Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d- 15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures and is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2020 at a level of reasonable assurance.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of Antero Resources Corporation is responsible for establishing and maintaining adequate internal control over financial reporting for us as defined in Rules 13a-15(f) and 15d- 15(f) of the Exchange Act. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of the assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and Directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect all misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time.
Under the supervision of, and with the participation of, our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework in 2013, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management of Antero Resources Corporation concluded that our internal control over financial reporting was effective as of December 31, 2020.
The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by KPMG LLP, an independent registered public accounting firm which also audited our consolidated financial statements as of and for the year ended December 31, 2020, as stated in their report which appears beginning on page F-2 in this Annual Report on Form 10-K.
75
Table of Contents
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Pursuant to General Instruction G(3) to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2021 Annual Meeting of Stockholders.
Code of Ethics
We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers from any provision of our Corporate Code of Business Conduct and Ethics applicable to our principal executive officer, principal financial officer, principal accounting officer and other persons performing similar functions by posting such information in the “Governance” subsection of our website at www.anteroresources.com .
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2021 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2021 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Pursuant to General Instruction G(3) to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2021 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Pursuant to General Instruction G(3) to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2021 Annual Meeting of Stockholders.
PART IV
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a)(1) and (a)(2) Financial Statements and Financial Statement Schedules
The consolidated financial statements are listed on the Index to Financial Statements to this Annual Report on Form 10-K beginning on page F-1.
(a)(3) Exhibits.
Exhibit
Number
Description of Exhibit
2.1
Simplification Agreement, dated as of October 9, 2018, by and among AMGP GP LLC, Antero Midstream GP LP, Antero IDR Holdings LLC, Arkrose Midstream Preferred Co LLC, Arkrose Midstream NewCo Inc., Arkrose Midstream Merger Sub LLC, Antero Midstream Partners GP LLC and Antero Midstream Partners LP (incorporated by reference to Exhibit 2.1 to Antero Midstream GP LP’s Current Report on Form 8-K (Commission File No. 001-38075) filed on October 10, 2018).
3.1
Amended and Restated Certificate of Incorporation of Antero Resources Corporation (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (Commission File No. 001-36120) filed on October 17, 2013) .
76
Table of Contents
Exhibit
Number
Description of Exhibit
3.2
Amended and Restated Bylaws of Antero Resources Corporation (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K (Commission File No. 001-36120) filed on October 17, 2013).
4.1
Indenture related to the 5.125% Senior Notes due 2022, dated as of May 6, 2014, by and among Antero Resources Corporation, the several guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (Commission File No. 001-36120) filed on May 8, 2014).
4.2
Form of 5.125% Senior Note due 2022 (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K (Commission File No. 001-36120) filed on May 8, 2014).
4.3
First Supplemental Indenture related to the 5.125% Senior Notes due 2022, dated as of November 24, 2014, by and among Antero Resources Corporation, the several guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-4 (Commission File No. 333-200605) filed on November 26, 2014).
4.4
Second Supplemental Indenture related to the 5.125% Senior Notes due 2022, dated as of January 21, 2015, by and among Antero Resources Corporation, the several guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-4 (Commission File No. 333-200605) filed on January 22, 2015).
4.5
Third Supplemental Indenture related to the 5.125% Senior Notes due 2022, dated March 12, 2019, by and among Antero Resources Corporation, the several guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on May 1, 2019).
4.6
Fourth Supplemental Indenture related to the 5.125% Senior Notes due 2022, dated June 3, 2020, by and among Antero Resources Corporation, the several guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on July 29, 2020).
4.7
Indenture related to the 5.625% Senior Notes due 2023, dated as of March 17, 2015, by and among Antero Resources Corporation, the several guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (Commission File No. 001-36120) filed on March 18, 2015).
4.8
Form of 5.625% Senior Note due 2023 (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K (Commission File No. 333-164876) filed on March 18, 2015).
4.9
First Supplemental Indenture related to the 5.625% Senior Notes due 2023, dated March 12, 2019, by and among Antero Resources Corporation, the several guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on May 1, 2019).
4.10
Second Supplemental Indenture related to the 5.625% Senior Notes due 2023, dated June 3, 2020, by and among Antero Resources Corporation, the several guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on July 29, 2020).
4.11
Indenture related to the 5.0% Senior Notes due 2025, dated as of December 21, 2016, by and among Antero Resources Corporation, the several guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (Commission File No. 001-36120) filed on December 29, 2016).
4.12
Form of 5.0% Senior Note due 2025 (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K (Commission File No. 333-164876) filed on December 29, 2016).
4.13
First Supplemental Indenture related to the 5.0% Senior Notes due 2025, dated March 12, 2019, by and among Antero Resources Corporation, the several guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on May 1, 2019).
4.14
Second Supplemental Indenture related to the 5.0% Senior Notes due 2025, dated June 3, 2020, by and among Antero Resources Corporation, the several guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on July 29, 2020).
4.15
Indenture related to the 4.25% Convertible Senior Notes due 2026, dated as of August 21, 2020, by and among Antero Resources Corporation, the several guarantors named therein and Wells Fargo Bank, National Association, as trustee
77
Table of Contents
Exhibit
Number
Description of Exhibit
(incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (Commission File No. 001-36120) filed on August 21, 2020).
4.16
Form of 4.25% Convertible Senior Note due 2026 (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K (Commission File No. 001-36120) filed on August 21,2020).
4.17
Indenture related to the 8.375% Senior Notes due 2026, dated as of January 4, 2021, by and among Antero Resources Corporation, the several guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (Commission File No. 001-36120) filed on January 4, 2021).
4.18
Form of 8.375% Senior Note due 2026 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (Commission File No. 001-36120) filed on January 4, 2021).
4.19
Registration Rights Agreement, dated as of October 16, 2013, by and among Antero Resources Corporation and the owners of the membership interests in Antero Resources Investment LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission File No. 001-36120) filed on October 17, 2013).
4.20
Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, as amended (incorporated by reference to Exhibit 4.20 to the Company’s Annual Report on Form 10-K (Commission File No. 001-36120) filed on February 12, 2020).
4.21
Indenture related to the 7.625% Senior Notes due 2029, dated as of January 26, 2021, by and among Antero Resources Corporation, the several guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (Commission File No. 001-36120) filed on February 1, 2021).
4.22
Form of 7.625% Senior Note due 2029 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (Commission File No. 001-36120) filed on February 1, 2021).
10.1
Contribution Agreement, dated as of October 16, 2013, by and between Antero Resources Corporation and Antero Resources Midstream LLC (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K (Commission File No. 001-36120) filed on October 17, 2013).
10.2
Amended and Restated Contribution Agreement, dated as of November 10, 2014, by and between Antero Resources Corporation and Antero Midstream Partners LP (incorporated by reference to Exhibit 10.1 to Antero Midstream Partners LP’s Current Report on Form 8-K (Commission File No. 001-36719) filed on November 17, 2014).
10.3
Agreement and Plan of Merger, dated as of October 1, 2013, by and among Antero Resources Corporation, Antero Resources LLC and Antero Resources Investment LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (Commission File No. 333-164876) filed on October 11, 2013).
10.4
Second Amended and Restated Gathering and Compression Agreement, dated as of December 8, 2019, by and between Antero Resources Corporation and Antero Midstream LLC (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K (Commission File No. 001-36120) filed on February 12, 2020).
10.5
Second Amended and Restated Right of First Offer Agreement, dated as of February 13, 2018, by and between Antero Resources Corporation and Antero Midstream LLC (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on April 25, 2018).
10.6
License Agreement, dated as of November 10, 2014, by and between Antero Resources Corporation and Antero Midstream Partners LP (incorporated by reference to Exhibit 10.4 to Antero Midstream Partners LP’s Current Report on Form 8-K (Commission File No. 001-36719) filed on November 17, 2014).
10.7
Amended and Restated Secondment Agreement, effective as of March 13, 2019, by and between Antero Midstream Corporation, Antero Midstream Partners LP, Antero Midstream Partners GP LLC, Antero Midstream LLC, Antero Water LLC, Antero Treatment LLC and Antero Resources Corporation (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K (Commission File No. 001-36120) filed on February 12, 2020).
