Q2 2024 Antero Resources Corp Earnings Call - Q&A

Operator: Greetings and welcome to the Antero Resources second quarter 2024 earnings 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. It is now my pleasure to introduce your host, Brendan Krueger, Vice President of Finance. Thank you. You may begin.

Speaker Change: Greetings and welcome to the Antero Resources second quarter 2024 earnings call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

Speaker Change: 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.

Brendan Krueger: It is now my pleasure to introduce your host, Brendan Krueger, Vice President of Finance. Thank you.

Brendan Krueger: Yes, good morning. Thank you for joining us for Antero's second quarter 2024 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.anteroesources.com, where we have provided a separate earnings call presentation that will be reviewed during today's call. Today's call may contain certain non-GAAP financial measures.

Brendan Krueger: Yes, good morning. Thank you for joining us for Antero's second quarter 2024 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.

Speaker Change: 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.

Brendan Krueger: 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, CEO, and President; Michael Kennedy, CFO; Justin Fowler, Senior Vice President of Natural Gas Marketing; and Dave Cannelongo, Senior Vice President of Liquid Marketing and Transportation. I will now turn the call over to Paul.

Brendan Krueger: Today's call may 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.

Brendan Krueger: Joining me on the call today are Paul Rady, Chairman, CEO , and President.

Speaker Change: Michael Kennedy, CFO , Justin Fowler, Senior Vice President of Natural Gas Marketing, and Dave Cannelongo, Senior Vice President of Liquid Marketing and Transportation. I will now turn the call over to Paul.

Paul Rady: Thank you, Brendan, and good morning, everyone. I'm going to start my comments on slide number three titled Drilling and Completion Efficiency. We continue to realize impressive operational efficiency gains. During the second quarter, we exceeded our record performance from last year and the first quarter of this year.

Paul Rady: Thank you, Brendan, and good morning, everyone.

Paul Rady: I'm going to start my comments on slide number three, titled Drilling and Completion Efficiencies.

Speaker Change: We continue to realize impressive operational efficiency gains.

Speaker Change: During the second quarter, we exceeded our record performance that we had in 2023, that's just last year, and in the first quarter of this year.

Paul Rady: Starting with the chart on the left-hand side of our slide, our wells continue to get longer and averaged a quarterly record of over 18,000 lateral feet per well during this second quarter of 2024, 16% longer than our prior quarterly record. During the quarter, we completed a five-well pad that averaged nearly 20,000 lateral feet per well. The ability to drill these long laterals reflects the concentrated acreage position that we have built in West Virginia.

Brendan Krueger: Starting with the chart on the top left-hand side of our slide.

Brendan Krueger: Our wells continue to get longer and averaged a quarterly record of over 18,000 lateral feet per well.

Brendan Krueger: during this second quarter of 2024. This is 16% longer than our prior quarterly record.

Brendan Krueger: During the quarter, we completed a five-well pad that averaged nearly 20,000 lateral feet per well.

Brendan Krueger: The ability to drill these long laterals reflects the concentrated acreage position that we have built in West Virginia.

Paul Rady: We also benefit from our organic leasing efforts that are instrumental in filling in acreage blocks around our development program. On the drilling side, we've averaged four days from spud to kickoff point during the first half of the year, which is an improvement from the 4.4 days last year. On the completion side, we once again set a quarterly record, averaging 11.9 stages per day during the second quarter. This is an increase from the 10.7 stages per day in 2023.

Brendan Krueger: We also benefit from our organic leasing efforts that are instrumental in filling in acreage blocks around our development program.

Brendan Krueger: On the drilling side, we've averaged four days from spud to kickoff point during the first half of the year, which is an improvement from the 4.4 days last year, 2023.

Brendan Krueger: On the completion side, we once again set a quarterly record, averaging 11.9 stages per day during the second quarter.

Brendan Krueger: This is an increase from the 10.7 stages per day in 2023. These operational improvements resulted shorter cycle times as shown on the bottom of the page.

Paul Rady: These operational improvements resulted in shorter cycle times, as shown on the bottom of the page. Not only are we drilling these wells faster and more efficiently, but our well performance continues to be impressive. During the second quarter, we recorded the second highest production rate per well in company history, with one pad averaging 37 million cubic feet equivalent per day per well over 60 days. Slide number four highlights Antero's cumulative well productivity versus its peers. Since 2020, Antero's wells have outperformed the peer average well performance by 24%. Helping drive this outperformance has been improving liquids productivity in our liquids trend over that time. Now, let's turn to slide number five, entitled

Brendan Krueger: Not only are we drilling these wells faster and more efficiently, but our well performance continues to be impressive.

Brendan Krueger: During the second quarter, we recorded the second highest production rate per well in company history, with one pad averaging 37 million cubic feet equivalent per day per well over 60 days.

Brendan Krueger: Slide number four highlights Antero's cumulative well productivity versus our peers.

Brendan Krueger: Since 2020, Antero's wells have outperformed the peer average well performance by 24%.

Brendan Krueger: Helping drive this outperformance has been improving liquids productivity in our liquids trend over that time.

Paul Rady: Antero Capital Efficiency versus Pears. This slide depicts the tangible benefits from our operational efficiency gains and strong well performance. Antero has the lowest maintenance capital per MCF equivalent of its peer group at just $0.54 per MCFE. This is 43% below the peer average of $0.95 per MCF.

Brendan Krueger: Now let's turn to slide number five titled Antero Capital Efficiency versus Peers.

Brendan Krueger: This slide depicts the tangible benefits from our operational efficiency gains and strong well performance.

