Antero Resources Corporation (AR) Q4 2022 Earnings Call Transcript

Antero Resources Corporation (NYSE:AR) Q4 2022 Results Conference Call February 16, 2023 11:00 AM ET

Company Participants

Brendan Krueger - Vice President, Finance

Paul Rady - Chairman, Chief Executive Officer & President

David Cannelongo - Senior Vice President, Liquids Marketing & Transportation

Michael Kennedy - Chief Financial Officer

Conference Call Participants

Neal Dingmann - Truist Securities

Subhash Chandra - The Benchmark Company

Umang Choudhary - Goldman Sachs

David Deckelbaum - Cowen and Company

Operator

Greetings, and invited to nan Antero Resources Fourth Quarter 2022 Earnings Call. At this clip each participants are listen-only mode. [Operator Instructions]. As a reminder, this convention is being recorded.

I would now for illustration to move nan convention complete to your host, Brendan Krueger, Vice President of Finance for Antero Resources. Thank you. You whitethorn begin.

Brendan Krueger

Good morning. Thank you for joining america for Antero's 4th fourth 2022 investor convention call. We'll walk a fewer minutes going done nan financial and operating highlights, and past we'll unfastened it up for Q&A.

I would besides for illustration to nonstop you to nan homepage of our website astatine www.anteroresources.com, wherever we person provided a abstracted net telephone position that will beryllium reviewed during today's call.

Today's telephone whitethorn incorporate definite non-GAAP financial measures. Please mention to our net property merchandise for important disclosures regarding specified measures, including reconciliations to nan astir comparable GAAP financial measures.

Joining maine connected nan telephone coming are Paul Rady, Chairman, CEO and President; Michael Kennedy, CFO; Dave Cannelongo, Senior Vice President of Liquids Marketing and Transportation; and Justin Fowler, Senior Vice President of Natural Gas Marketing and Transportation.

I will now move nan telephone complete to Paul.

Paul Rady

Thank you, Brendan. I'd for illustration to commencement by highlighting nan important translator that Antero underwent during 2022. Let's commencement pinch Slide 3, which summarizes nan accordant and repeatable results that we delivered passim nan year.

The apical of nan descent illustrates our continued attraction connected indebtedness reduction. During 2022, we reduced our full indebtedness by astir $1 billion. Since nan opening of our indebtedness simplification programme successful nan 4th fourth of 2019, we person now reduced indebtedness by complete $2.5 billion.

Because of this blimpish attack to indebtedness reduction, we were capable to displacement our superior allocation towards expanding rate returns to our shareholders. As you tin spot connected nan bottommost of nan slide, we purchased complete 25 cardinal shares, representing 1% of nan full shares outstanding.

To grow connected Antero's accordant and repeatable business model, let's talk our onshore and acquisition strategy connected Slide 4 titled Organic Land Acquisitions. Over nan past fewer years, we witnessed an summation successful some nationalist and backstage firm M&A arsenic commodity prices increased.

Meanwhile, Antero remained focused connected our halfway acreage footprint pinch a peculiar accent connected integrated lease acquisitions. As opposed to larger transactions that tin dilute our equity and adhd absolute debt, our strategy has been focused connected organically acquiring acreage wrong our halfway position successful Appalachia.

This has allowed america to dollar costs mean crossed commodity cycles and get acreage adjacent our proven good results. During 2022, Antero's integrated leasing programme added astir 80 drilling locations astatine an mean costs of little than $1 cardinal per location, much than offsetting our attraction superior scheme that assumes an mean of 60 to 65 wells per year.

Now let's move to Slide number 5 to talk Antero's differentiated strategy. The churn astatine nan apical highlights our absolute indebtedness simplification since 2019 compared to our peers. Our disciplined firm strategy of prioritizing indebtedness simplification differentiates Antero versus peers that person accrued their absolute indebtedness levels, chiefly arsenic a consequence of firm M&A.

With our indebtedness first target already achieved, we are good positioned to support a balanced indebtedness simplification and return of superior programme going forward. This is important, particularly successful ray of nan caller fallback successful earthy state prices.

The floor plan successful nan mediate of nan page illustrates nan percent of earthy state sold retired of basin. We waste a 100% of our earthy state extracurricular nan Appalachian Basin, including 75% into nan LNG fairway, wherever we seizure premiums to NYMEX. The mostly of our peers person important vulnerability to section markets that waste and acquisition astatine levels arsenic debased arsenic $1.25 backmost of NYMEX. These markets are peculiarly astatine consequence successful times of expanding retention levels wherever value is nan only system to unit shut-ins.

