Q3 2024 Antero Resources Corp Earnings Call
Speaker Change: Greetings. Welcome to Antero.
Speaker Change: Resources third 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 please press star 0 on your telephone keypad.
As a reminder, this call is being recorded. It is now my pleasure to introduce Brendan Krueger, CFO of Antero Midstream and Vice President of Finance. Thank you.
Thank you. Good morning, everyone. Thank you for joining us for Antero's third quarter 2024 investor conference call.
Speaker Change: Thank you.
We'll spend a few minutes going through the financial and operating highlights, and then we'll open it up for Q&A. I would also like to direct you to the homepage of our website at www.anteroresources.com, where we have provided a separate earnings call presentation that will be reviewed during today's call.
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.
Joining me on the call today are Paul Rady, Chairman, CEO and President, Michael Kennedy, CFO
Speaker Change: Justin Fowler, Senior Vice President of Natural Gas Marketing, and Dave Cannelongo, Senior Vice President of Liquids Marketing and Transportation. I will now turn the call over to Paul.
Thank you, Brendan, and good morning, everyone.
I'll start my comments on slide number three titled Drilling and Completion Efficiencies.
Our 2024 Operating Performance continues to set new records.
I'd like to highlight the significant gains that we've achieved over the past two years.
Speaker Change: Faster drilling times have reduced the required time it takes for us to drill a well. Now it's below 11 days from 14 days in 2022.
This is a 22% reduction from 2022, and on the completion side, we again set a new quarterly record averaging 12.1 stages per day.
Speaker Change: And in this last August, we set a new monthly record at 13.3 completion stages per day.
The quarterly average represents a 51% increase compared to the completion stages per day average in 2022.
These improvements in drilling and completion rates result in reduced cycle times.
Shown in the chart on the bottom of the slide, our cycle times have declined to 126 days, which is 23% below the 2022 level of 163 days.
Overall, these improvements have reduced our total well cost by 8% since last year to their lowest level since 2021.
Speaker Change: These step changes in operating efficiencies directly result in reduced capital expenditure requirements. This is shown on slide number four, titled Reduced Capital Budget.
Speaker Change: For this year, 2024, we reduced our drilling and completion capital budget to $650 million at the midpoint, a 28% decrease from 2023 while holding production flat.
A significant driver behind this lower capital is that today we are able to sustain maintenance production with just two rigs and approximately one completion crew.
Looking ahead to 2025, we will continue to focus on improving our efficiency.
Speaker Change: We recently switched to an E-Fleet for our completion activity. Early results have been encouraging and we estimate potential future well-cost savings could be upwards.
Speaker Change: of $150,000 to as much as $200,000 per well, driven by increased pumping time and lower fuel costs.
Speaker Change: Thank you for watching. Please subscribe to our channel.
Now, to touch on the current liquids and NGL fundamentals, I'm going to turn it over to our Senior Vice President of Liquids Marketing and Transportation, Dave Cannelongo, for his comments. Dave?
Thanks, Paul.
Realizing strong export premiums for our LPG sales highlighted our third quarter liquids results.
The expected dynamic resulting from U.S. Gulf Coast export dock constraints discussed last earnings call ultimately played out to our benefit as we continued to execute on our strategy to target international prices and market the vast majority of our export barrels in the spot market.
Because export cargos are being marketed 30 to 60 days before actual ship loadings, we have great visibility into our C3Plus realizations for the remainder of 2024 and expect these premiums to remain in place for the next several quarters.
Slide number 5 shows historical propane exports and highlights the consistent increases we have observed over the past four years.
Speaker Change: Export volumes have averaged over 1.7 million barrels a day year-to-date, setting up for another record export year.
Since 2021, exports have increased 46%, driven by resilient international demand, particularly from Asia.
Speaker Change: Thank you. Thank you. Thank you.
As seen on slide number six titled Antero Holds Northeast LPG Export Advantage, export capacity additions in the U.S. are not expected until the second half of 2025.
Over this time frame, we expect to continue benefiting from robust export premiums that are likely to persist until new export capacity comes online.
In addition to the export recovery, overall total U.S. propane demand exceeded 3 million barrels a day recently, a high going back to February, as seasonal crop drying demand picked up in October.
As colder weather begins to arrive, the market will look to increases in heating demand to continue this strong October demand.