Brendan Krueger: Antero has the lowest maintenance capital per MCF equivalent of its peer group at just $0.54 per MCFE. This is 43% below the peer average of $0.95 per MCFE.

Paul Rady: Our capital efficiency provides us with important flexibility in our development plan. Given current natural gas prices, we were able to defer a pad from the third quarter until the end of this year. Despite this deferral, we are still able to increase our 2024 annual production guidance as a result of the strong productivity and efficiency gains. Now, to touch on the current liquids and NGL fundamentals. We're going to turn it over to our Senior Vice President of Liquids Marketing and Transportation, Dave Cannelongo, for his comments.

Brendan Krueger: Our capital efficiency provides us with important flexibility in our development plans.

Brendan Krueger: Given current natural gas pricing, we were able to defer a pad from the third quarter until the end of this year.

Brendan Krueger: Despite this deferral, we're still able to increase our 2024 annual production guidance as a result of the strong productivity and efficiency gains.

Dave Cannelongo: The second quarter of 2024 saw a continuation of the improved liquids fundamentals that we observed in the first quarter, providing for a strong start to the year. Propane exports continue to drive demand in the US NGL market, and rising export premiums have become a major tailwind for Antero's C3 Plus price realizations in 2024. Slide six shows historical propane exports according to weekly EIA data and highlights the consistent increases we have observed since the COVID pandemic began in 2020. In the second quarter of this year, the U.S. set a new weekly propane export record at 2.34 million barrels a day.

Brendan Krueger: Propane exports continue to drive demand in the US NGL market, and rising export premiums have become a major tailwind for Antero's C3 Plus price realizations in 2024.

Dave Cannelongo: Looking at the broader trend, export volumes have averaged above 1.7 million barrels a day on a quarterly basis since the fourth quarter of last year, which is higher than the annual average in 2023. The start of the third quarter has been lowered due to the impact of Hurricane Beryl on the Gulf Coast export docks this July, but we expect propane export numbers to recover and surpass previous quarters as we move through the remainder of this year.

Dave Cannelongo: The high export levels we are seeing in the market are testing the maximum threshold of U.S. dock capacity, particularly in the U.S. Gulf Coast. Slide number seven illustrates existing LPG export capacity in the Gulf Coast in the yellow area and actual LPG exports in the black line. Looking back to 2019, we saw a period of tightness at the LPG docks reflected by high utilization rates and low availability of spot cargo. This, in turn, led to very high premiums for Mt. Bellevue pricing for waterborne spot cargo.

Brendan Krueger: Looking back to 2019 and 2020, we saw a period of tightness at the LPG docks reflected by high utilization rates and low availability of spot cargoes.

Brendan Krueger: This, in turn, led to very high premiums to Mt. Bellevue pricing for waterborne spot cargos.

Dave Cannelongo: Several terminal expansions alleviated these constraints in 2020 and 2021. However, USNGL production and global LPG demand have continued to steadily increase, and we are now once again in a period of extremely tight terminal capacity and high dock premiums. We believe this environment will likely continue until several major expansions come online starting mid-2025 and into 2026.

Brendan Krueger: However, US NGL production and global LPG demand have continued to steadily increase, and we are now once again in a period of extremely tight terminal capacity and high dock premiums.

Brendan Krueger: We believe this environment will likely continue until several major expansions come online starting mid-2025 and into 2026.

Dave Cannelongo: As a reminder, Antero exports over 50% of its C++ production, skewed heavily towards propane, directly out of the Marcus Hook Terminal in Pennsylvania. As a result, Antero's export volumes are not impacted by any capacity constraints in the Gulf Code. Turning to slide number 8, this graph shows the recent actual premiums observed by market participants for FOB waterborne cargoes versus the pricing at Mount Belvedere. This July, premiums for cargoes loading in 30 to 60 days reached a high of 23 cents per gallon, the highest levels observed since January of 2020.

Dave Cannelongo: As we noted on last quarter's call, this year Antero has elected to sell a greater portion of our waterborne barrels against the international industry, as well as in the spot market, instead of entering into longer Mont Belvieu Link term deals. Therefore, we have been transacting in the spot market and receiving premiums similar to those shown in this graph for the vast majority of our propane export barrels. This has resulted in a significant uplift in our C3 Plus realized price and led to the increase in our NGL price guidance we just announced.

Brendan Krueger: Therefore, we have been transacting in the spot market and receiving premiums similar to those shown in this graph for the vast majority of our propane export barrels.

Dave Cannelongo: In other liquids highlights, China PDH utilization rates have recently returned to healthier levels even as new capacity build-out continues. EDH utilization rates have increased above 70% in recent weeks, compared to approximately 60% over the last two years. Current China PDH demand is estimated at over half a million barrels per day, and market consultants project this to grow to over 580,000 barrels per day by the end of 2024, as more capacity comes online and utilization remains strong.

Brendan Krueger: In other liquids highlights, China PDH utilization rates have recently returned to healthier levels even as new capacity build-out continues.

Brendan Krueger: Current China PDH demand is estimated at over half a million barrels a day, and market consultants project this to grow to over 580,000 barrels per day by the end of 2024, as more capacity comes online and utilization remains strong.