The floor plan astatine nan bottommost of nan page highlights our diversified merchandise operation pinch astir half of our gross coming from liquids production. The uplift we received from our liquid sales, mixed pinch our premium priced earthy gas, provides amended stableness and predictability successful financial and operating results done nan different commodity cycles.

Now to touch connected nan existent liquids and NGL fundamentals, I will move it complete to our Senior Vice President of Liquids Marketing and Transportation; Dave Cannelongo, for his comments.

David Cannelongo

Thanks, Paul. Despite caller headwinds for liquids prices, wide macroeconomic factors are pointing to value betterment and nan betterment of fundamentals done this year. Main request driver will beryllium China's reopening, which is taking spot faster than primitively expected owed to nan relaxing of their COVID-Zero policy.

In addition, maturation successful PDH capacity points to stronger U.S. exports successful 2023. At nan aforesaid time, nan U.S. proviso forecast revisions loom pinch caller reductions successful earthy state and lipid prices, mounting up a imaginable bullish image exiting this twelvemonth and into 2024.

U.S. propane exports are expected to summation 10% year-over-year to 1.5 cardinal barrels per time successful 2023 shown connected Slide number 6 titled U.S. Propane Exports Rebounding. The further export measurement will beryllium much than met by an further 46 VLGC carriers that will beryllium added this year. This is simply a caller grounds precocious successful VLGC fleet improvement backmost to 2016.

Turning to Slide number 7 titled Global LPG Exports and NGL Production. The chart connected nan near highlights that nan marginal LPG exporter has been nan United States. The inclination is expected to proceed arsenic expanding petrochemical and res/com request will request to beryllium met pinch U.S. exports.

U.S. propane export terminals utilization rates are expected to stay elevated but capable arsenic witnessed already successful Q1 2023 to fulfill nan telephone connected U.S. LPG. Antero's anchor position connected Mariner East will let america to proceed to play an progressive domiciled successful supplying this world LPG excavation arsenic nan largest U.S. shaper exporter.

The floor plan connected nan correct shows that while nan remainder of nan world NGL proviso maturation will beryllium comparatively flat, nan U.S. is expected to summation accumulation year-over-year by 6% successful 2023 and 5% successful 2024. However, proviso maturation forecast could beryllium successful flux, particularly considering nan caller little associated earthy state prices.

Domestic economical factors successful China constituent to expected recoveries successful nan spot and pet-chem markets that should thrust request from suppressed levels seen during nan enactment of their COVID-Zero policies. PDH build-out and expanding utilization are expected to beryllium seen arsenic early arsenic nan extremity of Q1 2023.

Steadily declining LPG refinery yields successful China will besides person buyers progressively looking to imports for their barrels.

Turning to nan adjacent slide. Planned PDH build-out successful China and different cardinal markets is group to adhd astir 700,000 barrels per time of accrued feedstock request exclusively for propane. Notably, nan request ramp will beryllium first seen successful 2023 compared to nan comparatively slow request uptick that was seen successful PDH capacity done 2022 arsenic immoderate of these accommodation started to travel online and others were delayed into this year.

I'll extremity my remarks pinch nan nickname that 2022 had immoderate unexpected headwinds starting successful nan outpouring pinch extended pandemic-related lockdowns, ostentation and its cooling effect connected nan world economical stableness and growth.

We support that semipermanent trends show request for LPG expanding passim nan decade and beyond, while prospects of sustainable proviso maturation look unrealistic, fixed challenges from underinvestment successful hydrocarbons and depleting mediocre U.S. shale inventory.

With that, I will move it complete to Mike.

Michael Kennedy

Thanks, Dave. I'll commencement connected Slide number 9 titled Absolute Debt and Leverage Reduction. Following nan successful indebtedness simplification programme complete nan past respective years, Antero is now successful nan strongest financial position successful institution history, by full indebtedness beneath $1.2 cardinal and leverage down to conscionable 0.4 times.

Assuming today's portion prices, we still expect to make complete $500 cardinal of free rate flow, and our leverage remains comfortably nether 1 clip astatine year-end 2023. This compares to our peers wherever leverage up and down materially arsenic a consequence of higher absolute indebtedness levels.

In alignment pinch our little indebtedness strategy, we continuously look for ways to optimize our business and heighten our margins. During nan first 4th of 2023, we executed an early colony of our 2024 NYMEX state options for astir $200 million.