Slide number seven quantifies the propane export premiums that Intero realized in the third quarter with a 22 cent per gallon average premium to Mont Belvieu.
This is up from premiums of $0.09 per gallon to start this year and $0.05 to $0.09 per gallon in 2022 and 2023 respectively.
Current markets show these premiums should improve in the fourth quarter to nearly $0.27 per gallon on average.
Butane premiums are similarly showing their value with recent export differentials averaging in the mid to high teens above Mont Belvieu prices.
To conclude, with unconstrained access at the Marcus Hook Terminal in Pennsylvania through our firm commitments.
Antero is well positioned to continue realizing these high export premiums for the balance of 2024 and into 2025.
With that, I'll now turn it over to our Senior Vice President of Natural Gas Marketing, Justin Fowler, to discuss the natural gas market.
Justin Fowler: Thanks, Dave.
Justin Fowler: First, let's look at the year-to-date power burn trends that are shown on slide number 8.
Justin Fowler: 2024 has once again been a record-setting year for natural gas power burn demand.
Justin Fowler: Year-to-date natural gas power burn is averaging 1.4 BCF higher than last year.
While over the last 10 years, natural gas power burn demand has increased 15 BCF per day.
Justin Fowler: and many more. Thank you. Thank you.
Looking ahead, we believe this trend of higher annual natural gas power burn will continue to be driven by demand growth from AI data centers, crypto mining, and electric vehicles.
This power demand growth provides an incremental uplift on top of the highly anticipated second wave of LNG demand that is expected to add, in combination, 20 BCF of incremental demand by the end of the decade.
Antero is uniquely positioned to benefit from these expected step changes in demand.
Our firm transportation portfolio delivers 75% of our natural gas to the LNG corridor and provides us with direct exposure to growing LNG demand.
While our asset position in West Virginia is within the region where a significant number of new data centers are expected to be built.
Further, our firm transportation portfolio provides the necessary infrastructure to connect our natural gas to data centers and utilities in need of reliable supply.
Justin Fowler: Turning to slide number 9, let's review the current natural gas storage level.
The record natural gas power burn I just highlighted combined with continued producer discipline has resulted in the surplus and inventory shrinking by nearly 500 BCF since the highs in March of this year.
Today we sit at just 167 BCF above the five-year average.
A level that supports our constructive outlet for 2025.
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.
With that, I will turn it over to Mike Kennedy, Ontario CFO.
Thanks, Justin. I'd like to start with slide number 10 titled Lowest Free Cash Flow Breakeven. This slide compares 2024 unhedged free cash flow breakeven levels across our peer group.
are approximate $2.20 breakeven level benefits from two primary drivers. First, our low maintenance capital requirements.
This is driven by our operational improvements, as highlighted by the reduction in our drilling and completion capital guidance for this year.
The second driver is our high exposure to liquids.
Despite the weakness in natural gas prices, which averaged just $2.10 through the first nine months of 2024, strong C3 plus NGL prices have provided a $1.10 uplift to our equivalent price realizations during that period.
The chart on the right hand side of the slide illustrates unhedged free cash flow through the first nine months of the year.
Justin Fowler: While we have just a small outspend year to date, our peers with higher break-even levels have unsustainable outspends.
Justin Fowler: In our opinion, this is the best way to determine the quality of a company's asset base and operations.
Turning to slide number 11, titled Peer-Leading Capital Efficiency.
Justin Fowler: This chart depicts the tangible benefits from our operational gains that Paul detailed earlier.
Antero has the lowest maintenance capital per MCFE of its peer group at just $0.52 per MCFE.
This is 41% below the peer average of 88 cents per MCFE.
Further, most of our peers have declining production.
Suggesting true maintenance capital requirements that are higher than illustrated on that slide.
Intero's capital program provides us with important flexibility in our future development plans.
Given current natural gas pricing, we elected to defer the completion of a pad from the third quarter until the end of the year while still maintaining our previously raised production guidance.
Justin Fowler: In addition, we now plan to defer completion of a second pad that has been drilled.
and was originally scheduled to be completed in the first quarter of 2025.
These two pads are drier gas pads with less liquids and therefore require higher natural gas prices to incentivize us to complete the wells.
Justin Fowler: Thank you.
Let's turn to slide number 12 titled Free Cash Flow Uplift.
Justin Fowler: that summarizes the benefits of what we've highlighted on the call today.