Dave Cannelongo: To conclude, Antero is extremely well-positioned to take advantage of the current dynamics supporting stronger NGL prices, particularly in the propane market. Our unconstrained export position at Marcus Hook and marketing strategy of leaving more barrels available in the spot market this year have allowed us to capture unprecedented export premiums. And we expect those strong values to largely continue until further Gulf Coast export capacity is added in mid-2025 and 2026. These tailwinds have allowed Antero to increase our NGL pricing guidance to a $1, $2 per barrel premium to Mount Bellevue for 2024. I'll now turn it over to our Senior Vice President of Natural Gas Marketing, Justin Fowler, to discuss the natural gas market.

Speaker Change: To conclude, Antero is extremely well-positioned to take advantage of the current dynamics supporting stronger NGL prices.

Speaker Change: Our unconstrained export position at Marcus Hook and marketing strategy of leaving more barrels available in the spot market this year have allowed us to capture unprecedented export premiums.

Brendan Krueger: And we expect those strong values to largely continue until further Gulf Coast export capacity is added in mid-2025 and 2026.

Justin Fowler: Thanks, Dave. The recent softness in natural gas pricing is occurring despite record high summer natural gas power burn that has exceeded even the most optimistic forecast. Hire imports from Canada, where storage levels are nearly full, combined with extended downtime at LNG facilities, has resulted in storage levels that are still historically high at over 400 B.C.F. above the five-year average.

Brendan Krueger: Higher imports from Canada where storage levels are nearly full, combined with extended downtime at LNG facilities, has resulted in storage levels that are still historically high, at over 400 BCF above the five-year average.

Justin Fowler: With that said, the surplus in inventory has shrunk by over 200 BCF since March, and our constructive outlook for 2025 remains relatively unchanged. We continue to believe low rig counts combined with an upward step change in demand will support a continued tightening of inventories and lead to higher prices in 2025 and beyond. Now, let's look at slide number nine titled, Not All Transport to the U.S. Gold Coast is Equal.

Justin Fowler: I've highlighted this slide in prior quarters, but thought it would be helpful to provide an update on how pricing has changed since our last update. As we approach the start-up of the Venture Global Plaquemine LNG facility, which is expected to be in service this month, we have seen TGP 500L pricing premiums to Henry Hub increase even further. Calendar 2025 through 2027 board curves show premiums exceeding 50 cents per MMBTU. However, when you look back at pricing one year ago, premiums were under $0.10 per MMBT.

Brendan Krueger: I've highlighted this slide in prior quarters, but thought it would be helpful to provide an update on how pricing has changed since our last update.

Brendan Krueger: As we approach the startup of the Venture Global Plaquemine LNG facility, which is expected to be in service this month, we have seen TGP 500L pricing premiums to Henry Hub increase even further.

Brendan Krueger: Calendar 2025 through 2027 board curves show premiums exceeding $0.50 per MMBTU.

Brendan Krueger: When you look back at pricing one year ago, premiums were under $0.10 per MMBTU.

Justin Fowler: As a reminder, Antero holds 570,000 MMBTU per day of firm delivery to the 500L pool, or 63% of the supply that will feed the Kinder Morgan TGP Evangeline Pass Phase I project capacity to the Plaquemine LNG facility. Additionally, we sell substantially all of our natural gas out of Basin, including approximately 75% to the LNG corridor, while our peers on average sell less than 15% of their natural gas into the LNG port.

Brendan Krueger: or 63% of the supply that will feed the Kinder Morgan PGP Evangeline Pass Phase 1 project capacity to the Plaquemine LNG facility.

Brendan Krueger: While our peers on average sell less than 15% of their natural gas into the LNG corridor.

Justin Fowler: Our firm transportation portfolio provides us with direct exposure to the growing LNG demand along the Gulf Coast and, importantly, into Tier 1 pricing points in the vicinity of the major LNG facilities. With several new LNG facilities starting up over the next year, we expect to see a widening spread between sales points near Henry Hub and sales points outside of this premium market. Next, let's turn to the chart on slide number 10, titled U.S. Power.

Brendan Krueger: Our firm transportation portfolio provides us with direct exposure to the growing LNG demand along the Gulf Coast, and importantly, into Tier 1 pricing points in the vicinity of the major LNG facilities.

Brendan Krueger: With several new LNG facilities starting up over the next year, we expect to see a widening spread between sales points near Henry Hub and sales points outside of this premium market.

Brendan Krueger: Next, let's turn to the chart on slide number 10, titled U.S. PowerBurn.

Justin Fowler: In addition to the highly anticipated ramp and LNG demand of 20 BCF by the end of the decade, electric power generation demand continues to be highly topical. During the first half of 2024, natural gas power burn is expected to increase approximately 1.4 BCF a day compared to the same period last year. Well, over the last decade, we've seen annual increases of 1.3 BCF per day. We believe this trend of higher natural gas power burn demand will continue going forward, driven by demand growth from AI data centers.

Brendan Krueger: During the first half of 2024, natural gas power burn has increased approximately 1.4 BCF a day compared to the same period last year.

Brendan Krueger: Well, over the last decade, we've seen annual increases each year average 1.3 BCF per day.

Justin Fowler: Crypto Mining and Electric Vehicles, Factors including another wave of coal plant retirements beginning in 2025 and the market share of this demand growth that is ultimately met by natural gas could lead to meaningful higher demand. Natural gas is the most reliable, accessible, and affordable energy resource available today to fill these future demand needs. With that, I will turn it over to Mike Kennedy, Antero's CFO. Thanks, Justin.

Brendan Krueger: Natural gas is the most reliable, accessible, and affordable energy resource available today to fill these future demand needs.

