Q2 2021 Antero Resources Corp Earnings Call
[music].
Greetings and welcome.
Come to the Antero resources second 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.
Please note this conference is being recorded.
I will now turn the conference over to our host Brendon Kruger.
Its president of finance and Treasurer of Antero resources. Thank you you may begin.
Thank you operator.
Thank you for joining us for Antero <unk> second quarter 2021, Investor Conference call, we'll spend.
And it's going through the financial and operational highlights and then well open it up for Q&A.
I'd also like to direct direct you to the homepage of our website at Www Dot Antero resources Dot Com, where we have provided a separate earnings call presentation.
That will be reviewed during today's call.
Before we start.
A few minutes I would like to first remind you that during this call Antero management will make forward looking statements such statements are based on on our current judgment 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 is control.
Actual.
Outcomes and results could materially materially differ from what is expressed implied or forecast in such statements today's.
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.
Our com joining me on the call today are Paul Rady, Chairman President and CEO.
Michael Kennedy, CFO, and Dave <unk>, Vice President of liquids marketing and transportation I will now turn the call over to Paul.
Thanks Brendan.
Let's begin with slide number 3.
<unk>.
Best exposure to rising commodity prices.
During the second quarter, our business model delivered EBITDAX of $319 million and free cash flow of $105 million.
Our financial results highlight.
Right the significant leverage we have to rising natural gas and the <unk> plus NGL prices.
During the second quarter, <unk>, plus NGL price averaged $40.40.32 per barrel, a 159% increase.
<unk> from the year ago period.
Our firm transportation portfolio led to an unhedged realized natural gas price at <unk> 18 per Mcf premium to Nymex.
Further these strong realizations led to an increase in guidance for I realized.
<unk> price premium relative to Nymex.
Despite widening differentials in the Appalachian Basin, we now expect to realize a premium to Nymex in the range of 15 to.
To <unk> 25 per Mcf for the full year 2021.
Which is <unk> <unk> higher than our previous guidance.
Our firm transportation portfolio, not only provides flow assurance to Nymex based markets during periods of pipeline capacity constraints, but delivers premium realized prices.
Looking ahead.
We are currently the least hedged in our company history on the natural gas side entering 2022.
And have very little Ngls hedged on no propane after October 1 of this year 2021.
This is a testament to our commodity fundamentals teams.
That have remained bullish on the outlook for both natural gas and Ngls heading into this winter.
The combination of our ft portfolio, and our low hedge profile makes antero, the most efficient way to gain direct exposure to <unk> and my value prices.
Now, let's turn to slide number 4.
Which illustrates the benefits of Antero is firm transportation portfolio.
As illustrated on the chart, our ft portfolio has significantly reduced realized pricing volatility, especially when compare.
Ms Appalachian basis differentials.
During the second quarter. This competitive advantage resulted in price realizations that were 90.
Per mcf better than in basin, Appalachian pricing, which was 72.
<unk>.
<unk> of Nymex.
This is premium pricing on liquids rich focus has allowed antero to consistently generate peer leading EBITDAX margins and capture upside from both natural gas and NGL prices importantly.
Importantly, this basis volatility over the last year.
<unk> background occurring in an overall no growth environment in Appalachia, and we see the potential for wide basis to continue into the future.
Okay.
Slide number 5 details of the historical and future Appalachian basis differentials in Green.
As compared to the net gas production, which is shown in red.
Versus takeaway capacity shown in green.
As you can see when overall production exceeds the takeaway capacity the basis blows out.
Looking at last year, you see circled in yellow that basis has been.
<unk> very volatile even in this no growth environment.
As depicted on the right hand side of the page futures prices continue to widen due to tight takeaway capacity.
And the uncertainty of future projects like MVP.
What we expect to see is price.
Rice related shut ins or realized prices at a wide discount to nymex by our Appalachian peers, who are short firm transportation.
These attributes resulted antero being the best way to gain direct exposure to rising Nymex prices.
Turning to slide number 6.
Let's discuss the dramatic drilling and completion efficiency gains that are helping to drive our well costs lower.