Beginning at the top left graph on the slide, our total capital budget, which is drilling and completion plus land capital, is expected to be down over $300 million in 2024 compared to last year while maintaining production.
Moving down to the bottom left-hand graph on the slide, 2024 C3 Plus NGL prices are expected to average more than $4 per barrel higher than in 2023.
We produce approximately 40 million barrels per year, so every $1 change in C3 Plus NGL prices.
results in a $40 million change in cash flow. Thus, higher C3 Plus NGL prices.
has driven an approximate $175 million increase in cash flow.
Justin Fowler: In combination, the result is nearly $500 million of incremental cash flow being generated in 2024 compared to 2023 while maintaining our asset base.
These attributes allow us to remain approximately free cash flow neutral in 2024.
despite being unhedged in a $2.25 natural gas price environment.
while providing significant free cash flow upside in 2025 based on today's strip.
Justin Fowler: With that, I will now turn the call over to the operator for questions.
Speaker Change: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate 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. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions.
Hey, good morning team. I just wanted to take a stab at your guidance right now. It looks like you are, you know, not building that many ducks this year. Obviously, you're delaying those duck pads, but what are your views on maybe marrying some of your peers where they're building a backlog of either ducks or turning lines and maybe providing a spring in the future for higher prices?
Well, that's actually what's happened, Bert, in 2024, we built, right now we have two pads, two duct pads with 12 wells on them.
that we are we're not completing this year. One of them was scheduled to be cleared in the third quarter, the other one in the first. Right now those are to be determined when we complete them based on natural gas prices.
and that would be the extent you don't you don't want to really go past two pads and build kind of a you know some sort of larger program
Speaker Change: Well, we just run a two-rig program. So whatever that generates versus a one-completion crew program is how the ducks build. And that's how we built two pads this year. So if we continue just to run one-completion crew next year, we'll continue to build further pads.
That makes perfect sense. And then could you maybe elaborate on your buyback strategy? Obviously this year's been pretty rough on the gas side. I think your liquids have done, you know, great holding you up. But we and the street as well forecast a pretty strong full year 25. Are you guys, you know, champing at the bit, waiting for that to come? Or is there any logic to maybe, you know, buying before the free cash flow shows up? Or is that maybe fiscally irresponsible?
No, we've, you know, we were just made investment grade this year and part of that the plan was.
communicated that the first $600 million of free cash flow will be to reduce debt.
That's essentially to take our credit facility down to zero and then we have 2026 notes.
of approximately $97 million, I think, that are still outstanding. So, in combination, that's $600 million of debt, and that's the first call on the free cash flow. Then, after that, the majority of free cash flow will be for buybacks.
Speaker Change: That's great, thank you.
Speaker Change: Sure.
Speaker Change: Thank you. Thank you.
Speaker Change: Our next question is from Arun Jamaram with J.P. Morgan. Please proceed.
Speaker Change: Yeah, good morning. Arun Jairam with JPM. I had a question just on the Northeast LPG kind of export advantage slide.
Dave, in terms of, you know, maintaining or sustaining this nice premium that you've benefited from for the last couple of quarters, you know, what's your expectation in terms of the timing?
of the Gulf Coast export capacity increases and how do you think about, you know, how the premium will play out in 2025?
Speaker Change: Yeah, thanks Arun. So in that slide the the first step up you see we've got Illustrated there is July 1st. I think it's currently guidance of around mid 25 or second half of 25 from that that particular midstream party
And then the other, the next big step is shown there is January 1st of 26.
So, you know, we certainly think until you see some expansion capacity, we're running at max here in the U.S. with NGL production up year over year, so that pressure is there and we think it'll continue until there's some kind of relief of that constraint.
Another thing I would just, you know...
Tosha people on when you look at that LPG export capacity growth
coming in 25 and 26.
A lot of that capacity is able to do multiple products. So, you know, at first they may do LPG, but we think over time you'll see a lot of that migrate too. So, you know, at first they may do LPG, but we think over time you'll see a lot of that
Speaker Change: Ow.
Speaker Change: more like ethane, so the additional capacity is going to be needed to be built in the U.S. to kind of keep this from continuing to happen, but certainly for us, being in the Northeast, that's one of the benefits we have when these...
type situations occur. We're not constrained. As we've talked about on prior calls, we can get everything we want to the market, so the export market, so we'll continue to do that and
Yes, see what we can see what we can do with our strategy But so far they've done a good job when these have appeared of always capturing it
Speaker Change: Okay.