Michael Kennedy: I'd like to start with slide number 11 titled, Lowest Pre-Cash Flow Breaking. This slide compares 2024 unhedged free cash flow breakeven levels across our peer groups. To add to what Dave just highlighted, the increase in our NGL pricing guidance adds an incremental $60 million to our free cash flow in 2024 and pushes our natural gas break-even level even lower. Our $2.20 MCF breakeven level benefits from two primary drivers. First, our low maintenance capital requirements.

Speaker Change: I'd like to start with slide number 11 titled Lowest Free Cash Flow Breakeven.

Brendan Krueger: To add to what Dave just highlighted, the increase in our NGL pricing guidance adds an incremental $60 million to our free cash flow in 2024 and pushes our natural gas break-even level even lower.

Speaker Change: Our $2.20 MCF break-even level benefits from two primary drivers. First, our low maintenance capital requirements.

Michael Kennedy: Driven by the capital efficiency gains that Paul detailed earlier, we were able to reduce our annual drilling and completion budget by over $200 million this year while maintaining flat production. We expect this maintenance capital level, in and around $700 million, to be sustainable going forward. The second driver is high exposure to liquids.

Brendan Krueger: Driven by the capital efficiency gains that Paul detailed earlier, we were able to reduce our annual drilling and completion budget by over $200 million this year, while maintaining flat production.

Speaker Change: We expect this maintenance capital level, in and around $700 million, to be sustainable going forward.

Michael Kennedy: Despite the weakness in the natural gas price, which averaged just $2.07 per MCF through the first half of 2024, strong C3 plus NGL prices have provided a $1.10 per MCF uplift to our equivalent price realizations during that period. Importantly, this low free cash flow breakeven provides downside protection throughout the cycle. The chart on the right-hand side of the slide illustrates first half 2024 unhedged free cash flow. While we just have a small outspend here today, our gas peers with higher breakeven levels show unsustainable outflows. We believe this analysis is the best way to determine the true economics and strength of a company's development program. The bottom line comes down to who is best positioned to protect the downside, with the lowest break-even price, and capture the upside with the greatest exposure to Henry Hub Price.

Speaker Change: The second drivers are high-exposure liquids.

Speaker Change: Despite the weakness in the natural gas price.

Speaker Change: which averaged just $2.07 per MCF through the first half of 2024, strong C3 plus NGL prices have provided $1.10 per MCF uplift to our equivalent price realizations during that period.

Speaker Change: Importantly, this low free cash flow breakeven provides downside protection throughout cycles.

Speaker Change: The chart on the right-hand side of the slide illustrates first half 2024 unhedged free cash flow.

Speaker Change: While we just have a small outspend year today, our gas peers with higher break-even levels show unsustainable outspends.

Brendan Krueger: We believe this analysis is the best way to determine the true economics and strength of a company's development program.

Brendan Krueger: The bottom line comes down to who is best positioned to protect the downside with the lowest break-even price and capture the upside with the greatest exposure to Henry Hub pricing.

Michael Kennedy: A further testament to this peer-low reinvestment rate was the upgrade in investment-grade credit ratings that we achieved during the second quarter. Essential to this upgrade was the low maintenance capital and $2 billion of debt reduction we have achieved since we began our debt reduction program in 2019. Turning to slide 12, you can see the credit rating momentum that we had during this time. Following this upgrade, we entered into a new unsecured credit facility that closed earlier this week, and we expect $15 million in annual interest savings and have realized over $350 million of additional liquidity. With that, I will now turn the call over to the operator for questions. Thank you.

Brendan Krueger: A further testament to this peer-low reinvestment rate was the upgrade to an investment-grade credit rating that we achieved during the second quarter.

Brendan Krueger: Essential to this upgrade was the low maintenance capital and two billion dollars of debt reduction we have achieved since we began our debt reduction program in 2019.

Brendan Krueger: Turning to slide number 12, you can see the credit rating momentum that we had during this time.

Brendan Krueger: Following this upgrade, we entered into a new unsecured credit facility that closed earlier this week and expect $15 million in annual interest savings and have realized over $350 million of additional liquidity.

Speaker Change: With that, I will now turn the call over to the operator for questions.

Operator: And ladies and gentlemen, at this time, we will conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. One moment, please, while we pull for questions. And our first question comes from Bert Donnes with Truist Securities. Please state your question.

Speaker Change: Thank you.

Speaker Change: And ladies and gentlemen, at this time we will conduct our question and answer session.

Speaker Change: If you would like to ask a question, please press...

Speaker Change: Star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue.

Speaker Change: You may press star 2 if you would like to remove your question from the queue.

Brendan Krueger: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions.

Speaker Change: And our first question comes from Bert Donnes with Truist Securities. Please state your question.

Michael Kennedy: Hey, good morning team. I just wanted to start off on the deferred pad that you disclosed. Is that timing set in stone for year-end, or is that a, you know, wait-and-see if prices improve situation? And then maybe logistically, how does that work for the service cost? Did you already have a price locked in, or will you renegotiate when you go to complete that pad?

Bert Dons: Hey, good morning team. I just wanted to start off on the deferred pad that you disclosed. Is that timing set in stone for year-end or is that a, you know, wait and see if prices improve situation? And then maybe logistically, how does that work for the service cost? Did you already have a price locked in or will you renegotiate when you go to complete that pad?

Michael Kennedy: Hi Bert, Mike Kennedy. No, that is still to be determined, really, just natural gas prices. We deferred it to turn in line basically at the end of the year, beginning of next, just to try to get into winter pricing. And, of course, natural gas prices are dynamic and fluid, so if those change, we defer that even further. And the pricing, it's a spot crew, so we have a general kind of pricing mechanism around commodity prices that it follows, so it is a spot price as well for the completion crew.

