Antero Resources Corporation

Greetings and welcome to the Ontario Resources First Quarter 2022 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brandon Kruger, CFO of Midstream and Vice President Finance, Treasurer. Thank you. Please go ahead.

Thank you for joining us for Antero's first quarter 2022 investor conference call. We'll spend a few minutes going through the financial and operating 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 Justin Fowler, Senior Vice President of Gas Marketing and Transportation. I will now turn the call over to Paul.

Thanks, Brendan. Good morning, everyone. I'd like to begin by discussing the overall macro environment and the factors that led to the recent increase in commodity prices. During the last year, 2021 that is, commodity prices were strengthening, driven by a resurgence in demand as we came out of the pandemic. On the supply side, the shift towards maintenance capital plans and supply chain constraints led to moderated global supply growth. Then, during the first quarter of 2022, as you all know, this bullish fundamental backdrop was further strengthened by the geopolitical events in Europe. Unlike prior commodity price spikes, these events had a large impact on the futures curve, where we saw the natural gas strip move up 45% throughout the curve all the way to calendar year 2026. As Europe looks to strengthen its energy security, it has become clear that there will be a significant call on U.S. shale gas in the coming decades. Importantly, with Antero's 2.3 BCF a day of firm transportation to the LNG fairways, we are uniquely positioned to supply the increase in international demand. Today we are already selling nearly one BCF a day of natural gas to LNG facilities on a mix of long-term and short-term contracts. As additional LNG export capacity is built out, We think our premium to NYMEX will increase and will become more closely linked to international prices. Let me just comment a little bit on terms of contracts and make an important point. We're happy where we are right now on shorter term deals, whether it's selling on the day or on the month. We deliver to premium locations in the LNG fairways, such as ANR Southeast Head Station, where as many as three LNG liquefiers are bidding for our gas. But we're not interested in longer-term supply deals unless we receive significantly higher premiums. There's too much optionality today to get locked in prematurely. Since the last cycle, the industry has shifted from one of outspend and growth to free cash flow. maintenance capital, and return of capital to shareholders. It's because of this shift, along with other fundamentals that we'll touch on later, that we remain constructive on commodity prices going forward. Slide number three, titled Structurally Higher Prices Ahead, compares historical NYMEX natural gas spot prices versus the corresponding natural gas surplus or deficit to the running five-year average. The red circles highlight the historical natural gas price during periods when storage levels are in line with the five-year average. During the shale growth era from 2015 to 2019, natural gas prices averaged $2.50 to $3.25 per MMBTU, reflecting high storage levels. The green circles on the right represent natural gas prices when storage levels are low, as we see during the maintenance era from 2020 to today. During this period, prices have averaged over $4 per MMBTU. We believe that a structural shift has occurred with respect to pricing versus storage levels. The primary driver behind this shift is the supply side, with limited access to capital, limits on infrastructure build-out, and also supply chain constraints that limit production growth. Also supporting a higher price outlook is number one, inventory exhaustion, Two, continued LNG export growth, and three, low global storage levels. We believe this bodes well for commodity pricing moving forward, and Antero is best positioned to directly benefit from higher prices. Now let's shift focus to Antero's significant exposure to rising commodity prices. Slide number four, titled Leading Commodity Price Exposure, depicts our 2022 and 2023 hedge portfolio relative to our peer group. Notably, we have not added any natural gas hedges since 2020, which once again is a testament to our natural gas and liquids commodity fundamentals teams that remain bullish on the outlook for both natural gas and NGLs. Entero is less than 50% hedged on expected 2022 natural gas production and has no liquids hedges. We are virtually unhedged on all commodities in 2023, except for 16 BCF, or just 2% of our production in 2023. These hedges were put on in 2020. This remains a sharp contrast to our peers, who are on average 74% hedged on natural gas for the remainder of 22 and 57% hedged on natural gas in 2023. As previously mentioned, we continue to see favorable fundamentals for the commodities and are very comfortable with where we are today from a balance sheet, diversified product, and destination mix. Antero's industry-leading firm transportation portfolio allows us to deliver the majority of our gas and liquids to premium markets. This attribute is unique to Antero and will allow us to capture the upside to growing LNG and LPG export demand. With this in mind, we've invited our Senior Vice President of Gas Marketing and Transportation, Justin Fowler, to be on the call today. I'll now turn it over to Justin and let him expand.