10.8
Second Amended and Restated Services Agreement, effective as of March 13, 2019, by and among Antero Midstream Partners LP, Antero Midstream Corporation, Antero Midstream Partners GP LLC and Antero Resources Corporation (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K (Commission File No. 001-36120) filed on February 12, 2020).
10.9**
Amended and Restated Water Services Agreement dated as of February 12, 2019, by and between Antero Resources Corporation and Antero Water LLC (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K (Commission File No. 001-36120) filed on February 13, 2019).
10.10
Fifth Amended and Restated Credit Agreement, dated as of October 26, 2017, by and among Antero Resources Corporation, the lenders party thereto, and JPMorgan Chase Bank N.A., as Administrative Agent (incorporated by
78
Table of Contents
Exhibit
Number
Description of Exhibit
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on November 1, 2017).
10.11
First Amendment to Fifth Amended and Restated Credit Agreement, dated as of December 21, 2018 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (Commission File No. 001-36120) filed on December 28, 2018).
10.12
Lender Certificate, dated October 29, 2019, delivered by Royal Bank of Canada, and agreed to and accepted by JPMorgan Chase Bank, N.A., as Administrative Agent, and Antero Resources Corporation (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K (Commission File No. 001-36120) filed on February 12, 2020).
10.13
Second Amendment to Fifth Amended and Restated Credit Agreement, dated as of December 20, 2019, among Antero Resources Corporation, as Borrower, certain subsidiaries of the Borrower, as Guarantors, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K (Commission File No. 001-36120) filed on February 12, 2020).
10.14
Third Amendment to Fifth Amended and Restated Credit Agreement, dated as of April 29, 2020, among Antero Resources Corporation, as Borrower, certain subsidiaries of the Borrower, as Guarantors, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on April 29, 2020).
10.15
Fourth Amendment to Fifth Amended and Restated Credit Agreement, dated as of June 5, 2020, among Antero Resources Corporation, as Borrower, certain subsidiaries of the Borrower, as Guarantors, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on July 29, 2020).
10.16
Fifth Amendment to Fifth Amended and Restated Credit Agreement, dated as of June 12, 2020, among Antero Resources Corporation, as Borrower, certain subsidiaries of the Borrower, as Guarantors, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on July 29, 2020).
10.17†
Form of Amended and Restated Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission File No. 001-36120) filed on April 17, 2018).
10.18†
Antero Resources Corporation Long-Term Incentive Plan, effective as of October 1, 2013 (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8 (Commission File No. 001-36120) filed on October 11, 2013).
10.19†
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the Antero Resources Corporation Long-Term Incentive Plan (incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K (Commission File No. 001-36120) filed on February 25, 2015).
10.20†
Form of Bonus Stock Grant Notice and Bonus Stock Agreement (Form for Non-Employee Directors) under the Antero Resources Corporation Long-Term Incentive Plan (incorporated by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K (Commission File No. 001-36120) filed on February 24, 2016).
10.21†
Form of Performance Share Unit Grant Notice and Performance Share Unit Agreement (Form for Special Retention Awards) under the Antero Resources Corporation Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission File No. 001-36120) filed on February 12, 2016).
10.22†
Global Amendment to Grant Notices and Award Agreements Under the Antero Resources Corporation Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on October 26, 2016).
10.23†
Form of Performance Share Unit Grant Notice and Performance Share Unit Agreement under the Antero Resources Corporation Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on July 31, 2019).
10.24†
Form of Stock Award Grant Notice and Stock Award Agreement (Form for Non-Employee Directors) under the Antero Resources Corporation 2020 Long-Term Incentive Plan (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form S-8 (Commission File No. 001-36120) filed on July 9, 2020).
10.25†
Stockholders’ Agreement, dated as of October 9, 2018, by and among Antero Midstream GP LP, Arkrose Subsidiary Holdings LLC, Warburg Pincus Private Equity X O&G, L.P., Warburg Pincus X Partners, L.P., Warburg Pincus Private Equity VIII, LP, Warburg Pincus Netherlands Private Equity VIII C.V.I. WP-WPVIII Investors, L.P., Yorktown Energy Partners V, L.P., Yorktown Energy Partners VI, L.P., Yorktown Energy Partners VII, L.P., Yorktown Energy Partners VIII, L.P., Paul M. Rady, Mockingbird Investment, LLC, Glen C. Warren, Jr. and Canton Investment Holdings LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (Commission File No. 001-36120) filed on October 10, 2018).
79
Table of Contents
Exhibit
Number
Description of Exhibit
10.26†
Registration Rights Agreement, dated March 12, 2019, by and among Antero Midstream Corporation, the Company, Arkrose Subsidiary Holdings LLC, Glen C. Warren, Jr., Canton Investment Holdings LLC, Paul M. Rady, Mockingbird Investments, LLC and other holders named therein (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (Commission File No. 001-36120) filed on March 13, 2019).
10.27†
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement (Form for Special Retention Awards) under the Antero Resources Corporation Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on April 29, 2020).
10.28†
Form of Retention Award Grant Notice and Retention Award Agreement under the Antero Resources Corporation Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on April 29, 2020).
10.29†
Antero Resources Corporation 2020 Long-Term Incentive Plan, effective June 17, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission File No. 001-36120) filed on June 23, 2020).
10.30†
Form of Retention Award Grant Notice and Retention Award Agreement under the Antero Resources Corporation 2020 Long-Term Incentive Plan (Employees) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on October 28, 2020).
10.31†
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the Antero Resources Corporation 2020 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on October 28, 2020).
10.32†
Form of Performance Share Unit Grant Notice and Performance Share Unit Agreement under the Antero Resources Corporation 2020 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on October 28, 2020).
21.1*
Subsidiaries of Antero Resources Corporation.
22.1*
List of Guarantor Subsidiaries.
23.1*
Consent of KPMG LLP.
23.2*
Consent of KPMG LLP .
23.3*
Consent of DeGolyer and MacNaughton.
31.1*
Certification of the Company’s Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (18 U.S.C. Section 7241).
31.2*
Certification of the Company’s Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (18 U.S.C. Section 7241).
32.1*
Certification of the Company’s Chief Executive Officer Pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2*
Certification of the Company’s Chief Financial Officer Pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (18 U.S.C. Section 1350).
99.1*
Report of DeGolyer and MacNaughton, dated as of January 29, 2021, for proved reserves as of December 31, 2020.
99.2
Report of DeGolyer and MacNaughton, dated as of January 21, 2020, for proved reserves as of December 31, 2019 (incorporated by reference to Exhibit 99.1 to the Company’s Annual Report on Form 10-K (Commission File No. 001-36120) filed on February 12, 2020).
99.3
Report of DeGolyer and MacNaughton, dated as of January 11, 2019, for proved reserves as of December 31, 2018 (incorporated by reference to Exhibit 99.1 to the Company's Annual Report on Form 10-K (Commission File No. 001-36120) filed on February 13, 2019).
99.4*
Financial Statements of Antero Midstream Corporation
101*
The following financial information from this Form 10-K of Antero Resources Corporation for the year ended December 31, 2020, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Consolidated Statements of Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated Financial Statements, tagged as blocks of text.
104*
Cover Page Interactive Data File (embedded within the Inline XBRL document).
The exhibits marked with the asterisk symbol (*) are filed or furnished with this Annual Report on Form 10-K.
** Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
† Management contract or compensatory plan or arrangement.
80
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ANTERO RESOURCES CORPORATION
By:
/s/ GLEN C. WARREN, JR.
Glen C. Warren, Jr.
President, Chief Financial Officer and Secretary
Date:
February 17, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ PAUL M. RADY
Chairman of the Board,
Director and Chief Executive officer
February 17, 2021
Paul M. Rady
(principal executive officer)
/s/ GLEN C. WARREN, JR.
President, Director,
Chief Financial Officer and Secretary
February 17, 2021
Glen C. Warren, Jr.
(principal financial officer)
/s/ SHERI L. PEARCE
Vice President, Accounting and Chief Accounting Officer
February 17, 2021
Sheri L. Pearce
(principal accounting officer)
/s/ ROBERT J. CLARK
Director
February 17, 2021
Robert J. Clark
/s/ BENJAMIN A. HARDESTY
Director
February 17, 2021
Benjamin A. Hardesty
/s/ W. HOWARD KEENAN, JR.