Mike, maybe one for you, a couple of questions from the buy side in terms of
You know, building some ducts just given, you know, right now there's not a large, you know, kind of call on U.S. gas volumes today just given.
the storage, modest storage overhang. But what type of conditions are you guys looking for? Is it price?
Speaker Change: in terms of, you know, those 12 ducts that you're building in this current software Kamai Press Environment. Is there a price signal? Help us understand what would cause you to complete those walls.
Yeah, Ruan, obviously we really focus on the very high BTU liquids in our typical program that's 1275 BTU plus and with that and $40 C3 plus NGLs, that's really kind of our break even level at $2.20.
Speaker Change: with these pads or more along the 1200 BTU.
spectrum, so when you do that on $40 C3 plus NGLs, you need 250 gas and higher. That's where the strip is, so it would suggest that we complete those in 2025, but...
Speaker Change: We're cautious around the strip and being unhedged. We, you know, wait and it's...
Pretty immediate response when you want to complete them. It's about a 60-day timeframe so you have the ability to To look at front month pricing and see where that's headed and your confidence in that and for confident that'll be over 250 gas We'll complete them
Speaker Change: Great. That's helpful. Thanks, gentlemen.
Speaker Change: Our next question is from Leo Mariani with Roth Capital. Please proceed.
Thank you.
Hi, just wanted to get a little better sense of how you guys are thinking about maintenance, capital
Leo Mariani: Obviously, you guys have reduced CapEx a handful of times during the year. Sounds like a lot of that is efficiencies, which is kind of nice to see.
I mean, generally speaking, should we expect production to be, you know, relatively flat next year? And is that kind of, you know, 2024 capex level of around 650, like a reasonable number at this point for maintenance?
Thank you. Bye.
Yeah, right now, you know, what we've maintained, if you recall, in 2022, we produced 3.2 BCFE a day and we went to maintenance capital.
you know, in 2020 and 2021 at those levels.
23, we spent 900 million dollars but we actually grew 6 to 7 percent up into the high 3.3 BCFE a day but our maintenance capital always been centered around 3.3
BCFE of A to 3.4 BCFE of A. We've been ahead this year based on our efficiencies and well performance.
And when you look out the next year and the years beyond, that's around $700 million of capital. You could be at the $650 million level, but you'd be in the low $3.3 million, and the $700 million level you're more in the mid $3.3 million. So what we think about it is about $700 million of capital to hold.
Speaker Change: 3-3 to 3-4 flat being at the midpoint.
Speaker Change: Thank you.
Okay, that's very helpful for sure.
Speaker Change: And then just, you know, in the near term, I understand some of the caution here on, you know, bringing back some of these dry gas pads. It certainly makes sense to wait for better returns, but, you know, if that strategy, you know, sort of plays out, can you just give us some, you know, directionality in terms of, you know, production? I mean, should we expect it to kind of tick down the next couple quarters as you guys are maybe waiting for a little better gas market?
Yeah, I think the guidance at the midpoint would suggest 3-3-5 for the fourth quarter. That would get you to the midpoint of 3-4-0-0 and then that's about where we're at in 25 as well.
Okay, thank you.
Speaker Change: Our next question is from Addie Modak with Goldman Sachs. Please proceed.
Hi, good morning team. As you think of the gas price realizations, anything you can provide on how you are thinking about the marketing strategy over the next few quarters and what we should expect to see?
The same marketing strategy that we currently have, which is flow all of our gas as much as we can to the Gulf Coast.
and to the LNG corridor and the LNG facilities, that's about 75% of the gas and then the remainder really goes to TECO and the Midwest. So all the gas molecules get out of the basin.
and all of our transport is relatively is full. So similar gas strategy and we expect those premiums to increase as we move forward and the LNG comes on in 2025.
Speaker Change: Thank you. Thank you.
Got it. And then you talked about the price level for completions of the ducts that you're deferring into 2025, but maybe any incremental color on whether anything you're drilling right now could be potentially deferred or is that relatively more liquid focused?
Speaker Change: It's a good question. It's more liquids-focused. Those wells that we drilled were
In the 1200 were some of our last inventory kind of in that middle of our field in the North Canton area Now we're really and we have been really focused on Wetzel County and Tyler County which is which is higher BTU content
Thank you for the honor.