Speaker Change: Hi Bert, Mike Kennedy. No, that is still to be determined really, just natural gas prices. We deferred it to turn in line basically at the end of the year, beginning of next, just to try to get into the winter pricing.

Speaker Change: season, but of course, you know...

Speaker Change: Natural gas prices are dynamic and fluid, so if those change, we can infer that even further. In the pricing, it's a spot crew, so we have a general kind of pricing mechanism around commodity prices that it follows, so it is a spot pricing as well for the completion crew.

Operator: Okay, perfect. Thanks.

Speaker Change: Okay, perfect. Thanks. And then the next one, on the longer laterals, you know, I, to be honest, I was kind of expecting some sort of productivity dip when you go to 20,000 feet, but on a per foot, it looked just in line with your short laterals.

Speaker Change: Could you maybe talk about the cost savings area? If you were to drill two 10,000-foot laterals instead of one of these 20,000-foot laterals, if you just put some numbers around that, you know, just anything there.

Paul Rady: And then the next one, on the longer laterals, you know, I was kind of expecting some sort of productivity dip when you go to 20,000 feet, but on a per foot basis, it looked just in line with your short laterals. Could you maybe talk about the cost savings area if you were to drill a 10,000 foot lateral instead of one of these 20,000 foot laterals? If you just put some numbers around that, you know, just anything. Yeah, I don't know those exact numbers. We haven't drilled yet.

Paul Rady: Yeah, I don't know those exact numbers. We haven't drilled a 10,000 foot well in quite some time. So I don't know what those are, but our numbers on those longer laterals are in the low $900.

Speaker Change: Yeah, I don't know those exact numbers. We haven't drilled a 10,000-foot well in quite some time, so I don't know what those are, but our numbers on those longer laterals are in the low $900 per foot.

Speaker Change: Gotcha, Mason. Thank you. Yep.

Operator: Our next question comes from Arun Jayaram with J.P. Morgan Chase & Company. Please state your question.

Speaker Change: Our next question comes from Arun Jayaram with J. P. Morgan Chase & Company. Please state your question.

Paul Rady: Yeah, my first question is regarding some of the completion efficiency gains. You mentioned that you averaged 12 stages per day. There are a lot of different technologies that producers are using, Simulfrac, and Trimulfrac. I was wondering if you could maybe shed some light on your process, what you're doing at Antero. I think it's a continuous pumping technique that you're using. I'd love to see if you can shed some more light on that and what percentage of your mix you are using that for today.

Arum Jayaram: My first question is regarding some of the completion efficiency gains. You mentioned that you've averaged 12 stages per day. There's a lot of different...

Arum Jayaram: technologies that producers are using, simulfrac, trimulfrac, I was wondering if you could maybe shed some light

Arum Jayaram: on your process, what you're doing at Antero. I think it's a continuous pumping technique that you're using. I'd love to see if you can shed some more light on that and what percentage of your mix are you using that for today.

Paul Rady: Yeah, I think we talked about a certain concept that didn't elaborate on it in the last earnings call, but we have, Oh, I don't know about perfected, but modernized the manifold system as we switch back and forth doing zipper fracks between our laterals on a pad. So, whereas we used to sling a lot of iron, you'd see us, you know, banging iron and disconnecting well heads and reconnecting them in a fairly elaborate manifold.

Paul Rady: Now, it's more computerized, and we can switch on and off and shift back and forth quite quickly, so I give kudos to our operating group for developing this automatic manifold system that can switch back and forth quite readily.

Paul Rady: And what percentage of your wells, Paul, are you using that process on today?

Paul Rady: 100%

Operator: We only have one completion, so... understood, appreciated.

Speaker Change: We only have one completion for myself. Understood, understood. I had a follow-up for Justin.

Justin Fowler: I had a follow-up for Justin. I wanted to get your take on the PJM auction results earlier this week. I know that the results were, you know, the pricing was higher than the street was anticipating, much higher. And I was wondering if you could talk about some of the implications for natural gas, because it looks like, you know, it is going to give some incremental advantages when talking to our electric utility team for dispatchable generation, i.e.

Speaker Change: And I was wondering if you could talk about some of the implications.

Justin Fowler: natural gas. Do you expect to see some increase in gas-fired capacity peakers from, you know, market forces, so to speak? And perhaps we didn't really see the gas curve move on that, but I wanted to get your thoughts, Justin.

Speaker Change: for Dispatchable Generation, i.e. natural gas. Do you expect to see...

Justin Fowler: Yeah, good morning, Arun. It's Justin.

Justin Fowler: When we look out at, you know, PJM, MISO, and then CERC, we have been thinking of that as about a BCF of natural gas demand additions toward the end of the decade. So when we total it up, maybe it ends up being around five BCF per day. By 2030, To your point on the auctions and the PJM pricing, you know, with all the AI data center growth with the other projects that have been announced in the PJM area, West Virginia, West Virginia, and then the Carolinas.

Justin Fowler: You know, we have been, you know, categorizing that as the AI data center growth and then that power draw from those locations. So, we expected the PJM to potentially start trading higher and then as these power projects continue forward, you know, we've chatted to several groups, one in particular in West Virginia near us, but it seems that that natural gas need will continue to grow if those projects move forward.

Operator: Great, thanks a lot.

