAL INFORMATION

3

Item 1.

    

Financial Statements (Unaudited)

3

Item 2.

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

31

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

41

Item 4.

Controls and Procedures

43

PART II—OTHER INFORMATION

44

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 2.

Unregistered Sales of Equity Securities

44

Item 4.

Mine Safety Disclosures

44

Item 6.

Exhibits

45

SIGNATURES

46

Table of Contents

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 acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;
our ability to execute our return of capital program;
natural gas, natural gas liquids (“NGLs”) and oil prices;
impacts of geopolitical events, including the Russia-Ukraine conflict, 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;
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 Corporation (“Antero Midstream”);
our ability to achieve our greenhouse gas reduction targets and the costs associated therewith;
general economic conditions;
credit markets;

1

Table of Contents

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, supply chain or other disruption, availability and cost 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 geopolitical and 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, 2022 (the “2022 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.

2

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PART I—FINANCIAL INFORMATION

ANTERO RESOURCES CORPORATION

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

(Unaudited)

December 31,

March 31,

  

2022

  

2023

Assets

Current assets:

Accounts receivable

$

35,488

30,207

Accrued revenue

707,685

379,337

Derivative instruments

1,900

6,242

Prepaid expenses and other current assets

42,452

21,856

Total current assets

787,525

437,642

Property and equipment:

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

Unproved properties

997,715

1,013,780

Proved properties

13,234,777

13,450,257

Gathering systems and facilities

5,802

5,882

Other property and equipment

83,909

87,091

14,322,203

14,557,010

Less accumulated depletion, depreciation and amortization

(4,683,399)

(4,771,093)

Property and equipment, net

9,638,804

9,785,917

Operating leases right-of-use assets

3,444,331

3,401,994

Derivative instruments

9,844

9,825

Investment in unconsolidated affiliate

220,429

219,515

Other assets

17,106

16,253

Total assets

$

14,118,039

13,871,146

Liabilities and Equity

Current liabilities:

  

Accounts payable

$

77,543

83,685

Accounts payable, related parties

80,708

99,784

Accrued liabilities

461,788

318,084

Revenue distributions payable

468,210

381,880

Derivative instruments

97,765

28,716

Short-term lease liabilities

556,636

553,532

Deferred revenue, VPP

30,552

29,757

Other current liabilities

1,707

2,103

Total current liabilities

1,774,909

1,497,541

Long-term liabilities:

Long-term debt

1,183,476

1,312,046

Deferred income tax liability, net

759,861

822,010

Derivative instruments

345,280

75,854

Long-term lease liabilities

2,889,854

2,851,571

Deferred revenue, VPP

87,813

81,075

Other liabilities

59,692

60,657

Total liabilities

7,100,885

6,700,754

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; 297,393 shares issued and 297,359 outstanding as of December 31, 2022, and 299,321 shares issued and outstanding as of March 31, 2023

2,974

2,993

Additional paid-in capital

5,838,848

5,806,031

Retained earnings

913,896

1,102,340

Treasury stock, at cost; 34 shares and zero shares as of December 31, 2022 and March 31, 2023, respectively

(1,160)

Total stockholders' equity

6,754,558

6,911,364

Noncontrolling interests

262,596

259,028

Total equity

7,017,154

7,170,392

Total liabilities and equity

$

14,118,039

13,871,146

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)

(In thousands, except per share amounts)

Three Months Ended March 31,

  

2022

  

2023

Revenue and other:

Natural gas sales

$

995,792

668,315

Natural gas liquids sales

660,305

495,435

Oil sales

63,294

51,811

Commodity derivative fair value gains (losses)

(1,011,380)

126,192

Marketing

69,038

58,529

Amortization of deferred revenue, VPP

9,272

7,533

Other revenue and income

519

533

Total revenue

786,840

1,408,348

Operating expenses:

Lease operating

17,780

29,321

Gathering, compression, processing and transportation

590,278

645,172

Production and ad valorem taxes

52,808

49,276

Marketing

98,896

81,361

Exploration and mine expenses

898

763

General and administrative (including equity-based compensation expense of $4,649 and $13,018 in 2022 and 2023, respectively)