Starting with the chart in the top left during the second quarter, our average lateral length drilled per well continued its steady progression higher averaging 13908.
Lateral feet per well.
This represents an 11% increase compared to the average lateral length in 2020.
Also our new record lateral length of just under 19000 feet, which is a record for us.
Both Marcellus and Utica.
Moving to the charter.
The top right, we averaged more than 6600 lateral lateral feet drilled per day during the second quarter.
Our completion efficiency also continued to improve averaging 9.8 stages per day during the quarter, which was a company record for a quarter and a 23% increase.
Chart on there to the 2020 average.
Finally, our average drill out feet per day has continued to increase each year and averaged 4092 feet per day in the second quarter.
With that I'm going to turn it over to our vice president of liquids marketing.
East <unk>, Dave <unk> for his comments.
Thanks, Paul.
In the NGL market the bullish fundamental trends that we highlighted during the first quarter of this year have continued to take shape through today.
We saw a steady climb in prices for all NGL products during the second quarter and into.
Hitting in third quarter, driven by underlying strength in crude pricing continued tightness in the LPG market and higher natural gas pricing.
As a result, we have experienced the highest sustained pricing we have seen since 2014 for 3 plus Ngls and since early 2019 for ethane.
Focusing on the U S propane market, our refer you to slide number 7 titled propane market fundamentals.
The storage built thus far this injection season has been insufficient to make up the large deficit historical levels that we discussed on the first quarter.
Propane days of supply remained 21% below the 5 year average while.
Total inventories are 24% lower than this time last year.
Looking forward most industry consultants anticipate that the U S will reach a peak propane storage level of 75 to 80 million barrels. This fall at the end of injection season.
On this slide we assume that the U S reaches the midpoint of that range.
$77.5 million barrels in early October.
We then show a repeat of the same weekly withdraws observed last year. During winter 2000, 22021 as a reminder, the 2000.22021 winter season, while overshadowed by memories of cold temperatures in February was overall substantially warmer than historic.
<unk> norms and followed on underwhelmed in crop drying season.
This scenario would result in the U S ending withdrawal season, with only about 15 million barrels in storage significantly below the 5 year minimum storage level.
This would translate to only about 5 to 9 days of supply next spring assuming.
Stork on an export levels are similar to those seen in spring 2021. This.
This is materially below the lowest days of supply observed in recent history, which was 13.5 days directly following the historic 2014 polar vortex.
Ultimately, we believe that there is a very small probability of the U S actually reaching the unprecedented.
Precedented low storage levels illustrated in the graph. However, this scenario clearly indicates a mont belvieu prices need to move even higher over the coming months to curtail exports and avoid domestic propane shortages.
Looking at the forward strip with the latest LPG waterborne freight pricing we are currently seeing the market.
Demand and a conservative case for propane and butane that do not reflect the fundamentals I just touched on given our continued bullish view on the outlook for NGL pricing, we remain essentially unhedged on our LPG beginning on October 1.
And through 2022 and beyond as we look to take advantage of the pricing dislocation, we see this winter and into next year.
<unk> as shown on slide number 8 <unk> far east index or FBI propane as historically reached 110% of Asian naphtha prices on a $1 per metric ton basis. During the peak winter months over the past decade, driven by inelastic winter demand in the region last winter Asian prices were even stronger on a relative basis.
Get price aiming to 124% of naphtha in December of 2020.
After taking into account U S stock fees and shipping cost to the Asian market. The Mont Belvieu forward curve is currently pricing in the assumption of F&I propane trading at approximately 110% of Asian Naphtha. This winter this implies $20 to 25 per gallon on potential upside.
This propane prices, if we see last year's pricing relationships play out again, this winter with even tighter inventory levels.
Finally, turning to the petrochemical market margins for cracking propane in the U S Northwest Europe, and North East Asia have trended lower oil over the last year compared to margins from cracking other feedstock.
From Amex, such as ethane naphtha in butane.
As a result, we believe most of the crackers with flexibility to switch away from propane as a feedstock have already done so for some time, indicating that we are currently at or near a floor of global steam cracker propane use. Therefore, we believe further downside risk of steam crackers switching away.
