Antero Resources Corporation

Welcome to the Ontario Resources 2020 Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Michael Kennedy. You may begin. Thank you.

Thank you for joining us for Entero's fourth quarter 2019 investor conference call. We'll spend a few minutes going through the financial and operational highlights, and then we'll open it up for Q&A. I'd also like to direct you to the homepage of our website at www.enteroresources.com, where we've provided a separate earnings call presentation that will be reviewed during today's call. Before we start our comments, I would first like to remind you that during this call, Antero management will make forward-looking statements. Such statements are based on our current judgments regarding factors that will impact the future performance of Antero and are subject to a number of risks and uncertainties, many of which are beyond Antero's control. Actual outcomes and results could materially differ from what is expressed, implied, or forecast in such statements. Today's call may also contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures, including reconciliations for the most comparable GAAP financial measures. Joining me on the call today are Paul Rady, Chairman and CEO, and Glenn Warren, President and CFO. I will now turn the call over to Paul.

Thank you, Mike, and thank you to everyone for listening to the call today. In my comments, I'll begin with an update on the continued momentum around our internal cost savings initiatives, including our lower well-cost targets for 2020. And then Glenn will highlight our balance sheet and liquidity position and provide a brief update on our ongoing asset monetization efforts. Let's start by discussing the cost reduction momentum across all of Antero's cost structure. Detailed on slide number three, titled Cost Reduction Momentum, nearly half of these reductions will come from lower well costs as we target almost a $2 million per well cost reduction in 2020 relative to our initial 2019 capital budget. This equates to roughly $240 million in total well cost savings, assuming our budgeted 125 completed wells in 2020 with an average lateral length of 11,400 feet. Lower midstream fees, net marketing expense, LOE, and G&A make up the remaining savings of approximately $280 million. In total, we expect our cost structure to be reduced by $520 million in 2020 as compared to 2019. Now, let's move on to slide number four, titled Marcellus Well Cost Reductions, which provides an update to our Marcellus well cost targets. Driven by expanded flowback water blending operations, As continued step change improvements in our drilling and completion efficiencies, we are now targeting a reduction of 15% to 18% or $1.7 to $2. million per well. The left-hand side of the page illustrates AR's January 2019 budgeted well cost at $970 per lateral foot. As we exited the fourth quarter of 2019, AR's well costs were approximately $840 per foot, which equates to $1.5 million per well of savings achieved as compared to our initial 2019 budget. This also represents $55 per foot improvement from our previously targeted fourth quarter 2019 AFE. These accelerated savings were primarily driven by drier completions, enhanced drill-out technology, and lower costs of flow-back water as Antero Midstream implemented water blending and localized storage operations. The coordinated effort between AR and AM allowed us to quickly and successfully execute our blending program and deliver savings ahead of schedule. Looking ahead in 2020, we are targeting a well cost range of $795 to $825 per lateral foot, which will be driven by implementing dryer completions in 100% of our wells, expanding produced water service through AM's pipeline system, and further drilling and completion efficiencies. Slide number five, titled Significant Reduction in Operating Cost Structure, illustrates how material these cost savings are on a unit cost basis. We expect 2020 all-in cash expense to be $2.30 per MCF equivalent, which is 22 cents lower than the full year 2019 guidance. We're forecasting an 11 cent per MCFE reduction in LOE, G&A, and GP&T, or gathering, processing, and transportation. But the biggest driver is an 11 cent decrease in net marketing expense. This substantial year-over-year reduction is due to a combination of higher production volumes and renegotiated terms with third-party service providers that allow us to optimize more of our premium-priced firm transportation. As we grow into our firm transportation portfolio through 2021, We anticipate further reductions, bringing our all-in cash expense to $2.10 per MCF equivalent in 2022. In 2022, we expect net marketing expense to be $50 million per year, or just $0.03 per MCFE, as compared to over $250 million, or $0.22 per MCFE, last year. Our reduced cost structure will provide us with flexibility and allow Antero to generate sustainable free cash flow in 2022 and beyond at current strip prices. Now, let's turn to the operational side by turning to slide six, entitled Marcellus Drilling and Completion Efficiencies. as we continue to make improvements on cycle time. For 2019, we averaged 5934 lateral feet drilled per day, a 30% increase compared to 2018. During the fourth quarter, we set new records for average lateral feet drilled per day, averaging 7000 feet per day and set another new one well world record drilling of 10,453 lateral feet in one day. The quarterly average represents a 17% increase in lateral performance from the prior quarter and a 38% increase compared to the 2018 average in lateral performance. Further, the reduction in fresh water used in our completions helped increase our completion stages per day to a new quarterly record of 6.3 stages per day, an increase of 7% from the prior quarter. In summary, our cost reduction efforts have already delivered significant results. Our fourth quarter DNC spend was $300 million, And our full year 2019 DNC spend was $1.27 billion, a 14% decrease from 2018. Our 2020 DNC CapEx budget of $1.15 billion is 10% lower than 2019, while still delivering modest production growth of 9%. highlighting the improving capital efficiency of our asset. These savings, along with our industry-leading hedge position, support our modest growth strategy through 2021 as we fill our premium unused firm transportation commitments. It is important to note that this program is projected to be cash flow neutral in 2020, based on today's commodity strip and including the $125 million water earn-out payment that we received in January of 2020. With that, I will turn it over to Glenn for his comments.