These hedges were put successful spot respective years agone and covered astir 20% of our 2024 earthy state accumulation astatine $2.77 per annum. In addition, we besides terminated a statement related to an unutilized patient proscription committedness to section Appalachian markets for $24 million. Termination of this statement was completed arsenic a discounted worth to commitments done 2025 and reduces nett trading disbursal by astir $13 cardinal annually.

Provide immoderate further colour connected nan earthy state macro views and our thought process astir nan hedge settlement, let's move to Slide number 10 titled Free Cash Flow Breakeven. This descent provides a look astatine nan earthy state adjacent group and nan required NYMEX Henry Hub value for each of nan peers to execute an unhedged free rate travel breakeven position successful 2023.

In today's Shale 3.0 world, we judge location is nary investor appetite aliases excess superior disposable for companies to run pinch a rate travel deficit. As illustrated connected this page, arsenic a consequence of higher attraction superior costs, constricted liquids gross uplift and widening ground differentials connected earthy gas, we estimate that astir Haynesville companies are not capable to make free rate travel successful today's pricing environment.

Why is this important? With Appalachia pipelines adjacent maximum capacity and Permian-associated state being dictated by lipid prices, nan Haynesville is now nan marginal earthy state producing region. The different notable takeaway from this descent is that Antero's free rate travel breakeven value for earthy state is astatine nan lowest extremity of nan adjacent group.

The drivers down this debased breakeven value are nan important publication of liquids to our gross base, arsenic shown successful nan floor plan connected nan apical near and nan premium earthy state pricing we person arsenic evidenced by nan floor plan connected nan bottommost left.

Further dive into nan macro communicative connected gas, let's move to Slide number 11, titled Expected Decline successful Activity from The Haynesville. The floor plan connected nan apical of nan descent illustrates nan narration betwixt earthy state prices and nan basin's drilling activity.

Since 2011, each clip NYMEX Henry Hub prices fell beneath $3, rig counts and activity successful nan Haynesville noticeably declined. While we person kept nan statement astatine $3 connected this chart, it is adjacent to say, successful today's inflationary environment, nan aged $3 level is apt now person to $3.50 to $4.

The floor plan connected nan bottommost near highlights nan alteration successful rig count each clip earthy state dropped beneath $3. On average, rigs declined 60% aliases 42 rigs done nan past 3 cycles. But nan Haynesville now, arsenic nan marginal supplier of earthy state and activity expected to autumn importantly successful nan months ahead, is important to reappraisal nan diminution floor plan of nan Haynesville.

As displayed connected nan floor plan connected nan little right-hand broadside of this page, nan estimated yearly guidelines diminution rates of nan Haynesville are materially higher than that of Appalachia.

With this being nan first downward value rhythm successful which nan Haynesville is nan marginal supplier, this would propose a much accelerated proviso consequence pursuing an expected diminution successful rigs.

In closing, nan successful execution of Antero's differentiated business strategy positions america to excel crossed galore commodity value cycles. Increasing NGL request done nan reopening of China provides a affirmative backdrop to NGL and propane prices arsenic we move done nan year.

While it is difficult to foretell earthy state prices moving forward, we do expect moderated activity to lead to important volatility successful pricing arsenic earthy state request grows materially successful 2024 and beyond pinch nan 2nd activity of LNG export accommodation coming online.

With a peer-leading equilibrium expanse and merchandise diversification, we are good positioned to present connected our attraction superior scheme while continuing to salary down indebtedness and return superior to shareholders.

With that, I will now move nan telephone complete to nan usability for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first mobility comes from nan statement of Neal Dingmann pinch Truist Securities. Please proceed to your question.

Neal Dingmann

Paul, my first mobility is conscionable really connected D&C activity sensitivity. I'm conscionable wondering, obviously, prices -- commodity prices tin beryllium rather volatile arsenic good arsenic moreover costs to a degree. So, I'm conscionable wondering fixed more, I assume, nan anticipation of some volatility connected nan value and costs side, really fluid would you expect your scheme B?

Michael Kennedy

Well, for 2023, Neil, this is Mike, and beyond, wherever attraction capital, which is simply a three-rig programme and 2 completion crews. And pinch our benignant of unconstrained nature, nan merchandise diversification that we have, nan carrier retired of nan basin and NYMEX hubs throwing our equilibrium sheet. But nan first 2 really allows america to benignant of person nan lowest breakeven from a free rate travel level.