<unk> propane to other feedstocks is very limited as we look ahead to this winter in 2022 and higher prices.
At the same time, new LPG petrochemical demand continues to come online, including a combined 170000 barrels a day of new PTH demand for propane being added in China during 2021.
1 with as much as an incremental 155000 barrels a day in 2022 and more than 180000 barrels a day of Newbuild capacity possible in 2023 should oil projects move forward. This is in addition to a 110000 barrels a day of non China PTH demand coming online in the same time period across.
Europe, North America and Vietnam.
Overall, the global demand pull for LPG continues to materialize and Antero continues to benefit on multiple fronts not only are we reaching this international demand directly through our capacity on the Mariner East system, but we also benefit from the macro uplift in Mont Belvieu pricing, which is now on hindered.
Capacity and shipping constraints that have impacted the market in previous years with that I will turn it over to Mike.
Thanks, Dave I'd like to start on slide number 9 highlighting our balance sheet, which is a significant strength for antero.
Over the last 12 months, we have transitioned to substantial free cash flow.
<unk> generation success.
<unk> successfully executed our asset sale program and rebalanced Antero senior note maturity profile.
In May we used proceeds from a 600 million senior note offering due 2030 to redeem all of the senior notes due in 2023.
Following this offering our next maturity is not.
Not until 2025.
During the second quarter, we generated over $100 million of free cash flow further enhancing our financial position.
As depicted on the top left portion of the slide this free cash flow along with a $51 million contingency payment received from the overwrite transaction.
And.
Was used to reduce net debt by $158 million during the second quarter the.
This brings our total debt to approximately $2.4 billion.
The top right quadrant of the slide illustrates the LTM EBITDAX improvement from just over $1 billion at year end.
So over 1.4 billion at the end of the second quarter.
This improvement was a direct result of Antero has differentiated business strategy that Paul discussed earlier with a focus on liquids development and our firm transportation portfolio that provides best in class price realizations.
Total debt reduction.
Combined with an improvement in LTM EBITDAX decreased leverage to 1.7 times at the end of the second quarter down from 3.1 times at year end 2020.
This debt reduction during the quarter resulted in liquidity increasing to $1.9 billion.
As we look ahead, we expect.
Spec to continue maximizing free cash flow and reducing total debt.
Our leverage is expected to fall below 1.5 times by year end 2021, and below 1 times in 2022.
If we achieve our absolute debt target of below $2 billion in early 2022.
Now.
Now to put first quarter financial results into perspective, let's turn to slide number 10 titled financial strength relative to peers.
The top of the slide highlights our balance sheet positioning.
On the left you see our $2.4 billion of total debt ranked second among our peers.
However, the.
And the right hand side of the page shows that our net debt to EBITDAX of 1.7 times ranks first against our Appalachia peers.
The bond on the page focuses on financial performance year to date.
We have generated $838 million of EBITDAX and $521 million of free cash flow during the first.
First half of 2021.
Which ranks first in the peer group and well above our other peers.
Free cash flow is nicely above all of our peers in the highlights the financial exposure, we have in a rising commodity price environment.
This exposure is highlighted on slide number 11 titled enhanced free cash.
Cash flow profile.
The increase in the natural gas and NGL future strips resulted in a substantial free cash flow outlook at Antero.
We forecast over $750 million of free cash flow in 2021, and even higher free cash flow expected in 2022.
Further.
They are looking out through 2025, we are now targeting over $3.5 billion and free cash flow.
<unk> substantial annual free cash flow growth.
Through that time period, despite the heavily backward dated commodity strip.
This year is also an exciting year for antero.
Those ESG initiatives as we make progress towards our 2025 goals we.
We are happy to announce our pilot program with project Canaries Trust well certification process.
By using a third party to review the process and procedures.
On the validate the high environmental standards by which we produce our natural gas.
Antero certification process is set to begin in the fourth quarter of 2021 and to be completed in 2022.
The trust well certification also aligns with Antero as long term goals, which are shown on slide number 12, titled Natural gas producers have the lowest emissions. These.