35,691

57,261

Depletion, depreciation and amortization

168,388

167,582

Impairment of property and equipment

22,462

15,560

Accretion of asset retirement obligations

2,444

878

Contract termination

8

29,550

Loss (gain) on sale of assets

1,786

(91)

Other operating expense

225

Total operating expenses

991,439

1,076,858

Operating income (loss)

(204,599)

331,490

Other income (expense):

Interest expense, net

(37,713)

(25,700)

Equity in earnings of unconsolidated affiliate

25,178

17,681

Loss on early extinguishment of debt

(10,654)

Loss on convertible note inducement

(86)

Total other expense

(23,189)

(8,105)

Income (loss) before income taxes

(227,788)

323,385

Income tax benefit (expense)

53,092

(62,183)

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

(174,696)

261,202

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

(18,277)

47,771

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

$

(156,419)

213,431

Income (loss) per share—basic

$

(0.50)

0.72

Income (loss) per share—diluted

$

(0.50)

0.69

Weighted average number of shares outstanding:

Basic

314,081

296,763

Diluted

314,081

311,846

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

Retained Earnings

Common Stock

Paid-in

(Accumulated

Treasury Stock

Noncontrolling

Total

  

Shares

  

Amount

  

Capital

  

Deficit)

Shares

  

Amount

  

Interests

  

Equity

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)

Repurchases and retirements of common stock

(3,690)

(37)

(74,745)

(25,263)

(100,045)

Equity-based compensation

4,649

4,649

Distributions to noncontrolling interests

(35,757)

(35,757)

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

Balances, December 31, 2022

297,393

$

2,974

5,838,848

913,896

(34)

$

(1,160)

262,596

7,017,154

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

514

5

(11,464)

(11,459)

Conversion of 2026 Convertible Notes

4,030

40

17,132

17,172

Repurchases and retirements of common stock

(2,616)

(26)

(51,503)

(24,987)

34

1,160

(75,356)

Equity-based compensation

13,018

13,018

Distributions to noncontrolling interests

(51,339)

(51,339)

Net income and comprehensive income

213,431

47,771

261,202

Balances, March 31, 2023

299,321

$

2,993

5,806,031

1,102,340

$

259,028

7,170,392

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,

    

2022

  

2023

 

Cash flows provided by (used in) operating activities:

Net income (loss) including noncontrolling interests

$

(174,696)

261,202

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

Depletion, depreciation, amortization and accretion

170,832

168,460

Impairments

22,462

15,560

Commodity derivative fair value losses (gains)

1,011,380

(126,192)

Losses on settled commodity derivatives

(285,386)

(14,268)

Payments for derivative monetizations

(202,339)

Deferred income tax expense (benefit)

(57,383)

62,149

Equity-based compensation expense

4,649

13,018

Equity in earnings of unconsolidated affiliate

(25,178)

(17,681)

Dividends of earnings from unconsolidated affiliate

31,285

31,285

Amortization of deferred revenue

(9,272)

(7,533)

Amortization of debt issuance costs, debt discount and debt premium

1,451

871

Settlement of asset retirement obligations

(886)

(308)

Loss (gain) on sale of assets

1,786

(91)

Loss on early extinguishment of debt

10,654

Loss on convertible note inducement

86

Changes in current assets and liabilities:

Accounts receivable

33,244

5,282

Accrued revenue

(69,442)

328,349

Other current assets

(2,952)

20,596

Accounts payable including related parties

37,664

34,604

Accrued liabilities

(94,456)

(143,346)

Revenue distributions payable

(36,526)

(86,331)

Other current liabilities

(3,557)

529

Net cash provided by operating activities

565,673

343,902

Cash flows provided by (used in) investing activities:

Additions to unproved properties

(23,789)

(73,527)

Drilling and completion costs

(184,557)

(273,154)

Additions to other property and equipment

(7,530)

(4,631)

Proceeds from asset sales

195

91

Change in other assets

564

417

Net cash used in investing activities

(215,117)

(350,804)

Cash flows provided by (used in) financing activities:

Repurchases of common stock

(100,045)

(75,356)

Repayment of senior notes

(591,943)

Borrowings on bank credit facilities, net

387,700

145,300

Convertible note inducement

(86)

Distributions to noncontrolling interests in Martica Holdings LLC

(35,757)

(51,339)

Employee tax withholding for settlement of equity compensation awards

(10,377)

(11,459)

Other

(134)

(158)

Net cash provided by (used in) financing activities

(350,556)

6,902

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

$

80,454

43,239

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

$

(14,449)

(9,918)

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, 2022 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, 2022 consolidated financial statements were included in Antero Resources’ 2022 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, 2022 and March 31, 2023, results of operations and cash flows for the three months ended March 31, 2022 and 2023. 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, 2023 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.