Our next question is from Josh Silverstein with UBS. Please proceed.
Thank you for joining us. Thank you. Have a great day.
Good morning, guys. You mentioned before, you know, $100,000 plus, you know, savings removed to an eFLEAD. Are you guys now looking to lock in this eFLEAD for next year, or is there something else that you want to continue testing with it before locking it in for next year?
Yeah, it's a two-pad trial. We've done one pad that went well. We're on our second pad, so once that's completed, we'll evaluate and potentially lock that in for next year.
And then, just on the hedging strategy, you know, you remain unhedged in the forward outlook right now. I understand not wanting to be hedged next year with, you know, the strip almost down at $3, but what about 2026 with pricing still over the $3.50 mark? Do you foresee an opportunity to start locking some gains for then, or does the strategy just remain unhedged going forward? Thanks.
Well we're keeping an eye on the curve of course and there's some contango in the curve as you know early on.
before it flattens out to
you know, to give some optimism. So we're watching it and we may lock in, no promises, but we continue to watch it and look for threshold gas prices that will improve the economics.
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Thanks guys.
Our next question is from Kevin McCurdy with Pickering Energy Partners. You may proceed.
Speaker Change: Thank you for your attention.
Kevin McCurdy: Hey, good morning. With yesterday's release you brought the midpoint of your 2024 CapEx down by 25 million. I wonder if you have the rough breakout of how much of that reduction was driven by efficiencies compared to the deferred turn lines?
Speaker Change: Yeah, 15 million sufficiencies, 10 million is the turn in lines.
The 650 assumes a 50-50 chance whether we do.
complete that pad at year-end versus the first quarter. So about 10 million of it's that deferral, and then 15 million is the completion efficiencies and drilling efficiencies.
Thank you. Thank you. Thank you.
That's helpful. And what are the impacts of those two items on your 2025 budget? That 700 million D&C maintenance CapEx number you mentioned kind of earlier, I think that's a little better than you had communicated previously. I just want to confirm that that 700 million number kind of includes ducks and the efficiency gains.
It does. We feel confident incorporating that now. So those efficiencies, I mean, our well costs in the third quarter are the lowest well cost per foot we've had since 2021.
So we're rolling that in the 2025. 2025 the lateral lengths are slightly shorter than this year so...
Speaker Change: On a per foot basis, it equates to 24, but we have rolled those efficiencies in.
12 stages per day, drilling the 10,000 feet of lateral in less than five days that we achieved in 24 in the very efficient rig moves and completion crew moves.
so we're excited about it and it has resulted in lower capital in 25.
I appreciate the details. Thank you guys.
Our next question is from David Dekelbaum with TD Cowan. Please proceed.
Thanks for taking my questions, guys. Mike, just a quick one. Can you just refresh us in the Delta on the benefit of the drilling carry that was in 24 that's not recurring in 25, I guess, for apples-to-apples and that maintenance program is around $50 million?
Yeah, it's actually 30 million is what our latest calculation on that. Your 50 may be at the 20% level and when we think about it we think about it more in the 15% level which is where it was at before the weakness in prices in 24.
So it's about $30 million, but the $700 million-ish numbers and the low $700 million doesn't assume a drilling DB.
perfect and then just a comment on the the maintenance levels
Speaker Change: You know the 3-3-5, I know this year obviously there were periods where you were over 3-4, you know, well in excess.
and you experience quite a bit of productivity gains.
Speaker Change: So we think about that forward maintenance level as not necessarily capitalizing those or continuing those efficiency assumptions or performance assumptions, or is it more of a function of shifting more activity towards higher BTU content?
Speaker Change: No, we're just lowering levels of activity needed, you know, to try to get the capital as efficient and as low as possible to maintain that 3.3 to 3.4. Paul mentioned in his comments those cycle times. We didn't necessarily have those when we were pouring our capital budgets in 23 and 24. We have captured those for 25.
and thus we can have lower capital activity and maintain that production level. So we are capturing it, we're just trying to solve for what's the lowest capital possible to maintain that 3.3 to 3.4 BCFE a day.
Appreciate the color. Sure.
This will conclude our question and answer session. I would like to turn the conference back over to Brendan for closing remarks.
Yes, thank you for joining us on today's call. Please reach out with any further questions. Thank you.
Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Speaker Change: [music]
My name's Tammy didn't think I was deleting his stickers.