These goals include achieving net zero.
Emissions, reducing our industry, leading GHT intensity and methane leak loss rates.
We also plan to complete and publish our Tcf day analysis with our 2020 ESG performance results later in 2021.
To summarize the impressive operating and financial momentum momentum continue.
<unk> for Antero Slide number 13, titled key investment highlights summarizes a position of strength we are in today. Following this execution.
We have significant scale as the fourth largest natural gas producer and second largest NGL producer in the U S.
Providing attractive exposure to strengthening commodity prices.
Since the beginning of our deleveraging program, we have reduced debt by approximately $1.4 billion.
Issued $2.1 billion of new senior notes and redeemed our 2021.2022 and 2023 maturities.
The result is an undrawn credit facility and an extension to our average maturity day by over.
Over 4 years.
We expect to achieve leverage of under 1.5 times by the end of 2021 as we approach our debt goal of under $2 billion much sooner than anticipated.
Lastly, assuming today's strip prices, which includes a backward dated NGL and natural gas strip.
We are forecasting substantial.
<unk> free cash flow generation of over $3.5 billion through 2025.
These operational financial and ESG metrics place Antero, among a smaller group of E&ps with significant scale low leverage sustained free cash flow generation and leading ESG performance.
I will now turn the call over to the operator for questions.
Thank you.
And ladies and gentlemen at this time, we will.
Ducked, our question and answer session if.
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Our first question comes from Sebastiano with Northland Securities. Please state your question.
Yes.
Hi, Good morning, everybody I was hoping to start with just.
Just the land budget.
It's not a big number I guess in the Grand scheme of things, but maybe relatively significant.
What drove the decision and what you are trying to do there.
Hey, good morning, 2 basch.
We're trying to do it is a relatively small amount, but our drilling is going very well and so it's just continued blocking up in.
In the areas that we're developing <unk>.
Small tracks here and there to perfect our drilling units.
Are you finding.
In doing that.
Yeah, well it might be.
1 time costs or should we expect.
That a similar budget on a recurring basis.
Not sure.
Set us up for the next at least 2 years.
Yeah on other way to think about it to us.
You've seen from recent M&A, and that's really because of the constrained inventory and not having locations or transport and Israeli ensures our ability to continue to develop.
The type of areas from liquid from the performance, we have going forward without really having to rely on M&A per for future development.
Okay.
And then a modeling question just on I guess, J P and T, which from the outside is very hard for us to.
It's hard to figure out but.
Could you provide some guidance as to what specifically.
Specifically might look like on scripts I mean, given just.
The surgeon.
Pricing.
Perhaps offset by you know from the Mariner.
Et cetera.
That number stays flat or.
It goes up or down from here.
Yes.
The increase of the G. P. N P was really because of the rising commodity prices and fuel costs and AD valorem taxes et.
Severance taxes so.
If there is no backwardation in the strip on these continued high prices continue then you'd see a similar level to Q2 Q3 and Q4, we guided in the future so on.
And it's probably flat unless that back for day to does the curve does occur on that would come up a little bit.
While we have out on our guidance.
Same page kind of long term assumption.
As for total cash production and net marketing expense.
This year, it's $2.29 to $2.36, but then in the out years for the 5 year period average is $2.10 to $2.15, So some of that T. P and he comes down and then a net marketing expense as we know comes down as.
As well so.
Assuming the backwardation on <unk> should come off.
On the backwardation occurs.
That was helpful. Thanks, so much just if I can just sneak 1 in because I'm not sure if I'm interpreting this correctly, but did NGL hedges go up for.
For the third quarter.
Yes, they did see back so I think.
<unk>.
Early in the second quarter, we were seeing such strong although backward dated NGL prices, we pinched ourselves a little bit and we.
We werent used to such high prices. So we said, let's make sure. This doesn't go away. So we did put in hedges.
For second and third quarter and in hindsight, you can see while we got the security, but that's what happens when you add in a backward dated curve and the prices stay flat or increase so so.
That was our decision then but.
Again, a shout.