(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, 2022, the book overdrafts included within accounts payable and revenue distributions payable were $28 million and $43 million, respectively. As of March 31, 2023, the book overdrafts included within accounts payable and revenue distributions payable were $46 million and $31 million, respectively.

(d)

Income (Loss) Per Common Share

Income (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. Income (loss) per common share—diluted for each period is computed after giving consideration to the potential dilution from (i) outstanding equity awards using the treasury stock method and (ii) shares of common stock issuable upon conversion of the 2026 Convertible Notes (as defined below in Note 7—Long-Term Debt) using the if-converted method. The Company includes restricted stock unit (“RSU”)

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ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

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 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 effects of all equity awards and the 2026 Convertible Notes are anti-dilutive.

The following is a reconciliation of the Company’s income (loss) attributable to common stockholders for basic and diluted income (loss) per share (in thousands):

Three Months Ended March 31,

  

2022

  

2023

Net income (loss) attributable to Antero Resources Corporation—common shareholders

$

(156,419)

213,431

Add: Interest expense for 2026 Convertible Notes

616

Less: Tax-effect of interest expense for 2026 Convertible Notes

(132)

Net income (loss) attributable to Antero Resources Corporation—common shareholders and assumed conversions

$

(156,419)

213,915

Income (loss) per share—basic

$

(0.50)

0.72

Income (loss) per share—diluted

$

(0.50)

0.69

Weighted average common shares outstanding—basic

314,081

296,763

Weighted average common shares outstanding—diluted

314,081

311,846

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,

   

2022

   

2023

Basic weighted average number of shares outstanding

314,081

296,763

Add: Dilutive effect of RSUs

2,150

Add: Dilutive effect of PSUs

1,060

Add: Dilutive effect of 2026 Convertible Notes

11,873

Diluted weighted average number of shares outstanding

314,081

311,846

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

RSUs

4,878

969

PSUs

3,443

414

Stock options

351

324

2026 Convertible Notes

18,778

(1)The potential dilutive effects of these awards were excluded from the computation of income (loss) per common share—diluted 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 require 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,

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ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

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, 2023 is based on an effective interest rate of 4.9% as compared to 15.1% prior to the adoption of this new standard.

(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”).

The ORRIs include an overriding royalty interest of 1.25% in all of the Company’s operated proved developed properties in West Virginia and Ohio, subject to certain excluded wells (the “Initial PDP Override”) as of April 1, 2020, and an overriding royalty interest of 3.75% in all of the Company’s undeveloped properties in West Virginia and Ohio (the “Development Override”) as of April 1, 2020. Wells turned to sales after April 1, 2020 and prior to the later of (a) the date on which the Company turns to sales 2.2 million lateral feet (net to the Company’s interest) of horizontal wells burdened by the Development Override and (b) the earlier of (i) April 1, 2023 and (ii) the date on which the Company turns to sales 3.82 million lateral feet (net to the Company’s interest) of horizontal wells burdened by the Development Override, are subject to the Development Override. As of April 1, 2023, the Company had turned to sales over 2.2 million lateral feet and less than 3.82 million lateral feet. As a result, wells turned to sales on or after April 1, 2023 will not be subject to the ORRIs.

The ORRIs also include an additional overriding royalty interest of 2.00% of the Company’s working interest in the properties underlying the Initial PDP Override (the “Incremental Override”). The Incremental Override (or a portion thereof, as applicable) may be re-conveyed to the Company (at the Company’s election) if certain production targets attributable to the ORRIs are achieved through March 31, 2023. Any portion of the Incremental Override that may not be re-conveyed to the Company based on the Company failing to achieve such production volumes through March 31, 2023 will remain with Martica.

