UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 10-Q ...

[Pages:92]Table of Contents

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 June 30, 2019 OR

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

For the transition period from

to

Commission file number: 001-36120

ANTERO RESOURCES CORPORATION

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)

80-0162034 (IRS Employer Identification No.)

1615 Wynkoop Street, Denver, Colorado (Address of principal executive offices)

(303) 357-7310 (Registrant's telephone number, including area code)

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

80202 (Zip Code)

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 Emerging Growth Company

Smaller Reporting 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 309,221,992 shares of common stock outstanding as of July 26, 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

47

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

68

Item 4.

Controls and Procedures

70

PART II--OTHER INFORMATION

70

Item 1.

Legal Proceedings

70

Item 1A.

Risk Factors

70

Item 2.

Unregistered Sales of Equity Securities

71

Item 6.

Exhibits

71

SIGNATURES

72

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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 based on management's current 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; 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; uncertainty regarding our future operating results; and plans, objectives, expectations, and intentions. 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

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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 June 30, 2019

(Unaudited) (In thousands, except per share amounts)

Current assets: Accounts receivable Accrued revenue Derivative instruments Other current assets Total current assets

Property and equipment: Oil and gas properties, at cost (successful efforts method): Unproved properties Proved properties Water handling and treatment systems Gathering systems and facilities Other property and equipment

Less accumulated depletion, depreciation, and amortization Property and equipment, net

Operating leases right-of-use assets Derivative instruments Investments in unconsolidated affiliates Other assets

Total assets

Assets

December 31, 2018

$

51,073

474,827

245,263

35,450

806,613

1,767,600

12,705,672

1,013,818

2,470,708

65,842

18,023,640

(4,153,725)

13,869,915

--

362,169

433,642

47,125

$

15,519,464

Current liabilities:

Liabilities and Equity

Accounts payable

Accounts payable, related parties

Accrued liabilities

Revenue distributions payable Derivative instruments

Short-term lease liabilities Other current liabilities

Total current liabilities

Long-term liabilities:

Long-term debt

Deferred income tax liability Long-term lease liabilities

Other liabilities

Total liabilities

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 309,123 shares issued and

outstanding at December 31, 2018 and June 30, 2019, respectively

Additional paid-in capital

Accumulated earnings

Total stockholders' equity Noncontrolling interests in consolidated subsidiary

Total equity

Total liabilities and equity

$

66,289

--

465,070

310,827

532

2,459

8,363

853,540

5,461,688 650,788 2,873 63,098

7,031,987

--

3,086

6,485,174

1,177,548

7,665,808

821,669

8,487,477

$

15,519,464

See accompanying notes to the unaudited condensed consolidated financial statements.

June 30, 2019

49,994 308,761 346,894

7,400 713,049

1,585,355 13,357,733

-- 17,825 69,676 15,030,589 (4,115,187) 10,915,402 3,330,795 369,548 1,967,203 34,883 17,330,880

44,758 98,570 358,680 301,032

274 413,691

4,102 1,221,107

3,602,379 1,188,975 2,920,754

57,965 8,991,180

--

3,091 6,138,130 2,198,479 8,339,700

-- 8,339,700 17,330,880

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ANTERO RESOURCES CORPORATION Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended June 30, 2018 and 2019 (Unaudited)

(In thousands, except per share amounts)

Revenue and other: Natural gas sales Natural gas liquids sales Oil sales Commodity derivative fair value gains Gathering, compression, water handling and treatment Marketing Marketing derivative fair value losses Other income

Total revenue

Operating expenses: Lease operating Gathering, compression, processing, and transportation Production and ad valorem taxes Marketing Exploration Impairment of oil and gas properties Impairment of gathering systems and facilities Depletion, depreciation, and amortization Loss on sale of assets Accretion of asset retirement obligations General and administrative (including equity-based compensation expense of $19,071 and $6,549 in 2018 and 2019, respectively) Contract termination and rig stacking

Total operating expenses

Operating income (loss)

Other income (expenses): Equity in earnings of unconsolidated affiliates Interest expense, net

Total other expenses

Income (loss) before income taxes Provision for income tax (expense) benefit

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

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

Three Months Ended June 30,

2018

2019

$

473,540

255,985

38,873

55,336

5,518

160,202

(110)

--

989,344

553,372 303,963 49,062 328,427

-- 63,080

-- 1,760

1,299,664

30,164 307,786

25,891 213,420

1,471 134,437

8,501 238,050

-- 700

40,857 566,834 30,968 137,539

314 130,999

-- 242,302

951 918

61,687 --

1,022,107 (32,763)