Speaker Change: You know, we have been

Speaker Change: you know, categorizing that as the AI data center growth and then that power draw from those locations, so

Speaker Change: expected the PJM to potentially start trading higher and then as these power projects continue forward, you know, we've chatted to several groups, one in particular in West Virginia near us, but...

Operator: Our next question comes from Ati Modak with Goldman Sachs. Please state your question.

Speaker Change: Great. Thanks a lot.

Speaker Change: Our next question comes from Ati Modak with Goldman Sachs. Please state your question.

Michael Kennedy: Hi. Good morning, team. On the last call, you mentioned that the potential for shareholder returns was maybe in the first half of next year. With the developments around macro since then, how are you thinking about the trajectory of gas prices now, and then how does that change your timing expectations around the return of capital?

Ati Modak: Hi. Good morning, team. So, last call, you mentioned that the potential for shareholder returns was maybe in the first half of next year. With the developments around the macro since then, how are you thinking about the trajectory of gas prices now, and then how does that change your timing expectations around return of capital?

Michael Kennedy: Yeah, you know, just to reiterate what we said, which still holds true, first $500 million-ish of free cash flow, I think it's around $600 million, where our credit facility's at at $630,000, goes the debt pay down, that would get our credit facility down to zero and then take out that stuff, $26,000,000 that are still outstanding and it's just under $100 million, and then from there it would be $50,000,000 to shareholder returns in the form of shared buybacks, most likely, and then further debt pay down, and then we actually, we have a 2030 note out that's got a 5 and 3 8 coupon, which will probably still leave outstanding, so once you get through finding those 29s, then it would be, the vast majority would go to shareholder buybacks, so that still holds, it's obviously, you hit on it, it's dependent on commodity prices, commodity prices since last quarter have trended a bit lower, so it doesn't look like that's going to occur in 2024, but definitely today's commodity prices occur sometime in 2025.

Speaker Change: Yeah, you know, just to reiterate what we said, which still holds true, uh, first...

Speaker Change: $500 million-ish of free cash flow. I think it's around $600 million where our credit facility is at at $630 million. It goes to debt pay down.

Speaker Change: to shareholder returns in the form of shared buybacks most likely.

Speaker Change: And then we actually, we have a 2030 note out that's got a 5 and 3 8 coupon, which will probably still leave outstanding. So once you get through finding those 29s, then it would be, the vast majority would go to shareholder buyback. So, that still holds.

Paul Rady: That's very helpful, thank you. And then, thanks for the color on the automated manifold system. Just curious, in terms of continued efficiencies from here on, is that going to be driven by other components of the well construction process here, or is there something incremental on top of the automated zipper frac that you're thinking of?

Paul Rady: This is the, I'd say, the basic innovation. We just have the one frack crew, but we've been using the manifold system for the last quarter at least, internally developed, and so I think that's our main innovation at the moment.

Paul Rady: Then I'd add one other, you know, we are going to test out on spot fleets, the e-fleets. Yeah, so we'll see how those perform. Right now we're using dual fuel, and e-fleets generally have less vibration. So maybe that'll lower the downtime even further, but that's kind of the next innovation we're going to pilot. Thank you.

Speaker Change: Then I'd add one other, you know, we are going to test out on spot fleets, the e-fleets. So we'll see how those perform. Right now we're using a dual fuel.

Speaker Change: And the E-fleets generally have less vibration, so maybe that'll lower the downtime even further, but that's kind of the next innovation we're going to pilot.

Operator: Thank you. Thank you so much for the call.

Operator: Our next question comes from David Deckelbaum with TD Cowan. Please state your question.

Speaker Change: Our next question comes from David Deckelbaum with TD Cowan. Please state your question.

Operator: Hi David. Hey guys, thanks. Hey, how are you guys?

Operator: Thanks for taking my questions today. You know, I wanted to just ask, like, one question: the deferred TILs into the fourth quarter, I guess, should we still think about those as contingent on gas prices, or are they so included in the program that they're going to be completed that quarter anyway? No.

Michael Kennedy: No, they're still to be determined, David. It's basically on winter pricing for natural gas.

Paul Rady: And then, you know, you mentioned recently, I guess, just in the last question about the eFleet. When is that being deployed in the program? Is that the beginning of 25?

Paul Rady: No, that's the Spot Fleet we're talking about. We may end up swapping out our current dual fuel for that E-fleet if the E-fleet performs at or above the dual fuel performance. So that may become the main base fleet, but right now, it's our spot fleet going forward.

Speaker Change: We may end up swapping out, actually, our current fuel for that E-fleet, if the E-fleet

Michael Kennedy: And then, Mike, just the last one for me, just given all of the capital efficiency gains this year, obviously with longer lateral lengths and a lot of the improvements in cycle times, even in you know, more of the liquids-rich window, you know, does that kind of challenge your view that perhaps that $700 million of DNC for maintenance declines a little bit in the next couple of years as base decline improves while also this wellhead performance is improving along with cycle times?

Michael Kennedy: Now, you know, all of our future projections assume 10.7 completion stages per day. But we've averaged close to 12 in this first half.

Speaker Change: Now, you know, all of our future projections assume that 10.7 completion stages per day, we've averaged close to 12 this first half.

Michael Kennedy: Same with the records that Paul was outlining; none of that was incorporated into those long-term projections. Really, that ability to be at 700 in and around that and then trend lower was just based on the decline rates coming down as you just put more and more years of maintenance capital into the stack. So that's really what was driving that. If we continue to see these improvements and get comfortable with incorporating them into future projections, I think that you could see a trend lower, not just because of the declines but also because of these efficiencies.