Director
February 17, 2021
W. Howard Keenan, Jr.
/s/ PAUL J. KORUS
Director
February 17, 2021
Paul J. Korus
/s/ JACQUELINE C. MUTSCHLER
Director
February 17, 2021
Jacqueline C. Mutschler
/s/ VICKY SUTIL
Director
February 17, 2021
Vicky Sutil
/s/ THOMAS B. TYREE, JR.
Director
February 17, 2021
Thomas B. Tyree, Jr.
81
Table of Contents
INDEX TO FINANCIAL STATEMENTS
Page
Audited Historical Consolidated Financial Statements as of December 31, 2019 and 2020 and for the Years Ended December 31, 2018, 2019 and 2020
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets
F-4
Consolidated Statements of Operations and Comprehensive Loss
F-5
Consolidated Statements of Equity
F-6
Consolidated Statements of Cash Flows
F-7
Notes to Consolidated Financial Statements
F-9
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors
Antero Resources Corporation:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Antero Resources Corporation and subsidiaries (the Company) as of December 31, 2019 and 2020, the related consolidated statements of operations and comprehensive loss, equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Note 13 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases .
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
F-2
Table of Contents
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Estimated oil and gas reserves on depletion expense related to proved oil and gas properties
As discussed in Note 2 to the consolidated financial statements, the Company calculates depletion expense related to proved oil and gas properties using the units-of-production method. Under such method, capitalized costs are amortized over total estimated proved oil and gas reserves. For the year ended December 31, 2020, the Company recorded depletion expense related to proved oil and gas properties of $854 million. Estimating proved oil and gas reserves requires the expertise of professional petroleum reservoir engineers, who take into consideration forecasted production, operating cost assumptions and forecasted oil and gas prices inclusive of market differentials. The Company’s internal reservoir engineers estimate proved oil and gas reserves, and the Company engages external reservoir engineering specialists to perform an independent evaluation of those proved oil and gas reserve estimates.
We identified the assessment of the impact of estimated oil and gas reserves on depletion expense related to proved oil and gas properties as a critical audit matter. Complex auditor judgment was required in evaluating the Company’s estimate of total proved oil and gas reserves, which is an input in the depletion expense calculation. Auditor judgment was also required to evaluate the significant assumptions used by the Company related to forecasted production, estimated future operating costs, and oil and gas prices inclusive of market differentials because changes to these assumptions could have a significant impact on the estimated oil and gas reserves.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s depletion expense process, including certain controls related to the estimation of proved oil and gas reserves used in the depletion expense calculation. We evaluated (1) the professional qualifications of the Company’s internal reservoir engineers as well as the external reservoir engineering specialists and external engineering firm, (2) the knowledge, skill, and ability of the Company’s internal and external reservoir engineers, and (3) the relationship of the external reservoir engineering specialists and external engineering firm to the Company. We analyzed and recalculated depletion expense for compliance with industry and regulatory standards. We assessed the methodology used by the Company’s internal reservoir engineers to estimate proved oil and gas reserves and the methodology used by the external reservoir engineering specialists to evaluate those reserve estimates for compliance with industry and regulatory standards. We compared the forecasted production assumptions used by the internal reservoir engineers to historical production rates. We evaluated the operating cost assumptions utilized by the internal reservoir engineers by comparing them to historical costs. We evaluated the oil and gas prices utilized by the internal reservoir engineers by comparing them to publicly available prices and tested the relevant market differentials. We read and considered the findings of the Company’s external reservoir engineering specialists in connection with our evaluation of the Company’s reserve estimates.
/s/ KPMG LLP
We have served as the Company’s auditor since 2003.
Denver, Colorado
February 17, 2021
F-3
Table of Contents
ANTERO RESOURCES CORPORATION
Consolidated Balance Sheets
(In thousands, except per share amounts)
December 31,
2019
2020
Assets
Current assets:
Accounts receivable
$
46,419
28,457
Accounts receivable, related parties
125,000
—
Accrued revenue
317,886
425,314
Derivative instruments
422,849
105,130
Other current assets
10,731
15,238
Total current assets
922,885
574,139
Property and equipment:
Oil and gas properties, at cost (successful efforts method):
Unproved properties
1,368,854
1,175,178
Proved properties
11,859,817
12,260,713
Gathering systems and facilities
5,802
5,802
Other property and equipment
71,895
74,361
13,306,368
13,516,054
Less accumulated depletion, depreciation, and amortization
( 3,327,629 )
( 3,869,116 )
Property and equipment, net
9,978,739
9,646,938
Operating leases right-of-use assets
2,886,500
2,613,603
Derivative instruments
333,174
47,293
Investment in unconsolidated affiliate
1,055,177
255,082
Other assets
21,094
13,790
Total assets
$
15,197,569
13,150,845
Liabilities and Equity
Current liabilities:
Accounts payable
$
14,498
26,728
Accounts payable, related parties
97,883
69,860
Accrued liabilities
400,850
343,524
Revenue distributions payable
207,988
198,117
Derivative instruments
6,721
31,242
Short-term lease liabilities
305,320
266,024
Deferred revenue, VPP
—
45,257
Other current liabilities
6,879
2,302
Total current liabilities
1,040,139
983,054
Long-term liabilities:
Long-term debt
3,758,868
3,001,593
Deferred income tax liability
781,987
412,252
Derivative instruments
3,519
99,172
Long-term lease liabilities
2,583,678
2,348,785
Deferred revenue, VPP
—
156,024
Other liabilities
58,635
59,694
Total liabilities
8,226,826
7,060,574
Commitments and contingencies (Notes 15 and 16)
Equity:
Stockholders' equity:
Preferred stock, $ 0.01 par value; authorized - 50,000 shares; none issued
—
—
Common stock, $ 0.01 par value; authorized - 1,000,000 shares; 295,941 shares and 268,672 shares issued and outstanding at December 31, 2019 and 2020, respectively
2,959
2,686
Additional paid-in capital
6,130,365
6,195,497
Accumulated earnings (deficit)
837,419
( 430,478 )
Total stockholders' equity
6,970,743
5,767,705
Noncontrolling interests
—
322,566
Total equity
6,970,743
6,090,271
Total liabilities and equity
$
15,197,569
13,150,845
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
ANTERO RESOURCES CORPORATION
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share amounts)
Year Ended December 31,
2018
2019
2020
Revenue and other:
Natural gas sales
$
2,287,939
2,247,162
1,809,952
Natural gas liquids sales
1,177,777
1,219,162
1,161,683
Oil sales
187,178
177,549
112,270
Commodity derivative fair value gains (losses)
( 87,594 )
463,972
79,918
Gathering, compression, water handling and treatment
21,344
4,478
—
Marketing
458,901
292,207
310,572
Marketing derivative fair value gains
94,081
—
—
Amortization of deferred revenue, VPP
—
—
14,507
Other income
—
4,160
2,797
Total revenue
4,139,626
4,408,690
3,491,699
Operating expenses:
Lease operating
136,153
145,720
98,865
Gathering, compression, processing, and transportation
1,339,358
2,146,647
2,530,838
Production and ad valorem taxes
126,474
125,142
106,775
Marketing
686,055
549,814
469,404
Exploration
4,958
884
1,083
Impairment of oil and gas properties
549,437
1,300,444
223,770
Impairment of midstream assets
9,658
14,782
—
Depletion, depreciation, and amortization
972,465
914,867
861,870
Accretion of asset retirement obligations
2,819
3,762
3,421
General and administrative (including equity-based compensation expense of $ 70,414 , $ 23,559 and $ 23,317 in 2018, 2019 and 2020, respectively)
240,344
178,696
134,482
Contract termination and rig stacking
—
14,026
14,290
Loss on sale of assets
—
951
348
Total operating expenses
4,067,721
5,395,735
4,445,146
Operating income (loss)
71,905
( 987,045 )
( 953,447 )
Other income (expense):
Interest expense, net
( 286,743 )
( 228,111 )
( 199,872 )
Equity in earnings (loss) of unconsolidated affiliates
40,280
( 143,216 )
( 62,660 )
Gain on early extinguishment of debt
—
36,419
175,962
Gain on deconsolidation of Antero Midstream Partners LP
—
1,406,042
—
Water earnout
—
125,000
—
Loss on the sale of equity method investment shares
—
( 108,745 )
—
Impairment of equity method investment
—
( 467,590 )
( 610,632 )
Transaction expense
—
—
( 7,244 )
Total other income (expenses)
( 246,463 )
619,799
( 704,446 )
Loss before income taxes
( 174,558 )
( 367,246 )
( 1,657,893 )
Provision for income tax benefit
128,857
74,110
397,482
Net loss and comprehensive loss including noncontrolling interests
( 45,701 )
( 293,136 )
( 1,260,411 )
Less: net income and comprehensive income attributable to noncontrolling interests
351,816
46,993
7,486
Net loss and comprehensive loss attributable to Antero Resources Corporation
$
( 397,517 )
( 340,129 )
( 1,267,897 )
Loss per share—basic
$
( 1.26 )
( 1.11 )
( 4.65 )
Loss per share—diluted
$
( 1.26 )
( 1.11 )
( 4.65 )
Weighted average number of shares outstanding:
Basic
316,036
306,400
272,433
Diluted
316,036
306,400
272,433
See accompanying notes to consolidated financial statements.