It out to our commodities group, both on the liquid side and on the gas side. So.
We are wide open beginning October 1 and for Ngls for.
Fourth quarter next year and beyond so we can capitalize on NGL prices.
Good fundamentals good fundamentals outlook that Dave Ken along other described.
And then just to touch on the gas side I know you didn't ask that but.
Our last hedging on the gas side was 16 months ago or so.
We are in the beginnings of the Covid crisis and going into borrowing bases.
Season, So we hedged out some.
That was.
That was 1 of the things that a lot of people did during that time, but haven't hedged any natural gas and have unwound some on.
While on some liquids as well so.
A reflection that we're bullish on.
On those product streams.
Thanks, Paul I'm looking forward.
Thanks, guys.
Thank you.
Thank you. Our next question comes from Neal Dingmann with <unk> Securities. Please state your question.
Good morning, My question, maybe Mike maybe for you or Paul just on.
Slide 15, just talking about your long term outlook assumptions can you talk a little bit about you know sort of number 1 just the NGL price assumptions to me they look out actually quite even maybe conservative you could call that I'm wondering if you could you talk about how you're thinking about the NGL price assumptions and then secondly on the annual production.
It looks like you're assuming relatively flat could you talk about sort of the mix will that is that likely going to be about the same do you think as you're at now.
Yes on the endy.
TL price, it's looking at the outlook it just follows shrimp.
Strip right now on our NGL barrel, which if.
On that some other there is no ethane and it is about 58% propane so very heavy barrel.
It's about $50 for the second half of 'twenty, 1 and then it goes down the 40 in 'twenty, 2 and then down to $30 in 'twenty 3 'twenty 4 'twenty 5.
Very backward dated so even on on backward dated strip and.
If you've ever met him flat production like you mentioned in the same mix between gas and liquids, that's where we get the 3 over $3.5 billion of free cash flow less maintenance capital case current production mix heavily backward dated strip 50 to $40 to $30.
And naturally it is in backwardation.
And this is again stress that.
We feel good about the fundamentals the demand the most.
In the liquids markets that Dave can long ago outlined a little bit ago. So.
So we would hope that the front of the curve will roll forward at higher prices. It will continue to be backward dated but if.
If 1 lives on the front of the curve will reap the.
Very highest prices to accelerate our debt repayment.
On the back of IMAX.
Nymex gas, but go ahead on.
It's $2.75 gas and those 'twenty 3 'twenty 4 'twenty type timeframe.
We're following the strip.
Okay.
And then the mix of the annual production is that can we assume that would be approximately the same as right now on product.
Yes.
And then and then just lastly, I think I know the answer this but again given your solid ft position.
Is there the opportunity to move I mean, you guys are already very very NGL focused I understand that.
Do you have the ability you know.
Paul would that cadence kind of going forward to move around because it seems like you know your ample F. P. I know some people are on constrained and not able to do that as much from other operators can you maybe talk about you know where youre about he sits now and maybe the optionality when it comes to operations that that might give you.
Yes, it does give us certainly operational flexibility.
With our drilling partnership as you know 1 of the advantages of that was that the.
Drilling partner with their gas sales its more of our F T as their production as well as ours comes on so they are.
They have they.
Benefit, but they also fill some of that and then we do have a healthy marketing group that.
On buys a lot of third party gas at places like glaring to and so we were in that market, we certainly buy.
Clearing 10 gas and take it to Chicago and there's a very good.
Spread there even paying a premium to <unk> prices so.
In the market.
Filling.
Taking gas to the Gulf taking it to Chicago of course also to Cove point, which are not which is a nymex based market. So yes.
Filling with distressed third party gas and capitalizing.
King to offset.
Any on Unutilized FTE in the demand charge associated with them.
Very good thank you Bob.
Our next question comes from whom on <unk> with Goldman Sachs. Please state your question.
Hi, good morning, and thank you for taking my questions.
My first.
My first question is.
It's really on the free look for cash return to shareholders.
Can you can you help us with the framework on once you achieve target net sub $2 billion early next year.
Yeah. Good question, we are paying.