Speaker Change: Same with the record set.

Speaker Change: Paul is outlining none of that was incorporated into those long-term projections.

Speaker Change: Really, that ability to be at 700 in and around that and then trend lower was just based on decline rates coming down as you just put more and more years of maintenance capital into the stack. So that's really what was driving that. If we continue to see these improvements and get comfortable with

Speaker Change: incorporating them in future projections. I think that you could see a trend lower, you know, not just because of the declines but also because of these efficiencies.

Operator: I appreciate it, guys. Thank you.

Operator: Our next question comes from John Abbott with Wolf Research. Please state your question.

Operator: Good morning, guys. I'm on for Doug Leggett, and thank you for taking our questions. Our questions are really going to center around slides number 7, slide number 9, and slide number 11. So for the first question on slide number 9, which we show the various differentials and premiums towards Henry Hub. How do you think about your premium versus Henry Hub as you head into 2025 and 2026? And then, for the second question, you gave us what your cash flow breakeven is for 2024?

Speaker Change: Good morning, guys. I'm on for Doug Leggett, and thank you for taking our questions.

Speaker Change: Our questions are really going to center around slides number 7, slide number 9, and slide number 11.

Speaker Change: And then for the second question, you gave us what your cash flow break-even is for 2024. But you're going to get the higher premiums potentially here from gas prices.

Operator: But you're going to get higher premiums potentially here from gas prices as you go on 25 and 26, and then there's going to be some sort of offset as more export capacity for propane comes online. So how do you think about your break-even trending over a three-year period of time?

Speaker Change: As you go on 25 and 26, and then there's going to be some sort of offset as more export capacity for propane comes online. So how do you think about your break-even trending over a three-year period of time?

Michael Kennedy: Yeah, good questions. That all should trend in our favor just because of our exposure to the LNG corridor. That slide you referenced, slide number nine shows how it increases over the next three years just because of that demand that's coming online. So that all accrues to us.

Speaker Change: Yeah, good questions. It all should trend in our favor just because of our exposure to the LMG corridor. That slide you referenced, slide number nine, shows how it increases over the next three years.

Speaker Change: just because of that demand that's coming online.

Michael Kennedy: When we look at it right now, just putting in these market prices, estimates for 2040 are 10 cents versus Henry Hub next year, you know, it'd be more like 10 to 20 cents and the following years are 20 to 30 cents. So it picks up about a dime each of those years, and that would obviously lower our break even, almost a one for one amount on that. So that's definitely something that Antero is exposed to and has in our models going forward, increasing free cash flow over that timeframe.

Speaker Change: Estimates for 2024 are 0 to 10 cent premium versus Henry Hub. Next year, you know, it'd be more like 10 to 20 cent, and the following years, it's 20 to 30 cent. So it picks up about a dime each of those years. And that would obviously lower our break-evens.

Speaker Change: almost a one-for-one amount on that. So that's definitely something that Antero's exposed to and has in our models going forward, increasing free cash flow over that timeframe.

Operator: I appreciate it. Thank you very much for taking our questions. Yes.

Speaker Change: Appreciate it. Thank you very much for taking our questions. Yep.

Operator: Thank you. And our next question comes from Jacob Roberts with TBH and Company. Please state your question.

Speaker Change: Thank you. And our next question comes from Jacob Roberts with TBH & Company. Please state your question.

Paul Rady: I just wanted to touch on the longer laterals again. Wondering if you could frame the current opportunity in the inventory for the 18,000 plus. And then, if you're able to point out, is there a portion of the land capital that's dedicated to extending laterals in the portfolio?

Jacob Roberts: Good morning.

Speaker Change: Morning. Morning, everybody. We're live on the WSJ. It's 4 a.m. We're live on the WSJ. It's 4 a.m. We're live on the WSJ. We'll see you back here tomorrow. We're live on the WSJ.

Speaker Change: I just wanted to touch on the longer laterals again, wondering if you could frame the current opportunity

Speaker Change: in the inventory for the 18,000 plus. And then if you're able to point to, is there a portion of the land capital that's dedicated to extending laterals in the portfolio?

Paul Rady: Yes, yes, that we, when we have an opportunity to go longer, we definitely tie up the leasehold. And so that's where a lot of it is being spent, controlling so much of those units, but we can beef them up just a little bit more when we see the physical opportunity to go longer. So that is where we're spending our land capital is longer or more of, of Wells and Prospects nearby.

Speaker Change: Yes, yes, that we, when we have an opportunity to go longer, we definitely tie up the leasehold and so that's where a lot of it is being spent.

Speaker Change: control so much of those units but we can beef them up just a little bit more when we see the physical opportunity to go longer so that is where we're spending our land capital is longer or more of

Michael Kennedy: Okay, perfect. And then the ethane volumes for the quarter seemed a little bit lumpy. Could you just frame what you expect the run rate to be from here going to Shell, please?

Speaker Change: wells and prospects nearby.

Speaker Change: OK, perfect. And then on the ethane volumes on the quarter seemed a little bit lumpy. Could you just frame what you expect the run rate to be from here going to Shell, please?

Michael Kennedy: Yeah, we got more than just shell, so we don't guide around shell, but it's around our ethane production. And we kept guidance flat on that. We had good performance in the second quarter. So we'll continue to see how that plays out the rest of the year. But we continue to maintain that ethane production guidance of 76,000 barrels to 80,000 barrels a day. Perfect. Appreciate the time, guys.

Speaker Change: Yeah, we got them all in this shell.