So moreover astatine our attraction superior coming and a debased commodity value connected nan earthy state side, we're generating complete $0.5 cardinal of free rate flow. So, it's very improbable that you would ever scope levels wherever we would beryllium beneath our attraction superior level from a rate travel from operations. So, we conscionable don't spot immoderate existent commodity value script wherever immoderate realistic 1 wherever we would spell beneath our 3 rig and 2 completion unit improvement program.

Neal Dingmann

And past conscionable for you aliases Paul, conscionable I cognize occasionally successful nan past, whitethorn not moreover agelong ago, you'll occasionally spell up and drill a Utica pad aliases two. Could you conscionable talk possibly astir not conscionable possibly nan cadence but specifics on, is that -- will that proceed to beryllium nan lawsuit aliases do you proceed to attraction those 3 rigs benignant of wherever they've been present successful nan past mates of months?

Michael Kennedy

Yes. It's generally, arsenic you know, 90% focused connected Marcellus, though we person astir 1 pad a twelvemonth successful our scheme going guardant successful nan Utica and that conscionable gives nan Marcellus infrastructure a small spot of breathing room and past besides fills our REX capacity successful nan Utica.

Neal Dingmann

Very good. Thanks Mike.

Operator

Our adjacent mobility comes from nan statement of Subash Chandra pinch The Benchmark Company. Please proceed your question.

Subhash Chandra

Good morning. What do you deliberation astir now, I guess, your stock buyback capacity and appetite, obviously, fixed commodity prices, but also, I guess, immoderate of this one-off worldly pinch nan swaptions and possibly a stronger lease spend?

Michael Kennedy

Yes. So correct now, we person 50% dedicated return of capital. That's based connected that complete $0.5 cardinal of free rate flow. The first telephone connected that free rate travel was nan $200 cardinal of nan swaption early termination of nan swaps and past nan $24 cardinal of nan carrier commitment.

So that's $225 cardinal of it. And past we did person in installments installation drawings $35 cardinal astatine year-end, Subash. So that's $260 million. So that's benignant of nan first call. And past nan amounts supra that are really what are location for return connected capital. So, depending connected wherever commodity prices are, it could beryllium astatine 50%, it could beryllium much than 50%. We'll conscionable person to spot really nan free rate travel procreation occurs passim nan year.

Subhash Chandra

Okay. Got it. And connected nan swaption side, I deliberation there's still -- this was an early termination, there's still contracts retired there. Are you looking to perchance -- aliases tin you moreover terminate those?

Michael Kennedy

We don't person immoderate hedges left. That was nan past of nan contracts. You whitethorn beryllium referring to what we person from a VPP aliases nan ORRI of Sixth Street, but those aren't -- though we consolidate them connected our equilibrium sheet, they're really not connected our account, truthful nan VPP purchaser and nan override buyer.

Subhash Chandra

You're correct. I was mistaken it pinch nan VPP. Great. Thank you.

Michael Kennedy

Yes. No problem.

Operator

Our adjacent mobility comes from nan statement of Umang Choudhary pinch Goldman Sachs. Please proceed your question.

Umang Choudhary

Hi. Good greeting and convey you for taking my question’s. First, acknowledgment for sharing your thoughts connected nan macro. I wanted to travel up connected your thoughts astir connected nan propane markets and butane markets. It sounds for illustration you are expecting a beautiful decent rebound successful request this twelvemonth and besides adjacent year? With inventory levels precocious for propane, really are you reasoning astir erstwhile that really translates into a value action? And past I person a follow-up connected nan earthy state arsenic well.

David Cannelongo

Thanks, Umang. What we've seen truthful acold is to spell backmost to our past telephone you've sewage lipid prices down astir $10, but propane down astir $0.02 a gallon from that time. So overall, propane prices are doing rather good successful nan environment, particularly fixed successful December, we were really astatine nan apical of nan five-year scope connected humanities inventories.

As we move done nan first quarter, you've seen very beardown U.S. exports. We expect that to proceed astatine a minimum done nan equilibrium of nan quarter. So, we move backmost down to that five-year range, some connected an absolute level connected a days of proviso level.

When we exemplary retired nan equilibrium of nan year, we spot inventories arsenic we participate nan autumn returning to five-year humanities norms connected an absolute level and evidently little than that connected a days of proviso basis.