And before that much more rapidly than anticipated even from the first quarter and so it should be in early 2022, I think previously we thought it would be kind of mid 'twenty 2 so that's been accelerated.
So we will be evaluating on return on capital for 2022.
We'll continue to monitor the markets and.
See how people value certain ways of returning capital but.
Depending on the valuation.
At the time, we'll be opportunistic.
On how we move forward.
I will say based on our current valuation, where we trade at about 4 times EV to EBITDA for 'twenty, 1 and 'twenty 2.
On down over 20% free cash flow.
For those same years.
Even approaching our 15% free cash flow yield on an enterprise value basis.
Share buybacks to look attractive at today's levels.
And as you know.
We saw.
This location last year as well and we did buy back almost 20.
Per cent of companies. So we have a history of trying to take advantage of those dislocations.
Got it that makes sense.
I guess my follow up question is on your activity levels next year. Given you are bullish on Ngls and natural gas for next year on like how does that the mine your auto hub.
Activity between.
In the liquids area, and then dry gas ADR.
And then.
Would love your thoughts around natural gas outlook in general.
So yes.
Yes, with our outlook on.
Ngls and gas, it's still yeah economics are stronger drilling in our liquids rich area, we do have a.
A very good inventory there in the liquids rich fairway.
Little under a 1000 locations that we still have to drill there and roughly the same on our dry gas side, but economics right now just because liquids.
Are so strong it definitely points us towards continuing the development in the liquids.
Natural gas liquids fairway, which we'll do.
Our outlook on gas fundamentally.
There's a lot of research out there, but we see of course that hiring higher power burn than we've seen in quite a while with natural gas people are apparently more reluctant to switch to coal.
2.
For for ESG reasons.
We know the fundamental fixed fixed.
Fixed appetite of LNG, along the Gulf that continues to grow we feed a lot of those LNG facilities, but.
If it's at roughly 11 Bcf a day.
Day.
On the feed gas capacity in <unk>.
Spreads are very strong right now as you know too.
Helped some of the other.
Projects that are on the drawing board.
In relatively quick time, so we're seeing that yes.
Production is out there.
Roughly 90 Bcf a day, but between power burn.
LNG feed gas and exports to Mexico, which roughly 6 Bcf a day that quite a bit of the 90 Bcf a day is used out in.
In those realms.
People are showing pretty good discipline on.
The natural gas basins and associated gas too. So we feel pretty good that the fundamentals are there that natural gas will remain strong.
Got it that's helpful. Thank you.
Yes.
Thank you. Our next question comes from David Beckel Baum with Cowen.
Go ahead with your question.
Good morning, guys. Thanks for taking my questions today.
Hi, David.
Oh, Mike actually you were just highlighting your strong track record of share buybacks you know.
I'm curious in light of that and the valuation that you see as compelling right now if we might see an active program happening before.
You hit some of those absolute debt metrics.
Especially now given your view on the curve isn't really reflecting the reality of economics that you're going to experience.
That's true, but what's also true is we really want low debt. So that's a priority of ours. So we're going to achieve that below $2 billion.
Alan Please contemplate any sort of return on capital.
I appreciate those priorities.
Also curious just on your discussions around I thought what was interesting in your prepared remarks, you guys commented on the NGL markets and the fact that you don't really see incremental risk.
<unk> from those that would switch the flexibility of other crackers is sort of already in the market.
With that being the case and demands being more centered around P. D. H in China. When you look at relationships like F. P I propane versus naphtha.
Do you just see further dislocation.
Before my time.
You know, where where propane just as truly a and idiosyncratic product.
David Great question, I think Youre exactly right and you're on your assessment there. That's what we witnessed last year and we didn't see those levels for just a week or 2 it was 4.3.
3.3 consecutive.
Over at something in a row and so we would agree with that assessment the assessment that per.
Previously the steam Cracker switching was part of the narrative around propane prices and it's really taken a backseat.
We've seen here over the last year year, and a half and with the additional Russ comment on purpose Patrick.
Multiple demand that is really only able to consume LPG, we see that.
Historical relationship being less relevant going forward in that upside.
