Antero Resources Corporation

Greetings and welcome to Intero Resources Q3 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Michael Kennedy, Senior Vice President of Finance.

Thank you for joining us for Intero's third quarter 2020 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 would also like to direct you to the homepage of our website at www.interoresources.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 like to first remind you that during this call, Intero management will make forward-looking statements. Such statements are based on our current judgments regarding factors that will impact the future performance of Intero and are subject to a number of risks and uncertainties, many of which are beyond Intero'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 to the most comparable GAAP financial measures. Joining me on the call today are Paul Rady, Chairman and CEO, Glenn Warren, President and CFO, and Dave Conolongo, Vice President of Liquids Marketing and Transportation. I will now turn the call over to Paul.

Thank you, Mike. I'll open by commenting on the progress we've made on our asset sale program. As detailed on slide number three, titled Asset Sale, Refinancing, and Debt Repurchase Progress, we have closed $751 million of asset sale proceeds to date. The proceeds we have received have enabled us to reduce debt by approximately $620 million since the asset sale program began in the fourth quarter of 2019. We continue to monitor the asset sale markets. Any additional proceeds will be used for further debt reduction. Now let me update you on our cost savings momentum during the third quarter. our well cost savings initiatives continue to drive our costs lower. Actual well costs during the third quarter averaged $640 per lateral foot, benefiting from long laterals that averaged 15,900 feet during the quarter. Normalized for a 12,000 foot lateral, well costs were $675 per foot, or 17% below the initial 2020 well cost target. Note that our well costs are all in, and they include road, pad, and facilities costs. We turned in line 27 Marcellus wells during the quarter, and these wells had an average lateral length of 11,900 feet. Fifteen of these wells have 60 days of production history and averaged 24 million cubic feet equivalent per day, helping to drive our strong production performance during the quarter. Now let's discuss a point out regarding our firm transportation portfolio. Turning to slide number four, titled, net marketing expense, and FT commitments declining. During the third quarter, we gave notice to release 300 million a day, 300 million cubic feet a day, of firm transportation capacity during 2021. Now let me just make a clarification. What we're talking about here is releasing 300 million a day of long-haul interstate transport, such as the big pipes to the Gulf, the Midwest, and to the Appalachian M2 pool. We received a little bit of feedback, a little misunderstanding. Certain people thought that we were talking about Antero midstream capacity. That's not what we're talking about. We're talking about the long-haul capacity. To reduce commitment, it is expected to lower our net marketing expense by $25 million next year. and $60 million in 2022. As shown in the chart on the left hand side of the slide, our firm transportation commitments decline by 810 million cubic feet a day by year end 24. The chart on the right side highlights the approximate $100 million reduction in annual demand fees by 2024, resulting from from the release of this 810 million cubic feet a day of firm commitments. To summarize this point, 2020 is our peak year for firm transportation expense as these commitments step down each year going forward. The result is a lower cost structure at Antero, even in our sustained maintenance capital spend profile. Slide number five, titled Firm transportation provides stability. This highlights the benefits of our firm transportation or FT portfolio. The red line in the chart represents the Appalachian basis differential, which has averaged 82 cents below NYMEX going back to 2014. Our premium firm transportation has delivered a 5-cent discount to NYMEX over that same time frame. It's also worth noting that since gaining access to our entire FT portfolio in 2018, Antero has been able to realize a 6-cent premium to NYMEX to date. During the third quarter, this benefit was even more pronounced as Appalachian basis differentials blew out. Given the limited excess takeaway capacity in Appalachia and maintenance downtime this fall, regional prices have recently traded at $1.50 below NYMEX. These weak prices have forced some producers who lack adequate takeaway capacity to shut in and curtail production, which can lead to high volatility in cash flow and operational performance. Conversely, Antero's FT portfolio delivers reliable results, flow assurance, premium prices, and the ability to readily hedge liquid NYMEX Henry Hub prices. Now let's turn to slide number six, titled Appalachian Takeaway Capacity is a Strategic Advantage. This chart depicts the tightening takeaway capacity in the Appalachian Basin in the vicinity of the yellow arrow on the chart, which has led to today's wide basis differentials. The solid red line is the historical production in Appalachia, with the dotted red line showing the growth projection through 2023. The green line is the regional basis differential, As you can see, as capacity tightens where there is white space on the chart, the regional basis blows out, particularly during the summer and shoulder months. Even with the potential startup of new pipeline capacities such as MVP, the expected call on Appalachia supply is projected to lead to sustained wide differentials in the basin. With what we refer to as right-sized premium firm transport, Antero is the best positioned natural gas producer in Appalachia to take advantage of rising NYMEX natural gas prices without the risk of widening local basis or being forced to shut in production. When we talk about right-sized, we're considering both volume, tariffs, and destination or delivery points, dropping the unneeded or undesirable market destination. So it'll be quite strategic as we look to downsize our FT portfolio. In conclusion, I'm extremely proud of the job Antero's operating team has done with optimizing our drilling and completion operations and delivering significant cost reductions. These efforts not only led to record low quarterly capital expenditures, but also to the quarterly production performance that exceeded expectations and delivered strong quarterly financial results. Through the first nine months of the year, we have turned in line 91% of our expected 105 completions in 2020, so we anticipate another decline in capital spending during our fourth quarter. resulting in annual drilling and completion capital expenditures of $750 million. Importantly, we expect to generate approximately $175 to $200 million of free cash flow during the second half of 2020, based on today's strip prices. With that, I will turn it over to our Vice President of Liquids Marketing and Transportation, Dave Canalongo for his comments.