F-5
Table of Contents
ANTERO RESOURCES CORPORATION
Consolidated Statements of Equity
(In thousands)
Additional
Accumulated
Common Stock
paid-in
earnings
Noncontrolling
Total
Shares
Amount
capital
(deficit)
interests
equity
Balances, December 31, 2017
316,379
$
3,164
6,570,952
1,575,065
726,955
8,876,136
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes
1,360
13
( 11,504 )
—
—
( 11,491 )
Issuance of common units by Antero Midstream Partners LP upon vesting of equity-based compensation awards, net of units withheld for income taxes
—
—
( 16,536 )
—
11,007
( 5,529 )
Effects of changes in ownership interests in consolidated subsidiaries
—
—
8,637
—
( 8,637 )
—
Distributions to noncontrolling interests
—
—
—
—
( 267,271 )
( 267,271 )
Repurchases and retirements of common stock
( 9,145 )
( 91 )
( 128,993 )
—
—
( 129,084 )
Equity-based compensation
—
—
62,618
—
7,796
70,414
Other
—
—
—
—
3
3
Net income (loss) and comprehensive income (loss)
—
—
—
( 397,517 )
351,816
( 45,701 )
Balances, December 31, 2018
308,594
3,086
6,485,174
1,177,548
821,669
8,487,477
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes
738
7
( 2,371 )
—
—
( 2,364 )
Issuance of common units by Antero Midstream Partners LP upon vesting of equity-based compensation awards, net of units withheld for income taxes
—
( 85 )
—
56
( 29 )
Effect of deconsolidation of Antero Midstream Partners LP
—
—
( 336,172 )
—
( 784,744 )
( 1,120,916 )
Distributions to noncontrolling interest
—
—
—
—
( 85,076 )
( 85,076 )
Repurchases and retirements of common stock
( 13,391 )
( 134 )
( 38,638 )
—
—
( 38,772 )
Equity-based compensation
—
—
22,457
—
1,102
23,559
Net income (loss) and comprehensive income (loss)
—
—
—
( 340,129 )
46,993
( 293,136 )
Balances, December 31, 2019
295,941
2,959
6,130,365
837,419
—
6,970,743
Issuance of common units in Martica Holdings, LLC
—
—
—
—
351,000
351,000
Equity component of 2026 Convertible Notes, net
—
—
85,407
—
—
85,407
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes
924
9
( 431 )
—
—
( 422 )
Distributions to noncontrolling interest
—
—
—
—
( 35,920 )
( 35,920 )
Repurchases and retirements of common stock
( 28,193 )
( 282 )
( 43,161 )
—
—
( 43,443 )
Equity-based compensation
—
—
23,317
—
—
23,317
Net income (loss) and comprehensive income (loss)
—
—
—
( 1,267,897 )
7,486
( 1,260,411 )
Balances, December 31, 2020
268,672
$
2,686
6,195,497
( 430,478 )
322,566
6,090,271
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
ANTERO RESOURCES CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2018
2019
2020
Cash flows provided by (used in) operating activities:
Net loss including noncontrolling interests
$
( 45,701 )
( 293,136 )
( 1,260,411 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depletion, depreciation, amortization, and accretion
975,284
918,629
865,291
Impairments
559,095
1,782,816
834,402
Commodity derivative fair value losses (gains)
87,594
( 463,972 )
( 79,918 )
Gains on settled commodity derivatives
243,112
325,090
794,684
Premium paid on derivative contract
( 13,318 )
—
—
Proceeds from derivative monetizations
370,365
—
9,007
Gains on settled marketing derivatives
72,687
—
—
Marketing derivative fair value gains
( 94,081 )
—
—
Loss on sale of assets
—
951
348
Equity-based compensation expense
70,414
23,559
23,317
Deferred income tax benefit
( 128,857 )
( 79,158 )
( 397,482 )
Gain on early extinguishment of debt
—
( 36,419 )
( 175,962 )
Loss on the sale of equity method investment shares
—
108,745
—
Equity in (earnings) loss of unconsolidated affiliates
( 40,280 )
143,216
62,660
Water earnout
—
( 125,000 )
—
Gain on deconsolidation of Antero Midstream Partners LP
—
( 1,406,042 )
—
Distributions/dividends of earnings from unconsolidated affiliates
46,415
157,956
171,022
Amortization of deferred revenue
—
—
( 14,507 )
Amortization of debt issuance costs, debt discount, debt premium and other
4,681
10,681
12,236
Changes in current assets and liabilities:
Accounts receivable
( 15,156 )
31,631
( 9,492 )
Accrued revenue
( 174,706 )
156,941
( 107,428 )
Other current assets
( 5,817 )
( 1,025 )
( 5,507 )
Accounts payable including related parties
9,307
( 27,996 )
( 19,282 )
Accrued liabilities
63,562
( 25,762 )
37,954
Revenue distributions payable
101,210
( 102,839 )
( 5,203 )
Other current liabilities
( 3,823 )
4,592
( 89 )
Net cash provided by operating activities
2,081,987
1,103,458
735,640
Cash flows provided by (used in) investing activities:
Additions to unproved properties
( 172,387 )
( 88,682 )
( 45,129 )
Drilling and completion costs
( 1,488,573 )
( 1,254,118 )
( 826,265 )
Additions to water handling and treatment systems
( 97,699 )
( 24,416 )
—
Additions to gathering systems and facilities
( 444,413 )
( 48,239 )
—
Additions to other property and equipment
( 7,514 )
( 6,700 )
( 2,963 )
Settlement of water earnout
—
—
125,000
Investments in unconsolidated affiliates
( 136,475 )
( 25,020 )
—
Proceeds from sale of common stock of Antero Midstream Corporation
—
100,000
—
Proceeds from the Antero Midstream Partners LP Transactions
—
296,611
—
Proceeds from asset sales
—
1,983
701
Proceeds from VPP sale, net
—
—
215,789
Change in other assets
( 3,663 )
7,091
2,806
Net cash used in investing activities
( 2,350,724 )
( 1,041,490 )
( 530,061 )
Cash flows provided by (used in) financing activities:
Repurchases of common stock
( 129,084 )
( 38,772 )
( 43,443 )
Issuance of senior notes by Antero Midstream Partners LP
—
650,000
—
Issuance of convertible notes
—
—
287,500
Repayment of senior notes
—
( 191,092 )
( 1,219,019 )
Borrowings (repayments) on bank credit facilities, net
660,379
232,000
465,000
Payment of debt issuance costs
( 2,169 )
( 4,547 )
( 8,984 )
Sale of noncontrolling interest
—
—
351,000
Distributions to noncontrolling interests in Antero Midstream Partners LP
( 267,271 )
( 85,076 )
—
Distributions to noncontrolling interests in Martica Holdings LLC
—
—
( 35,920 )
Employee tax withholding for settlement of equity compensation awards
( 17,020 )
( 2,389 )
( 422 )
Other
( 4,539 )
( 2,560 )
( 1,291 )
Net cash provided by (used in) financing activities
240,296
557,564
( 205,579 )
Effect of deconsolidation of Antero Midstream Partners LP
—
( 619,532 )
—
Net decrease in cash and cash equivalents
( 28,441 )
—
—
Cash and cash equivalents, beginning of period
28,441
—
—
Cash and cash equivalents, end of period
$
—
—
—
(Continued)
F-7
Table of Contents
ANTERO RESOURCES CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2018
2019
2020
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
$
275,769
224,331
192,302
Decrease in accounts payable and accrued liabilities for additions to property and equipment
$
( 47,717 )
( 15,897 )
( 94,619 )
See accompanying notes to consolidated financial statements .