Cold temperatures and a strong petrochemical product demand.
<unk>.
But that should continue.
I guess in that vein and this will be my last 1.
Given the importance of securing that products are you seeing an increase in conversations or inbounds on.
Particularly on on and foreign markets just for securing demands contracts were.
You you would effectively be able to set your price at levels, where the curve.
Curve might not be reflecting and do you have an interest in doing things like that.
Inbounds, yes are certainly increasing.
<unk> been looking at on the more immediate term you know.
I can't think of a <unk>.
Vessel that we've loaded where the buyer hasnt wanted to try and accelerate that loading day just due to.
Inventory levels.
On the destination markets that they were going to so yes. The interest is there.
I don't know that we believe that we're going to need to do anything long term on the contract side to be able to see those values. We do like the flexibility that our current export strategy gives us which allows us to keep volume.
During the higher seasonal winter months, if prices commanded so like that flexibility and not not sure we'd be willing to give that up for.
A long term contract at this point, we think we think ultimately bellevue prices and prices at the Mariner East stock.
We will recognize that reality as we move.
Yeah.
I appreciate the comments on the time hope you guys have something from planned for the sub $2 billion Party.
Yeah, we will start planning now.
Thanks, David.
Yes.
Our next question comes from Arun Jairam.
Im with J P. Morgan Please state your question.
Yeah good morning.
Paul I wanted to see.
Wanted to see if you could elaborate on.
How you see antero is hedging philosophy.
Yeah.
Moving on hold as the balance sheet gets too.
Much lower levels of leverage.
You're generating a lot of free cash flow and you didn't know that.
You hadn't added a gas hedge in 16 months, if I heard you correctly, so that's a bit of an unusual.
Circumstances, given your historical.
Our focus on on the hedging a lot of other gas exposure.
Hey.
Good morning, Arun Yeah. Good question, we have been historically.
I imagine, we're the leading hedge here over the last 15 years or so for Nat gas.
But.
It was a little more it really works for a number of years when the curve was in contango.
So we did very well I think our cash gains are.
You're a $6 billion right. So so it was very successful before its time, but it's been consistently now.
A little bit more of a picture of backwardation and if you can live on the front or close to the front youre going to reap the.
The highest price is rather than hedging into a backward dated curve and so I do think our as our balance sheet has evolved.
We look at certainly fundamentals as well as momentum.
Uh huh.
But that to us as Ted to live more on the front of the curve and at least for the near term that as I, just mentioned will accelerate the delevering and which is really a high priority for us after what we and the rest of industry have been through the last 18 months or so so at.
At least.
For now it's a you.
Be patient and I'm not sure that Ron is over on a.
Net gas flirting with $4 an.
For Cal 'twenty 2.
Continuous decline so so we're in no hurry, we are have hedged so 1.1 bcf a day.
For Cal 'twenty 2 out of roughly 2.2 Bcf a day expected and then virtually unhedged in Cal 'twenty 3 so are we.
We are enjoying the fundamentals we see all the factors I mentioned as well as inventory exhaustion in a number of plays which is spurring M&A. So.
So we.
We feel good that supply is going to be in that 90 Bcf a day range and Theres just more more and more calls on that 90 Bcf to go to LNG go to Mexico go to power burn and so so I think we've just changed a little bit over the last year and a half.
And where we.
We have the luxury of being patient to ride the upside on natural gas and as I've mentioned before our Ngls to very good fundamentals there.
Great and my follow up Paul you did kind of bump your.
Your call it your premium that you expect.
Have your gas molecules relative to Nymex could you talk about what's driving that I know you'd mentioned for the second half of the year.
And more importantly, how do you think about that premium as we think about 2022.
Yeah, I was just better differentials are no differentials, where we sell the gas.
We're just follow the strip markets on that when we update that so those are improved the markets, where we sell the gas.
And so that's the improvement.
Looking out into 2022, it's still similar premium on I think were you know around the 10 on premium.
Going forward. So we did 18.
In the second quarter, we raised the guidance.
To up to 25 cents. This year, but then going forward, we back it off to attempts on premium in those out years.