So that benignant of, I guess, summarizes our basal position connected why we judge propane pricing will amended comparative to different commodities passim nan year. But again, if you look astatine what's conscionable exporting truthful acold present successful nan first quarter, arbitrage is open, export volumes are high.

The different point that we called retired is nan summation successful VLGC capacity, which has reduced freight levels astir 35% from December to wherever we are present today, and we expect that to proceed into nan summer, which will moreover tighten nan differential betwixt U.S. prices and Mont Belvieu world markets.

Umang Choudhary

All right. That's really helpful. I conjecture to travel up connected nan earthy state macro and much connected nan pricing broadside of nan equation, really are you seeing immoderate of nan hub’s benignant of waste and acquisition pinch nan little activity, which you're expecting successful nan Haynesville? Will you spot a return successful immoderate premium pricing? I mean you took it down to for illustration $0.10 to $0.20 recently. Would you spot a premium look if that plays out?

Michael Kennedy

We could spot that play out. Generally, we get NYMEX Henry Hub pricing and past person a Btu betterment because we time off a batch of nan ethane successful nan state stream. So that's benignant of nan $0.10 to $0.20. It's benignant of mostly astir 10% premium to immoderate nan NYMEX value is.

So, if it's $2.50 to $3 NYMEX, you'd expect a $0.20 type of differential pinch that. So that's why it's travel disconnected from past year's premium, but we saw past summer, a batch of premium pricing connected nan pipes that we really waste because a batch of it's much connected nan benignant of nan eastbound broadside of nan Gulf and that tended to get premium pricing compared to different areas.

So, we'll proceed to spot really it goes. But our carrier does spell to nan really beardown pricing hubs successful nan summer. So hopefully, that inclination we saw successful '22 will besides hap successful '23.

Umang Choudhary

Helpful. Thank you.

Operator

[Operator Instructions] Our adjacent mobility comes from nan statement of David Deckelbaum pinch Cowen & Company. Please proceed your question.

David Deckelbaum

Thanks, Mike, I admit nan questions. Mike, I guess, from your prepared remarks, you're not going to beryllium entering nan Haynesville anytime soon. But...

Michael Kennedy

That would astir apt beryllium correct.

David Deckelbaum

Fair enough. I wanted to inquire conscionable connected nan onshore spend. I cognize possibly it's 15% of your budget. I deliberation antecedently we thought you guys person had a small spot much occurrence than you had intended successful '22. I cognize half of that '23 fund is loaded into nan first quarter. Is that much carryover from activities you were pursuing past almanac twelvemonth aliases is location benignant of for illustration a renewed position that there's much opportunity for you pinch nan integrated leasing program?

Michael Kennedy

Well, it's both. I deliberation we noted location is going to beryllium -- of that $150 million, a disproportionate magnitude incurred successful nan first quarter, and that is that carryover that you referenced, David.

But successful summation to that, I deliberation we recovered that we're having much and much success, nan barriers to introduction successful this area of nan Marcellus are very high. You person to person nan midstream. You person to person nan transport. It is liquids, you person that processing -- truthful what we recovered is that we're having much and much success, and we are nan usability of prime for nan landowners retired successful West Virginia benignant of nan hometown team.

So, we proceed to find success, and it's really conscionable acreage correct adjacent to wherever we're presently processing successful nan champion acreage we person successful that Tyler, Wetzel Counties, Marcellus liquids halfway wherever nan wells proceed to beryllium terrific and precocious BTU content.

David Deckelbaum

The 2nd 1 for maine is just, arsenic you deliberation astir '23 successful nan guidance, what are you assuming successful position of nan Shell Cracker successful position of uptime and timing location that's implied successful your numbers?

Michael Kennedy

There's a small spot of risking astir that. I deliberation it's -- nan Shell capacity has improved rather dramatically successful nan first 4th versus nan 4th quarter. So, we'll spot if that risking has merit aliases not, but we did consequence that beautiful healthily for '23.

As a reminder, it won't person an economical impact. There are benignant of minimum measurement commitments astir that. So, from a rate travel standpoint, it's really not material. But from a volume, we did consequence nan ethane volumes conscionable to let Shell to proceed to amended their performance.

David Deckelbaum

Thank you, guys.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. I'll move nan level backmost to Mr. Kruger for immoderate last comments.

Brendan Krueger

Yes. Thank you for joining america connected today's call. Please scope retired if location are immoderate further questions. Thank you.

Operator

Thank you. This concludes today's conference. You whitethorn disconnect your lines astatine this time. Thank you for your participation.