F-8
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements
(1) Organization
Antero Resources Corporation (individually referred to as “Antero”) and its consolidated subsidiaries (collectively referred to as “Antero Resources,” the “Company,” “we,” “us” or “our”) are engaged in the development, production, exploration and acquisition of natural gas, NGLs, and oil properties in the Appalachian Basin in West Virginia and Ohio. The Company targets large, repeatable resource plays where horizontal drilling and advanced fracture stimulation technologies provide the means to economically develop and produce natural gas, NGLs, and oil from unconventional formations. The Company’s corporate headquarters are located in Denver, Colorado.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). In the opinion of management, the accompanying consolidated financial statements include all adjustments (consisting of normal and recurring accruals) considered necessary to present fairly the Company’s financial position as of December 31, 2019 and 2020, and the results of its operations and its cash flows for the years ended December 31, 2018, 2019 and 2020. The Company has no items of other comprehensive income or loss; therefore, its net income or loss is equal to its comprehensive income or loss.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Antero Resources Corporation, its wholly owned subsidiaries, any entities in which the Company owns a controlling interest, and variable interest entities (“VIEs”) for which the Company is the primary beneficiary.
Through March 12, 2019, Antero Midstream Partners LP (“Antero Midstream Partners”), a publicly traded limited partnership, was included in the consolidated financial statements of Antero. Prior to the Closing (defined in Note 3—Deconsolidation of Antero Midstream Partners LP to the consolidated financial statements), the Company’s ownership of Antero Midstream Partners common units represented approximately a 53 % limited partner interest in Antero Midstream Partners, and Antero Resources consolidated Antero Midstream Partners’ financial position and results of operations into its consolidated financial statements. The Transactions (defined in Note 3—Deconsolidation of Antero Midstream Partners LP to the consolidated financial statements) resulted in the exchange of the limited partner interest Antero Resources owned in Antero Midstream Partners for common stock of Antero Midstream Corporation representing an approximate 31 % interest as of March 13, 2019. As a result, Antero Resources’ controlling interest in Antero Midstream Partners was converted to an interest in Antero Midstream Corporation that provides significant influence, but not control, over Antero Midstream Corporation. Thus, effective March 13, 2019, Antero no longer consolidates Antero Midstream Partners in its consolidated financial statements and accounts for its interest in Antero Midstream Corporation using the equity method of accounting. As of December 31, 2019 and 2020, the Company had a 28.7 % and 29.2 % interest, respectively, in Antero Midstream Corporation. See Note 6—Equity Method Investments and Note 3—Deconsolidation of Antero Midstream Partners LP to the consolidated financial statements for further discussion on equity method investments and the Transactions, respectively.
For the year ended December 31, 2020, the Company determined that Martica Holdings LLC (“Martica”) is a VIE for which Antero is the primary beneficiary. Therefore, Martica’s accounts are consolidated in the Company’s consolidated financial statements. Antero is the primary beneficiary of Martica based on its power to direct the activities that most significantly impact Martica’s economic performance, and its obligation to absorb losses of, or right to receive benefits from, Martica that could be significant to Martica. In reaching such determination that Antero is the primary beneficiary of Martica, the Company considered the following:
● Martica was formed to hold certain overriding royalty interests across the Company’s existing asset base;
● substantially all of Martica’s revenues are derived from production from the Company’s natural gas, NGLs, and oil properties in the Appalachian Basin in West Virginia and Ohio;
● Antero owns the Class B Units in Martica, which entitle Antero to receive distributions in respect of the Incremental Override (as defined in Note 4—Transactions); and
F-9
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
● Antero provides accounting, administrative and other services to Martica under a Management Services Agreement.
All significant intercompany accounts and transactions have been eliminated in the Company’s consolidated financial statements. The noncontrolling interest in the Company’s consolidated financial statements for the years ended December 31, 2018 and 2019 represents the interests in Antero Midstream Partners that were owned by the public prior to the Transactions, and the incentive distribution rights in Antero Midstream Partners. The noncontrolling interest in the Company’s consolidated financial statements for the year ended December 31, 2020 represents the interest in Martica owned by third parties. See Note 4—Transactions to the consolidated financial statements for more information on the sale of this noncontrolling interest. Martica is a discrete entity and the assets and credits of Martica are not available to satisfy the debts and obligations of the Company or its other subsidiaries.
Investments in entities for which the Company exercises significant influence, but not control, are accounted for under the equity method. The Company’s judgment regarding the level of influence over its equity method investments includes considering key factors such as Antero’s ownership interest, representation on the board of directors, and participation in the policy-making decisions of equity method investees. Such investments are included in Investment in unconsolidated affiliate on the Company’s consolidated balance sheets. Income (loss) from investees that are accounted for under the equity method is included in Equity in earnings (loss) of unconsolidated affiliates on the Company’s consolidated statements of operations and cash flows. When Antero records its proportionate share of net income or net loss, it is recorded in equity in earnings (loss) of unconsolidated affiliates in the statements of operations and the carrying value of that investment on the Company’s balance sheet. When a distribution is received, it is recorded as a reduction to the carrying value of that investment on the Company’s balance sheet. The Company’s equity in earnings of unconsolidated affiliates is adjusted for intercompany transactions and the basis differences recognized due to the difference between the cost of the equity method investment in Antero Midstream Corporation and the amount of underlying equity in the net assets of Antero Midstream Partners as of the date of deconsolidation.
The Company accounts for distributions received from equity method investees under the “nature of the distribution” approach. Under this approach, distributions received from equity method investees are classified on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as cash inflows from operating activities) or a return of investment (classified as cash inflows from investing activities).
(c) Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect revenues, expenses, assets, liabilities and the disclosure of contingent assets and liabilities. Changes in facts and circumstances or discovery of new information may result in revised estimates, and actual results could differ from those estimates.
The Company’s consolidated financial statements are based on a number of significant estimates, including estimates of natural gas, NGLs, and oil reserve quantities, which are the basis for the calculation of depletion and impairment of oil and gas properties. Reserve estimates, by their nature, are inherently imprecise. Other items in the Company’s consolidated financial statements that involve the use of significant estimates include derivative assets and liabilities, accrued revenue, deferred and current income taxes, asset retirement obligations and commitments and contingencies.
(d) Risks and Uncertainties
The markets for natural gas, NGLs, and oil have, and continue to, experience significant price fluctuations. Price fluctuations can result from variations in weather, levels of production, availability of storage capacity transportation to other regions of the country, the level of imports to and exports from the United States and various other factors. Increases or decreases in the prices the Company receives for its production could have a significant impact on the Company’s future results of operations and reserve quantities.
(e) Cash and Cash Equivalents
The Company considers all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the short term nature of these instruments. From time to time, the Company may be in the position of a “book overdraft” in which outstanding checks exceed cash and cash equivalents. The Company classifies book overdrafts in accounts payable and revenue distributions payable within its consolidated balance sheets, and classifies the change in accounts payable associated with book overdrafts as an operating activity within its consolidated statements of cash flows. As of December 31, 2020, the book overdraft included within accounts payable and
F-10
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
revenue distributions payable were $ 11 million and $ 15 million, respectively. As of December 31, 2019, the book overdraft included within accounts payable and revenue distributions payable were $ 7 million and $ 18 million, respectively.
(f) Oil and Gas Properties
The Company accounts for its natural gas, NGLs, and oil exploration and development activities under the successful efforts method of accounting. Under the successful efforts method, the costs incurred to acquire, drill, and complete productive wells, development wells, and undeveloped leases are capitalized. Oil and gas lease acquisition costs are also capitalized. Exploration costs, including personnel and other internal costs, geological and geophysical expenses, delay rentals for gas and oil leases, and costs associated with unsuccessful lease acquisitions are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if the Company determines that the well does not contain reserves in commercially viable quantities. The Company reviews exploration costs related to wells-in- progress at the end of each quarter and makes a determination, based on known results of drilling at that time, whether the costs should continue to be capitalized pending further well testing and results, or charged to expense. During the year ended December 31, 2019, the Company recorded an impairment expense of $ 26 million for design and initial costs related to pads that are no longer planned to be placed into service. The Company incurred no such expenses during the years ended December 31, 2018 and 2020. The sale of a partial interest in a proved property is accounted for as a cost recovery, and no gain or loss is recognized as long as this treatment does not significantly affect the units-of- production amortization rate. A gain or loss is recognized for all other sales of producing properties.