Great. Thanks, a lot Mike.
Right.
Our next question comes from David Heikkinen with Pickering Energy partners.
Please state your question.
Good morning, everybody. Thanks.
Looking at slide 15.
Really just considering your 2021 to 2025 plan, particularly 2022 to 2025 on a lateral feet that'll be drilled and completed giving you continued to stretch your lateral lengths.
Robyn.
But I'm curious have you give or can you give us some guidance as far as how you think about lateral lengths completed in the in the back post 'twenty 1 plan.
Yeah, you know we mentioned there they are around 13000 feet. This quarter I think there are 12 to 13000 feet and then any barriers here.
Welcome No further lengthening.
No, but in practice I would think that with what we would try to achieve but based on our current acreage position in current ability to drill the wells, It's 12 to 13000 book.
But we will try to go longer yes, we will try to go longer bike is talking average and we do have a number on the books in the plan net will be.
17000 foot plus in the Marcellus so not across the board, but there's a handful of those probably.
At least 5 somewhere in that range out of.
60, or 65 wells that will be in that 2017, and 18000 foot range.
Okay.
All I had thank you. Thank you.
Great.
Our next question comes from Holly Stewart with Scotia, Howard Weil. Please state your question.
Good morning, gentlemen, maybe the first 1 for I think for probably for Mike Mike can you just remind us of from D. A.
On the.
Roll off that are are that are coming and then any impact to the G. P. N T line.
Yes, no big event occurs on October 1 that's on our Rex capacity goes from 6 to 400.
On a day so when you do the math on that racks all.
S P 50 cents so.
200, <unk>, that's about $35 million, a year and a half.
$5 million per quarter so.
That's the next big on and we have from Columbia Rolling off as well so after that it's a steady March down.
2024, when we meet the when the F T actually meets our production.
But the big Big ones on October 1.
Of this year.
Okay. That's great helpful and then just.
Given the inflationary environment that we're in right now can you just talk about how you're thinking about capex next year and any impact on on those levels.
Now, it's still maintenance capital.
You should assume we're at that for the foreseeable future do you remember the drilling JV with really what allowed us to stay at maintenance capital for at least next 4 years.
Still grow volumes to meet some of that ft capacity and achieve some midstream earn out so.
No need to come off that maintenance capital level, we are at this.
The scale and the fourth largest gas producers second largest liquids and seeing the rapid deleveraging.
Deleveraging that we're enjoying.
So on maintenance capital plan definitely from 'twenty, 2 and beyond.
Okay, but don't expect any.
Any sort of inflationary pressures on that number.
We don't see any inflationary and well obviously have measures in place to reduce well costs that are inflationary they should also.
Okay, great. Thank you guys.
Thanks Sally.
Thank you. Our next question comes from Jeffrey language on with 2.
During Holt please state your question.
Good morning, everyone. Thanks for taking my question.
As you guys mentioned the market you know in terms of commodity and generally equity performance has been seeing the benefits of industry remaining at that maintenance capital. So just given the shifts on the forward curve. How are you thinking about capital allocation to the drill bit over the next few years.
Page to growth or lack thereof, you know and I know you mentioned maintenance is what's assumed in the multi year free cash flow outlook, but more so I just wanted to get your bigger picture mindset on drill bit capital since the free cash flow profile allows you to execute on on a lot of your objectives from debt reduction and cash returns.
Yes, it's really maintenance capital.
I mentioned we're.
We're really enjoying the efficiencies we're seeing we've got everything lined out well all of our commitments needed to develop the field from midstream or transport in place now need to make more commitments. So.
It's really working out well for us. So we don't see any sort of deviation from that plan and as you mentioned.
Is it really get the debt down.
Substantially basically out of that so there'll be a lot of return on capital opportunities around that as well. So that's what we're going to pursue.
Thank you.
Thank you.
Thank you that's the end of our question and answer session I will now.
We did back to Brendan Cougar for closing remarks.
Thank you for joining us on today's call. Please reach out any further questions. Thank you all.
Thank you. This concludes today's conference all parties may disconnect have a great day.