Antero Resources Corporation

Greetings and welcome to the Intero Resources third quarter 2021 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, Brendan Krueger, Vice President of Finance.

Thank you for joining us for Antero's third quarter 2021 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.anteroresources.com, where we have 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, 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 to the most comparable GAAP financial measures. Joining me on the call today are Paul Rady, Chairman, President, and CEO, Michael Kennedy, CFO, and Dave Canalongo, Vice President of Liquid Marketing and Transportation. I will now turn the call over to Paul.

Thank you, Brendan. Let's begin with slide number three, titled Antero Strategy Evolution. Antero's business strategy has evolved over the last decade. Ten years ago, during what we would call, quote, unquote, Shale 1.0, our focus was on increasing scale through acreage acquisition, building out the necessary midstream infrastructure through long-term commitments and delineating our resource base. As we entered quote unquote shale 2.0, we focused on growing production to achieve scale and become a leading US natural gas and NGL producer. During this time, we proactively hedged our production into a strong contango forward curve. in order to lock in attractive returns and to ensure that we delivered on our growth targets. We also consolidated our acreage position through land acquisitions and swaps to secure the contiguous position we have today. Lastly, through technology and innovation, we optimized our drilling and completion techniques to maximize recoveries and reduce well costs. Today, Antero is in the shale 3.0 phase. Our focus is on maintenance capital programs that hold production flat and maximizes free cash flow. The results of this program have been dramatic. We reduced debt by $1.4 billion in less than two years and lowered our leverage from 3.8 times to just 1.6 times at the end of the third quarter. Our strong balance sheet and low leverage combined with low maintenance capital allows for less hedging than was previously targeted. We are currently the least hedged in our company history on the natural gas side as we enter 2022. We also have very little NGLs hedged and no propane as of October 1, the beginning of this month, 2021. Slide number four, titled peer hedging comparison, shows our 2022 hedge portfolio relative to our peer group. We have not added any natural gas hedges in over 18 months, a testament to our management and our natural gas and liquids commodity fundamentals teams that have remained bullish on the outlook for both natural gas and NGLs heading into next year. We are only 50% hedged on natural gas in 2022 and have no liquids hedges. We are essentially unhedged in 2023 on all commodities and going forward. Now let's discuss drilling inventory in the Appalachian Basin. Slide number five titled Peer Leading Premium Core Inventory provides a summary of the core inventory remaining in the Appalachian Basin as we see it. We regularly perform a technical review of pier acreage positions, undrilled acreage, and location potential. We also analyze BTU, well performance, and EURs. Based on these results, we've subdivided the core of the Southwest Marcellus and the Ohio Utica into premium, and Tier 2 sub areas. We've identified approximately 5,200 premium locations, premium undeveloped locations for the industry in the Southwest Marcellus, which is shown with the red outlines on the map. Of that, we estimate Antero holds approximately 1,865 of those premium locations, or 36% of the total. which includes more than 1,000 liquids-rich locations. In the Ohio Utica, we estimate roughly 1,100 premium undeveloped locations for the industry, of which Antero holds 210, or 19% of the total. Beyond that, we estimate that there are 1,600 Tier 2 locations remaining, which you can see located within the blue lines. You can see that much of the acreage is covered up with existing Marcellus and Utica productive horizontal wells, which are the red lines on the map. Ultimately, we believe the idea of quote unquote inventory fatigue and the limited number of premium drilling locations, which will be a critical distinction between the haves and have-nots across Appalachian producers. Based on our maintenance level development plan, which assumes 60 to 65 wells per year, Antero has at least 15 years of premium liquids drilling locations remaining, with many years of dry gas locations on top of that. This analysis leaves us optimistic about Antero's competitive advantages as we look toward the future. Turning to slide number six, titled Right-Sizing Firm Takeaway Commitments, we highlight our declining commitments over the years. On October 1st, we released $200 million a day of capacity, reducing our annual transportation fees by $45 million. This firm transportation was originally intended to be filled with Utica volumes. However, given our development focus now on the liquids-rich Marcellus acreage, it was prudent to release this unutilized or underutilized capacity. Year-to-date, we have released a total of 400 million cubic feet a day of firm transportation commitments, reducing annual transportation fees by just over $60 million. a year. We will continue to optimize our firm transportation portfolio to best match our current maintenance capital program and our development focus. Now let's turn to slide number seven, titled Diversity of Product and Destination. This slide illustrates the benefits of Antero's unique business strategy that focuses on liquids-rich development and maximizing out-of-basin product sales. Starting with the chart on the top left side of the page, as you can see, Antero is the largest liquids producer in the Appalachian Basin. Moving to the chart on the bottom left, we are not only the largest liquids producer, but with our ability to export half of our C3 plus NGLs, we capture the highest liquids pricing in the basin. Now, let's look at the natural gas side of the business. The chart on the top right highlights our industry-leading firm transportation portfolio that allows us to sell 100% of our natural gas out of basin. The direct result of this is best-in-class natural gas realizations. As illustrated on the chart on the bottom right, we realized a $0.30 per MCF premium to NYMEX during the third quarter. Looked at another way, this competitive advantage resulted in price realizations that were $1.07 better than in-basin Appalachia pricing, which averaged 77 cents back of NYMEX. The combination of our FT portfolio with significant exposure to export markets and our low hedge profile makes Antero the most efficient way to gain direct exposure to NYMEX and Montbellevue prices. With that, I'm going to turn it over to our Vice President of Liquids Marketing and Transportation, Dave Cantalongo, for his comments.