Unproved properties are assessed for impairment on a property-by- property basis, and any impairment in value is charged to expense. Impairment is assessed based on remaining lease terms, commodity price outlooks, future plans to develop acreage, drilling results and reservoir performance of wells in the area. Unproved properties and the related costs are transferred to proved properties when reserves are discovered on, or otherwise attributed to, the property. Proceeds from sales of partial interests in unproved properties are accounted for as a recovery of cost without recognition of any gain or loss until the cost has been recovered. Impairment of unproved properties was $ 549 million, $ 393 million, and $ 224 million for the years ended December 31, 2018, 2019 and 2020, respectively.
The Company evaluates the carrying amount of its proved natural gas, NGLs, and oil properties for impairment on a geological reservoir basis whenever events or changes in circumstances indicate that a property’s carrying amount may not be recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the Company would estimate the fair value of its properties and record an impairment expense for any excess of the carrying amount of the properties over the estimated fair value of the properties. Factors used to estimate fair value may include estimates of proved reserves, estimated future commodity prices, future production estimates, and anticipated capital expenditures, using a commensurate discount rate.
The carrying amount of the Company’s proved properties in the Utica Shale exceeded the estimated undiscounted future cash flows based on future commodity prices as of September 30, 2019. The Company estimated the fair value of the Utica Shale assets based on sales of other properties, estimates of proved reserves, estimated future commodity prices and future production estimates. As a result, the Company recorded an impairment expense of $ 881 million related to proved properties in the Utica Shale during the third quarter of 2019. The Company did not incur any impairment expenses related to proved properties in the Utica Shale for the years ended December 31, 2018 and 2020. The Company did not record any impairment expenses associated with its proved properties in the Marcellus Shale during the years ended December 31, 2018, 2019 and 2020.
As of December 31, 2020, the Company did not have capitalized costs related to exploratory wells-in-progress that have been deferred for longer than one year pending determination of proved reserves.
Depletion of oil and gas properties is calculated on a geological reservoir basis using the units-of- production method. Depletion expense for oil and gas properties was $ 832 million, $ 884 million, and $ 854 million for the years ended December 31, 2018, 2019 and 2020, respectively.
(g) Impairment of Long-Lived Assets Other than Oil and Gas Properties
The Company evaluates its long- lived assets other than oil and gas properties for impairment when events or changes in circumstances indicate that the related carrying values of the assets may not be recoverable. Generally, the basis for making such assessments is undiscounted future cash flow projections for the assets being assessed. If the carrying values of the assets are deemed not recoverable, the carrying values are reduced to the estimated fair values, which are based on discounted future cash flows using assumptions as to revenues, costs, and discount rates typical of third party market participants, which is a Level 3 fair value measurement.
F-11
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Impairment of long-lived assets other than oil and gas properties were $ 10 million and $ 15 million for the years ended December 31, 2018 and 2019, respectively, and were associated with midstream assets. There were no such impairments for the year ended December 31, 2020.
(h) Other Property and Equipment
Other property and equipment assets are depreciated using the straight-line method over their estimated useful lives, which range from two to 20 years . Depreciation expense for other property and equipment was $ 9 million, $ 8 million, and $ 8 million for the years ended December 31, 2018, 2019 and 2020, respectively. A gain or loss is recognized upon the sale or disposal of other property and equipment.
(i) Debt Issuance Costs
Debt issuance costs represent loan origination fees and other initial borrowing costs. Such costs are capitalized and included in Other assets on the consolidated balance sheets if related to the Company’s revolving credit facility, and are included as a reduction to Long-term debt on the consolidated balance sheets if related to the issuance of the Company’s senior notes and 2026 Convertible Notes (as defined below in Note 8—Long-Term Debt). These costs are amortized over the term of the related debt instrument. The Company charges expense for unamortized debt issuance costs if the credit facility is retired prior to its maturity date. As of December 31, 2020, the Company had $ 3 million of unamortized debt issuance costs included in other long-term assets, and $ 16 million of unamortized debt issuance costs included as a reduction to long-term debt. As of December 31, 2019, the Company had $ 7 million of unamortized debt issuance costs included in other long term assets and $ 19 million of unamortized debt issuance costs included as a reduction to long-term debt. The amounts amortized and the write-off of previously deferred debt issuance costs were $ 13 million, $ 11 million, and $ 8 million for the years ended December 31, 2018, 2019 and 2020, respectively.
(j) Derivative Financial Instruments
In order to manage its exposure to natural gas, NGLs, and oil price volatility, the Company enters into derivative transactions from time to time, which may include commodity swap agreements, basis swap agreements, collar agreements and other similar agreements related to the price risk associated with the Company’s production. To the extent legal right of offset exists with a counterparty, the Company reports derivative assets and liabilities on a net basis. The Company has exposure to credit risk to the extent that the counterparty is unable to satisfy its settlement obligations. The Company actively monitors the creditworthiness of counterparties and assesses the impact, if any, on its derivative positions.
The Company records derivative instruments on the consolidated balance sheets as either assets or liabilities measured at fair value and records changes in the fair value of derivatives in current earnings as they occur. Changes in the fair value of commodity derivatives, including gains or losses on settled derivatives, are classified as revenues on the Company’s consolidated statements of operations. The Company’s derivatives have not been designated as hedges for accounting purposes.
(k) Asset Retirement Obligations
The Company is obligated to dispose of certain long- lived assets upon their abandonment. The Company’s asset retirement obligations (“AROs”) relate primarily to its obligation to plug and abandon oil and gas wells at the end of their lives. AROs are recorded at estimated fair value, measured by reference to the expected future cash outflows required to satisfy the retirement obligations, which is then discounted at the Company’s credit-adjusted, risk- free interest rate. Revisions to estimated AROs often result from changes in retirement cost estimates or changes in the estimated timing of abandonment. The fair value of the liability is added to the carrying amount of the associated asset, and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense.
(l) Environmental Liabilities
Environmental expenditures that relate to an existing condition caused by past operations, and that do not contribute to current or future revenue generation, are expensed as incurred. Liabilities are accrued when environmental assessments and/or clean-up is probable and the costs can be reasonably estimated. These liabilities are adjusted as additional information becomes available or circumstances change. As of December 31, 2019 and 2020, the Company did not have a material amount accrued for any environmental liabilities, nor has the Company been cited for any environmental violations that it believes are likely to have a material adverse effect on its financial position, results of operations, or cash flows.
F-12
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(m) Natural Gas, NGLs, and Oil Revenues
The Company’s revenues are primarily derived from the sale of natural gas and oil production, as well as the sale of NGLs that are extracted from the Company’s natural gas. Sales of natural gas, NGLs, and oil are recognized when the Company satisfies a performance obligation by transferring control of a product to a customer. Payment is generally received in the month following the sale.
Under the Company’s natural gas sales contracts, it delivers natural gas to the purchaser at an agreed upon delivery point. Natural gas is transported from the wellheads to delivery points specified under sales contracts. To deliver natural gas to these points, Antero Midstream Corporation or other third parties gather, compress, process and transport the Company’s natural gas. The Company maintains control of the natural gas during gathering, compression, processing, and transportation. The Company’s sales contracts provide that it receives a specific index price adjusted for pricing differentials. The Company transfers control of the product at the delivery point and recognizes revenue based on the contract price. The costs incurred to gather, compress, process and transport natural gas are recorded as Gathering, compression, processing and transportation expense.
NGLs, which are extracted from natural gas through processing, are either sold by the Company directly or by the processor under processing contracts. For NGLs sold by the Company directly, the sales contracts primarily provide that the Company delivers the product to the purchaser at an agreed upon delivery point and that it receives a specific index price adjusted for pricing differentials. The Company transfers control of the product to the purchaser at the delivery point and recognizes revenue based on the contract price. The costs incurred to process and transport NGLs are recorded as Gathering, compression, processing, and transportation expense. For NGLs sold by the processor, the Company’s processing contracts provide that the Company transfers control to the processor at the tailgate of the processing plant and it recognizes revenue based on the price received from the processor.
