Q4 2020 Antero Resources Corp Earnings Call

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Greetings and welcome to the Antero resources fourth quarter of 2020 earnings Conference call. At this time all participants are in a listen only mode. The 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 and as a reminder of this conference is being recorded.

It is now my pleasure to introduce your host Michael Kennedy Senior Vice President of Finance. Thank you Sir you may begin.

Okay.

Thank you for joining us for Antero, the fourth quarter 2020 Investor Conference call.

Well spend a few minutes going through the financial and operational highlights and then we'll open it up for Q&A.

But also like the direct you to the homepage of our website at Www Dot Antero resources Dot com.

We have provided a separate earnings call presentation that will be reviewed during today's call.

Before we start our comments I'd like the 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.

And are subject to the number of risks and uncertainties many of which are beyond interros control.

Actual outcomes and results could materially differ from what is expressed implied or forecast.

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 of the loan.

Comparable GAAP financial measures.

Joining me on the call today are Paul Rady, Chairman and CEO.

Glen Warren President and CFO, and Dave kind of long ago, Vice president of liquids marketing and transportation.

Now I'll turn the call over to Paul.

Thank you Mike let's.

Let's begin on slide number three by discussing the formation of the drilling partnership that we announced this morning.

Under the agreement QL capital an affiliate of quantum energy partners will fund, 20% of drilling and completion capital in 2021 and.

And between 15% and 20% of total drilling and completion capital.

In 'twenty 'twenty two to.

So the 'twenty 'twenty four and <unk>.

The change for a proportionate working interest percentage in each well spud.

Q al will participate in every well that antero drills over the next four years, starting with wells that were spud as of January 1st this year, so as of about seven weeks ago.

As you can see on the lower right side of the slide we will drill and complete over 300 wells over the next four years together.

The result is an incremental 60 gross wells being drilled through 2024 as compared to our initial base development plan.

Importantly on a net basis, a ars net capital spending and production will remain unchanged from our prior maintenance capital program.

Slide number four.

Illustrates how antero is in a unique position to benefit from the drilling partnership.

First we have over 2000 premium undeveloped core drilling locations in the Marcellus and Ohio, Utica and a contiguous acreage footprint that delivers.

<unk> development.

I'll discuss our advantaged drilling inventory and more depth a little later in the presentation.

Second since over 1400 of Antero has 2000 plus premium undeveloped core locations are liquids rich we are well positioned to take advantage of the strong NGL prices that Dave can long ago will talk about in just a minute.

Based on our recent basin wide study of the remaining undeveloped locations in Appalachia, we estimate that these 1400 AAR locations represent approximately 38%.

Of the remaining liquids rich core locations in Appalachia.

Third we have unutilized firm transportation to premium markets that supports the incremental gross gas production from this drilling partnership.

This allows antero and our partner to deliver gas to Nymex based indices. Unlike many northeast producers that don't have firm transportation to cover all of their production and so they experienced frequent basis blowouts and often have to shut in the supply due to <unk>.

Low northeast gas prices.

Lastly, incremental production from the drilling partnership will allow <unk> to capture additional fee rebates from our already established low pressure gathering incentive program with Antero midstream.

These factors all of which are unique to a or drive the substantial increase in our free cash flow profile over the next several years as detailed out of slide number five.

Titled Free cash flow enhancement.

As depicted by the Red box out of the left hand side of the page the drilling of partnership allows antero to fill unutilized premium firm transportation and reduced net marketing expenses by approximately $260 million over the next five years.

This benefit really starts to kick in in 2022, as we put to sales the incremental wells drilled in our 2021 tranche of the drilling partnership the.

The incremental production from the drilling partnership also allows us to capture of $75 million of additional midstream fee incentives.

We are estimating $50 million of drilling carry under the drilling partnership based on the strip pricing and interest interest expense savings of $20 million and finally, most of the $400 million of free cash flow derived from the drilling partnership is not very soon.

The tip to natural gas and NGL prices.

Slide number six titled <unk>.

<unk> production fills a ars Unutilized F T.

Highlights of Antero <unk> growth volume forecast under the drilling partnership as compared to base play out of volumes.

As you can see with the drilling partnership we now expect to fill our premium of long haul transportation by 2023.

Slide number seven titled growth incentive program.

Summarizes the gathering fee rebate thresholds that were previously established with Antero midstream.

The incremental growth volumes generated by the partnership should result in a are achieving additional L. P gathering earn outs totaling $76 million, possibly more.

Lastly, we estimate that we will receive a delayed kerry on the drilling partnership in the form of one time payments per tranche one year. After the tranches of drilled the total of approximately $50 million by achieving certain IRR thresholds.

Uh huh.

Now, let's turn to slide number eight titled enhanced free cash flow profile.

In total of the drilling partnership is expected to increase <unk> free cash flow by $400 million compared to our base plan.

This equates to over $1 $5 billion of free cash flow through 2025 based on today's strip prices.

This increase in free cash flow of results in a substantially lower leverage profile from three one times today to under two times this year.

Remember this free cash flow profile is based on a backward dated strip price.

If 'twenty one 'twenty 'twenty, one strip prices held flat through 2025, we would expect antero to antero to generate $3 $5 billion in free cash flow.

That is at $2 90 gas out of $35 per barrel of C III plus Ngls.

Now, let's discuss the drilling inventory in the Appalachian Basin.

Slide number nine titled peer leading premium core inventory provides the summary of the car inventory remaining in the Appalachian basin as we see it.

We recently completed our annual detailed technical review of peer acreage positions on drill the acreage and location potential.

The technical review also analyzes btu well performance in the EU ours.

The results led us to bifurcate the cores of the southwest Marcellus in the Ohio, Utica into premium and tier two sub areas.

We've identified approximately 5200 premium undeveloped locations in the southwest Marcellus, which are located within the red outlines out of the math.

Of that we estimate Antero holds the 1800 65 of those premium locations or of 36% of the total.

And the Ohio, Utica, we estimate roughly 1100 premium undeveloped locations of which Antero holds 210 or 19% of of the total.

Beyond that we estimate that there are 1600 tier two locations remaining which you can see.

Are located within the Blue lines.

You can see much of the acreage is covered up with existing Marcellus and Utica production horizontal wells, which are the red lines on the map.

Antero has extensive undeveloped premium drilling inventory made of drilling partnership highly accretive to our development plan with only 60 incremental locations committed to the partnership.

Ultimately, we believe that the so called the inventory fatigue and the limited number of premium drilling locations will be a critical distinction between the haves and have nots across Appalachia producers.

I'd also like the thank the Antero land Gis geology and reservoir engineering teams for all of the time and effort that went into digital into delivering this rigorous technical analysis.

Our people have always done an exceptional job providing basin in the peer level details that are critical to our strategic decision making.