42,382 5,604

1,199,668 99,996

9,264

(69,349)

(60,085)

(92,848)

25,573

(67,275)

69,110

$

(136,385)

13,585 (54,164)

(40,579)

59,417 (17,249)

42,168 --

42,168

Earnings (loss) per common share--basic

$

(0.43)

0.14

Earnings (loss) per common share--assuming dilution

$

(0.43)

0.14

Weighted average number of shares outstanding: Basic Diluted

316,992 316,992

309,062 309,137

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)

Six Months Ended June 30, 2018 and 2019 (Unaudited)

(In thousands, except per share amounts)

Revenue and other:

Natural gas sales

$

Natural gas liquids sales

Oil sales

Commodity derivative fair value gains

Gathering, compression, water handling and treatment

Marketing

Marketing derivative fair value gains

Other income

Total revenue and other

Operating expenses:

Lease operating

Gathering, compression, processing, and transportation

Production and ad valorem taxes

Marketing

Exploration

Impairment of oil and gas properties

Impairment of gathering systems and facilities

Depletion, depreciation, and amortization

Loss on sale of assets

Accretion of asset retirement obligations

General and administrative (including equity-based compensation expense of $40,227 and $15,452 in 2018 and 2019,

respectively)

Contract termination and rig stacking

Total operating expenses

Operating income

Other income (expenses):

Equity in earnings of unconsolidated affiliates

Interest expense, net

Gain on deconsolidation of Antero Midstream Partners LP

Total other income (expenses)

Income (loss) before income taxes

Provision for income tax (expense) benefit

Net income and comprehensive income including noncontrolling interests

Net income and comprehensive income attributable to noncontrolling interests

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

$

Six Months Ended June 30,

2018

2019

971,203 490,155

69,146 77,773 10,453 304,591 94,124

--

2,017,445

1,210,638 617,648 97,114 251,059 4,479 154,266 -- 1,867

2,337,071

56,886 599,724

51,714 409,159

3,356 184,973

8,501 466,294

-- 1,390

82,589 991,363 66,646 300,623

440 212,243

6,982 482,503

951 1,894

121,717 --

1,903,714 113,731

110,584 13,964 2,270,782 66,289

17,126 (133,775)

--

(116,649)

(2,918) 16,453

13,535 135,087

(121,552)

27,666 (126,114) 1,406,042

1,307,594

1,373,883 (305,959)

1,067,924 46,993

1,020,931

Earnings (loss) per common share--basic

Earnings (loss) per common share--assuming dilution

Weighted average number of shares outstanding: Basic Diluted

$

(0.38)

$

(0.38)

316,733 316,733

3.31 3.30

308,879 309,082

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ANTERO RESOURCES CORPORATION

Condensed Consolidated Statements of Equity

Three and Six Months Ended June 30, 2018

(Unaudited)

(In thousands)

Additional

Common Stock

paid-

Shares

Amount

in capital

Balances, December 31, 2017

316,379 $ 3,164

6,570,952

Issuance of common stock upon vesting of equity-based compensation

awards, net of shares withheld for income taxes

145

1

(1,067)

Issuance of common units in Antero Midstream Partners LP upon vesting of

equity-based compensation awards, net of units withheld for income taxes

--

--

(50)

Equity-based compensation

--

--

18,802

Net income and comprehensive income

--

--

--

Effects of changes in ownership interests in consolidated subsidiaries

--

--

(555)

Distributions to noncontrolling interests

--

--

--

Other

--

--

--

Balances, March 31, 2018

316,524 $ 3,165

6,588,082

Issuance of common stock upon vesting of equity-based compensation

awards, net of shares withheld for income taxes

528

6

(5,589)

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)

Equity-based compensation

--

--

16,930

Net income (loss) and comprehensive income (loss)

--

--

--

Effects of changes in ownership interests in consolidated subsidiaries

--

--

2,121

Distributions to noncontrolling interests

--

--

--

Other

--

--

--

Balances, June 30, 2018

317,052 $ 3,171

6,597,537

Accumulated earnings 1,575,065

--

-- -- 14,833 -- -- -- 1,589,898

--

-- -- (136,385) -- -- -- 1,453,513

Noncontrolling interests 726,955

--

32 2,354 65,977

555 (55,915)

(5) 739,953

--

2,707 2,141 69,110 (2,121) (63,108)

8 748,690

See accompanying notes to the unaudited condensed consolidated financial statements.

Total equity 8,876,136

(1,066)

(18) 21,156 80,810

-- (55,915)

(5) 8,921,098

(5,583)

(1,300) 19,071 (67,275)

-- (63,108)

8 8,802,911

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