Under the Company’s oil sales contracts, Antero Resources’ generally sells oil to purchasers and collects a contractually agreed upon index price, net of pricing differentials. The Company recognizes revenue based on the contract price when it transfers control of the product to a purchaser. When applicable, the costs incurred to transport oil to a purchaser are recorded as Gathering, compression, processing and transportation expense.
(n) Marketing Revenues and Expenses
Marketing revenues are derived from activities to purchase and sell third-party natural gas and NGLs and to market excess firm transportation capacity to third parties. The Company retains control of the purchased natural gas and NGLs prior to delivery to the purchaser. The Company has concluded that it is the principal in these arrangements and therefore, the Company recognizes revenue on a gross basis, with costs to purchase and transport natural gas and NGLs presented as marketing expenses. Contracts to sell third party gas and NGLs are generally subject to similar terms as contracts to sell the Company’s produced natural gas and NGLs. The Company satisfies performance obligations to the purchaser by transferring control of the product at the delivery point and recognizes revenue based on the contract price received from the purchaser. Fees generated from the sale of excess firm transportation marketed to third parties are included in Marketing revenue.
Marketing expenses include the cost of purchased third-party natural gas and NGLs. The Company classifies firm transportation costs related to capacity contracted for in advance of having sufficient production and infrastructure to fully utilize the capacity (excess capacity) as marketing expenses since it is marketing this excess capacity to third parties. Firm transportation for which the Company has sufficient production capacity (even though it may not use the transportation capacity because of alternative delivery points with more favorable pricing) is considered unutilized capacity and is charged to transportation expense.
(o) Deferred Revenue
Under the terms of the VPP (as defined below in Note 4—Transactions), the Company is obligated to deliver certain natural gas volumes from specified wells to an overriding royalty interest owner over the term of the arrangement. The Company has accounted for the VPP as a conveyance under Accounting Standard Codifications (“ASC”) Topic 932, Extractive Industries—Oil and Gas (“ASC 932”), which requires the net proceeds to be recorded as deferred revenue due to the Company’s future performance obligations. Revenue is recognized as volumes are delivered using the units-of-production method over the term of the VPP in Amortization of deferred revenue on the Company’s consolidated statements of operations. See Note 4—Transactions to the consolidated financial statements for further discussion of the VPP.
F-13
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(p) Gathering, Compression, Water Handling and Treatment Revenue
Substantially all revenues from the gathering, compression, water handling and treatment operations were derived from transactions for services Antero Midstream Partners provided to the Company’s exploration and production operations through March 12, 2019 and were eliminated in consolidation. Effective March 13, 2019, Antero Midstream Partners is no longer consolidated in Antero’s results. See Note 3 —Deconsolidation of Antero Midstream Partners LP and Note 18—Segment Information to the consolidated financial statements for further discussion on the Transactions and the Company’s reportable segments, respectively. The portion of such fees shown in the Company’s consolidated financial statements prior to March 13, 2019 represent amounts charged to interest owners in Antero-operated wells, as well as fees charged to other third parties for water handling and treatment services provided by Antero Midstream Partners or usage of Antero Midstream Partners’ gathering and compression systems. For gathering and compression revenue, Antero Midstream Partners satisfied its performance obligations and recognized revenue when low pressure volumes were delivered to a compressor station, high pressure volumes were delivered to a processing plant or transmission pipeline, and compression volumes were delivered to a high pressure line. Revenue was recognized based on the per Mcf gathering or compression fee charged by Antero Midstream Partners in accordance with the gathering and compression agreement. For water handling and treatment revenue, Antero Midstream Partners satisfied its performance obligations and recognized revenue when the fresh water volumes were delivered to the hydration unit of a specified well pad and the wastewater volumes were delivered to its wastewater treatment facility. For services contracted through third-party providers, Antero Midstream Partners’ performance obligation was satisfied when the services performed by the third-party providers were completed. Revenue was recognized based on the per barrel fresh water delivery or wastewater treatment fee charged by Antero Midstream Partners in accordance with the water services agreement.
(q) Concentrations of Credit Risk
The Company’s revenues are derived principally from uncollateralized sales to purchasers in the oil and gas industry or the utilities industry. The concentration of credit risk in two related industries affects the Company’s overall exposure to credit risk because purchasers may be similarly affected by changes in economic and other conditions. The Company has not experienced significant credit losses on its receivables.
The Company’s sales to major customers (purchases in excess of 10% of total sales) for the years ended December 31, 2018, 2019 and 2020 are as follows:
Year Ended December 31, 2018
Mercuria Energy America, Inc.
14
%
Tenaska Marketing Ventures
13
%
Year Ended December 31, 2019
Sabine Pass Liquefaction LLC
16
%
WGL Midstream
15
%
Year Ended December 31, 2020
Sabine Pass Liquefaction LLC
11
%
WGL Midstream
11
%
The Company is also exposed to credit risk on its commodity derivative portfolio. Any default by the counterparties to these derivative contracts when they become due could have a material adverse effect on the Company’s financial condition and results of operations. The Company has economic hedges in place with 17 different counterparties. The fair value of the Company’s commodity net derivative contracts is approximately $ 22 million as of December 31, 2020 and primarily included the following net derivative assets by bank counterparty: Morgan Stanley - $ 35 million; Canadian Imperial Bank of Commerce - $ 25 million; Scotiabank - $ 14 million; Natixis - $ 5 million; DNB Capital - $ 2 million; and Truist $ 1 million. The estimated fair value of commodity derivative assets has been risk-adjusted using a discount rate based upon the respective published credit default swap rates (if available, or if not available, a discount rate based on the applicable Reuters bond rating) as of December 31, 2020 for each of the European and American banks. The Company believes that all of these institutions currently are acceptable credit risks.
The Company, at times, may have cash in banks in excess of federally insured amounts.
F-14
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(r) Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary differences resulting from net operating loss (“NOL”) carryforwards for income tax purposes and the differences between the financial statement and tax basis of assets and liabilities. The effect of changes in tax laws or tax rates is recognized in income during the period such changes are enacted. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.
Unrecognized tax benefits represent potential future tax obligations for uncertain tax positions taken on previously filed tax returns that may not ultimately be sustained. The Company recognizes interest expense related to unrecognized tax benefits in interest expense and fines and penalties for tax-related matters as income tax expense.
(s) Fair Value Measurements
The Financial Accounting Standards Board (“FASB”) ASC Topic 820, Fair Value Measurements and Disclosures , clarifies the definition of fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance also relates to all nonfinancial assets and liabilities that are not recognized or disclosed on a recurring basis (e.g., those measured at fair value in a business combination, the initial recognition of asset retirement obligations, and impairments of proved oil and gas properties and other long- lived assets). Fair value is the price that the Company estimates would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is used to prioritize inputs to valuation techniques used to estimate fair value. An asset or liability subject to the fair value requirements is categorized within the hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The highest priority (Level 1) is given to unadjusted, quoted market prices in active markets for identical assets or liabilities, and the lowest priority (Level 3) is given to unobservable inputs. Level 2 inputs are data, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. Instruments that are valued using Level 2 inputs include non-exchange traded derivatives such as over-the- counter commodity price swaps. Valuation models used to measure fair value of these instruments consider various Level 2 inputs including (i) quoted forward prices for commodities, (ii) time value, (iii) quoted forward interest rates, (iv) current market prices and contractual prices for the underlying instruments, (v) risk of nonperformance by the Company and the counterparty, and (vi) other relevant economic measures.
(t) Industry Segments and Geographic Information
Management has evaluated how the Company is organized and managed and has identified the following segments: (1) the exploration, development, and production of natural gas, NGLs, and oil; (2) marketing and utilization of excess firm transportation capacity and (3) midstream services through the Company’s equity method investment in Antero Midstream Corporation. Through March 12, 2019, the results of Antero Midstream Partners were included in the consolidated financial statements of Antero. Effective March 13, 2019, Antero no longer consolidated the results of Antero Midstream Partners in Antero’s results; however, the Company’s segment disclosures include the Company’s equity method investment in Antero Midstream Corporation due to its significance to the Company’s operations. See Note 3—Deconsolidation of Antero Midstream Partners LP and Note 18—Segment Information to the consolidated financial statements for further discussion on the Transactions and the Company’s reportable segments, respectively.