Prior to Sixth Street achieving an internal rate of return of 13% and 1.5x cash-on-cash return (the “Hurdle”), Sixth Street will receive all distributions in respect of the Initial PDP Override and the Development Override, and the Company will receive all distributions in respect of the Incremental Override, unless certain production targets are not achieved, in which case Sixth Street will receive some or all of the distributions in respect of the Incremental Override. Following Sixth Street achieving the Hurdle, the Company will receive 85% of the distributions in respect of the ORRIs to which Sixth Street was entitled immediately prior to the Hurdle being achieved.

(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, 2022 and 2023, 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, 2022, and 2023 tranches. For 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% and 15% of development capital for wells spud in 2021 and 2022, respectively, and will fund development capital of (i) 15% for wells spud in 2023 and (ii) if they participate in 2024,

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ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

between 15% and 20% for wells spud in 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. During the year ended December 31, 2022, the Company received a carry of $29 million attributable to the 2021 tranche. 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.

The Company has accounted for the drilling partnership as a conveyance under ASC 932, Extractive Activities—Oil and Gas, 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, 2022 and 2023.

(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,

   

2022

   

2023

   

Reportable Segment

Revenues from contracts with customers:

Natural gas sales

$

995,792

668,315

Exploration and production

Natural gas liquids sales (ethane)

67,063

72,050

Exploration and production

Natural gas liquids sales (C3+ NGLs)

593,242

423,385

Exploration and production

Oil sales

63,294

51,811

Exploration and production

Marketing

69,038

58,529

Marketing

Other revenue

175

Exploration and production

Total revenue from contracts with customers

1,788,429

1,274,265

Income (loss) from derivatives, deferred revenue and other sources, net

(1,001,589)

134,083

Total revenue

$

786,840

1,408,348

(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, 2022 and March 31, 2023, the Company’s receivables from contracts with customers were $708 million and $379 million, respectively.

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ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(5) Equity Method Investment

(a)

Summary of Equity Method Investment

As of March 31, 2023, Antero owned 29.0% of Antero Midstream’s 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, 2022 (1)

$

220,429

Equity in earnings of unconsolidated affiliate

17,681

Dividends from unconsolidated affiliate

(31,285)

Elimination of intercompany profit

12,690

Balance as of March 31, 2023 (1)

$

219,515

(1)The fair value of the Company’s investment in Antero Midstream as of December 31, 2022 and March 31, 2023 was $1.5 billion based on the quoted market share price of Antero Midstream.

(6) Accrued Liabilities

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

(Unaudited)

December 31,

March 31,

    

2022

    

2023

Capital expenditures

$

57,361

 

44,213

Gathering, compression, processing and transportation expenses

162,783

159,375

Marketing expenses

61,118

27,073

Interest expense, net

 

31,892

 

13,582

Production and ad valorem taxes

32,536

36,861

General and administrative expense

32,477

20,260

Derivative settlements payable

53,732

411

Other

 

29,889

 

16,309

Total accrued liabilities

$

461,788

 

318,084

(7) Long-Term Debt

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

(Unaudited)

December 31,

March 31,

   

2022

    

2023

Credit Facility (a)

$

34,800

180,100

8.375% senior notes due 2026 (c)

96,870

96,870

7.625% senior notes due 2029 (d)

407,115

407,115

5.375% senior notes due 2030 (e)

600,000

600,000

4.25% convertible senior notes due 2026 (f)

56,932

39,426

Total principal

1,195,717

1,323,511

Unamortized debt issuance costs

(12,241)

(11,465)

Long-term debt

$

1,183,476

1,312,046

(a)Senior Secured Revolving Credit Facility

Antero Resources has a senior secured revolving credit facility (the “Credit Facility”) with a consortium of banks. Borrowings under the Credit Facility are subject to borrowing base limitations based on the collateral value of Antero Resources’ assets and are subject to regular semi-annual redeterminations. As of December 31, 2022 and March 31, 2023, the Credit Facility had a borrowing base of $3.5 billion and lender commitments of $1.5 billion. The borrowing base was re-

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ANTERO RESOURCES CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

affirmed in the semi-annual redetermination in April 2023. The maturity date of the Credit Facility is the earlier of (i) October 26, 2026 and (ii) the date that is