Speaker Change: Shell, so we don't guide around Shell, but it's around our ethane production and we kept guidance flat on that.

Speaker Change: Well, we had good performance in the second quarter.

Speaker Change: So, we'll continue to see how that plays out the rest of the year, but we continue to maintain that ethane production guidance of 76,000 barrels to 80,000 barrels a day.

Speaker Change: Perfect. Appreciate the time, guys.

Jacob: Thanks Jacob.

Operator: And our next question comes from Trafford Lamar with Raymond James. Please state your question.

Speaker Change: Thank you.

Speaker Change: And our next question comes from Trafford Lamar with Raymond James. Please state your question.

Michael Kennedy: Hi guys, thanks for taking my questions. I guess the first one, looking at slide number three, just want to confirm the updated production guidance, is that based on a completion stage run rate of 12 per day?

Trafford Lamar: Hi guys, thanks for taking my questions. I guess the first one, looking at slide number three, just want to confirm, the updated production guidance, is that based on a completion stage run rate of 12 per day?

Michael Kennedy: No, well, it is because we realized that in the first half, but it's not incorporating that into the second half schedule. So that's really just looking at our outperformance in the first half of the year. We averaged around 3.425 BCFE a day. That production drifts lower throughout the rest of the year and thus gets us down to that new production guidance of 3.375 to 3.425 for the annual amount.

Speaker Change: No, that, well, it is because we realized that in the first half, but it's not incorporating that into the second half schedule, so.

Speaker Change: That production drifts lower throughout the rest of the year and thus gets us down to that new production guidance of 3,375 to 3,425 for the annual amount.

Operator: Okay, perfect. And then the second one is on land spend. I noticed you all were able to acquire incremental locations at a material discount to 1Q on a per location basis. Is that really – are you all seeing the ground floor bid spread become more favorable? Is that acreage comparable to what you all purchased in the first quarter?

Speaker Change: Okay, perfect. And then the second one is on land spend. Notice you all were able to acquire incremental locations at a material discount to 1Q on a per location basis.

Speaker Change: Is that really, are y'all seeing the ground floor bid spread ask becoming more favorable? Is that acreage comparable to what y'all purchased in the first quarter?

Michael Kennedy: It is comparable, and it is becoming more favorable. You know, obviously, you have lower commodity prices and low gas prices, so acreage generally trends in that direction, which way commodity prices go. So with lower prices comes lower acreage values, generally.

Speaker Change: It is comparable and it is becoming more favorable, you know, obviously you have lower commodity prices and low gas prices, so acreage generally trends in that direction, which way commodity prices go. So with lower prices comes lower acreage values generally.

Operator: Perfect, thanks guys. Yep.

Operator: Yeah, thanks, Trafford.

Speaker Change: Perfect. Thanks, guys. Yep. Thanks, Trafford.

Operator: Thank you. And our next question comes from Kevin MacCurdy with Pickering Energy Partners. Please state your question.

Speaker Change: Thank you. And our next question comes from Kevin MacCurdy with Pickering Energy Partners. Please state your question.

Dave Cannelongo: Hey, good morning. We appreciate all the details on C3 plus pricing and your prepared remarks and the details on the strong international markets. I wonder if you could give some more color on how your ethane is being priced and what kind of uplift you're getting there.

Kevin McCurdy: Hey, good morning. We appreciate all the details on C3 plus pricing and your prepared remarks and the details in the strong international markets. I wonder if you could give some more color on how your ethane is being priced and what kind of uplift you're getting there.

Dave Cannelongo: Yeah, Kevin, this is Dave Cannelongo. You know, we've alluded in the past that we've been migrating more towards gas-linked pricing. So, you know, I would say today, we're probably in that two-thirds gas, one-third Mont Belvue range here in 2024. And then as we move into 25 and 26, that Mont Belvue linked trend goes down closer to call it maybe 20%. And the balance is really tied to, you know, fixing in a gas uplift for the ethane barrels that we recover.

Speaker Change: Yeah, Kevin, this is Dave Cannelongo.

Speaker Change: I've alluded to in the past that we've been migrating more towards gas-linked pricing. So I would say today we're probably in that two-thirds gas, one-third Mont Belvue range here in 2024. And then as we move into 2025 and 2026, that Mont Belvue-linked...

Speaker Change: Trends down closer to call it maybe 20% and the balance really tied to, you know, fixing in a gas uplift for the ethane barrels that we recover.

Dave Cannelongo: Gotcha. And that gas price would be at an IMAX plus or a local price plus price? Yeah, NYMEX is really how we've formed.

Speaker Change: Gotcha, and that gas price would be at an IMEX plus or a local price plus price?

Dave Cannelongo: Yeah, NYMEX is really how we've formed our program over the years.

Speaker Change: Yeah, NYMEX is really how we've formed our program over the years.

Speaker Change: Thank you for talking to me.

Brendan Krueger: Thank you. There are no further questions at this time. I'll turn the floor back to Brendan Kruegger for a closing remark.

Kevin McCurdy: Thanks, Kevin.

Speaker Change: Thank you. There are no further questions at this time. I'll turn the floor back to Brendan Krueger for closing remarks.

Brendan Krueger: Yes, thank you for joining us on today's call. Please reach out with any further questions. Thank you.

Brendan Krueger: Yes, thank you for joining us on today's call. Please reach out with any further questions. Thank you.

Operator: This concludes today's conference. All parties may disconnect. Have a good day.

Speaker Change: This concludes today's conference. All parties may disconnect. Have a good day.

Speaker Change: and many others.