All of the Company’s assets are located in the United States and substantially all of its production revenues are attributable to customers located in the United States; however, some of the Company’s production revenues are attributable to customers who then transport the Company’s production to foreign countries for resale or consumption.
(u) Earnings (Loss) Per Common Share
Earnings (loss) per common share—basic for each period is computed by dividing net income (loss) attributable to Antero by the basic weighted average number of shares outstanding during the period. Earnings (loss) per common share—diluted for each period is computed after giving consideration to the potential dilution from (i) outstanding equity awards, calculated using the treasury stock method, and (ii) shares of common stock issuable upon conversion of the 2026 Convertible Notes (as defined below in Note 8—Long-Term Debt), calculated using the if-converted method. The Company includes restricted stock unit (“RSUs”) awards, performance share unit (“PSUs”) awards and stock options in the calculation of diluted weighted average shares outstanding based on the number of common shares that would be issuable if the end of the period was also the end of the performance period required for the vesting of the awards. During periods in which the Company incurs a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the effect of all equity awards is anti-dilutive.
F-15
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
The following is a reconciliation of the Company’s basic weighted average shares outstanding to diluted weighted average shares outstanding during the periods presented (in thousands):
Year Ended December 31,
2018
2019
2020
Basic weighted average number of shares outstanding
316,036
306,400
272,433
Add: Dilutive effect of RSUs
—
—
—
Add: Dilutive effect of outstanding stock options
—
—
—
Add: Dilutive effect of PSUs
—
—
—
Add: Dilutive effect of 2026 Convertible Notes (2)
—
—
—
Diluted weighted average number of shares outstanding
316,036
306,400
272,433
Weighted average number of outstanding securities excluded from calculation of diluted earnings per common share (1) :
RSUs
2,844
2,357
6,810
Outstanding stock options
626
527
327
PSUs
1,705
1,443
432
2026 Convertible Notes (3)
—
—
31,388
(1) The potential dilutive effects of these awards were excluded from the computation of earnings (loss) per common share—assuming dilution because the inclusion of these awards would have been anti-dilutive.
(2) In August 2020 and September 2020, the Company issued $ 287.5 million in aggregate principal amount of 2026 Convertible Notes (as defined below in Note 8—Long-Term Debt).
(3) On January 12, 2021, the Company completed the Equitization Transactions (defined below in Note 8—Long-Term Debt) whereby the Company issued 31.4 million shares and repurchased $ 150 million aggregate principal amount of the 2026 Convertible Notes. See Note 8—Long-Term Debt to the consolidated financial statements for further discussion on this transaction .
(v) Treasury Share Retirement
The Company retires treasury shares acquired through share repurchases and returns those shares to the status of authorized but unissued. When treasury shares are retired, the Company’s policy is to allocate the excess of the repurchase price over the par value of shares acquired first, to additional paid-in capital, and then to accumulated earnings. The portion allocable to additional paid-in capital is determined by applying a percentage, determined by dividing the number of shares to be retired by the number of shares outstanding, to the balance of additional paid-in capital as of retirement.
(w) Equity-Based Compensation
The Company recognizes compensation cost related to all equity-based awards in the financial statements based on their estimated grant date fair value. The Company is authorized to grant various types of equity-based compensation awards including stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, dividend equivalent awards, and other types of awards. The grant date fair values are determined based on the type of award and may utilize market prices on the date of grant, Black-Scholes option-pricing model, Monte Carlo simulations, or other acceptable valuation methodologies, as appropriate for the type of equity-based award. Compensation cost is recognized ratably over the applicable vesting or service period. Forfeitures are accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the period. See Note 10—Equity-Based Compensation and Retention Awards to the consolidated financial statements for additional information regarding the Company’s equity-based compensation.
(x) Recently Issued Accounting Standard
On August 5, 2020, the FASB issued Accounting Standards Update No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which eliminates the cash conversion model in ASC 470-20, Debt with Conversion and Other Options , that require separate accounting for conversion features, and instead, allows the debt instrument and conversion features to be accounted for as a single debt instrument. The new standard becomes effective for the Company on January 1, 2022, and early adoption is permitted. The Company is evaluating its plans for adoption, including the adoption date and transition method.
Upon adoption of this new standard, the Company expects to reclassify $ 85 million, net of deferred income taxes and equity issuance costs, to long-term debt and deferred income tax liability, as applicable, from stockholders’ equity as of December 31, 2020, which amount is subject to adjustment for any conversions or other transactions until adoption of this new standard. Additionally,
F-16
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
annual interest expense for the 2026 Convertible Notes will be based on an effective interest rate of 4.8 % as compared to 15.1 % for the year ended December 31, 2020 and the weighted average diluted shares outstanding will increase from zero for the year ended December 31, 2020 to 63 million under the if-converted method after giving effect to the Equitization Transactions (defined below in Note 8—Long-Term Debt). The Company does not believe that adoption of the standard will impact its operational strategies or development prospects .
(3) Deconsolidation of Antero Midstream Partners LP
On March 12, 2019, Antero Midstream GP LP and Antero Midstream Partners completed (the “Closing”) the transactions contemplated by the Simplification Agreement (the “Simplification Agreement”), dated as of October 9, 2018, by and among Antero Midstream GP LP, Antero Midstream Partners and certain of their affiliates, pursuant to which (i) Antero Midstream GP LP was converted from a limited partnership to a corporation under the laws of the State of Delaware and changed its name to Antero Midstream Corporation, and (ii) an indirect, wholly owned subsidiary of Antero Midstream Corporation was merged with and into Antero Midstream Partners, with Antero Midstream Partners surviving the merger as an indirect, wholly owned subsidiary of Antero Midstream Corporation (together, along with the other transactions contemplated by the Simplification Agreement, the “Transactions”). In connection with the Closing, Antero received $ 297 million in cash and 158.4 million shares of Antero Midstream Corporation common stock in consideration for 98,870,335 common units representing limited partnership interests in Antero Midstream Partners.
The Company recorded a gain on deconsolidation of $ 1.4 billion calculated as the sum of (i) the cash proceeds received, (ii) the fair value of the Antero Midstream Corporation common stock received at the Closing, and (iii) the elimination of the noncontrolling interest, less the carrying amount of the investment in Antero Midstream Partners. The fair value of Antero’s retained equity method investment on March 13, 2019 in Antero Midstream Corporation was $ 2.0 billion based on the market price of the shares received on March 12, 2019. See Note 6—Equity Method Investments to the consolidated financial statements for further discussion on equity method investments.
Antero Midstream Partners’ results of operations are no longer consolidated in the Company’s consolidated statement of operations and comprehensive income (loss) beginning March 13, 2019. Because Antero Midstream Partners does not meet the requirements of a discontinued operation, Antero Midstream Partners’ results of operations continue to be included in the Company’s consolidated statement of operations and comprehensive income (loss) through March 12, 2019.
Summarized Financial Information of Antero Midstream Partners
The following table presents a summary of assets and liabilities of Antero Midstream Partners as of March 12, 2019, the date of deconsolidation.
(in thousands)
March 12, 2019
Current assets
$
763,109
Property and equipment, net
3,003,693
Noncurrent assets
501,208
Total assets
$
4,268,010
Current liabilities
$
123,473
Long-term debt
2,359,084
Other noncurrent liabilities
123,523
Total liabilities
$
2,606,080
Net assets
$
1,661,930
F-17
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(4) Transactions
(a)
Conveyance of Overriding Royalty Interest
On June 15, 2020, the Company announced the consummation of a transaction with an affiliate of Sixth Street Partners, LLC (“Sixth Street”) relating to certain overriding royalty interests across the Company’s existing asset base (the “ORRIs”). In connection with the transaction, the Company contributed the ORRIs to Martica and Sixth Street contributed $ 300 million in cash (subject to customary adjustments) and agreed to contribute up to an additional $ 102 million in cash if certain production thresholds attributable to the ORRIs are achieved in the third quarter of 2020 and first quarter of 2021. All cash contributed by Sixth Street at the initial closing was distributed to the Company. The Company met the applicable production threshold during the third quarter of 2020 and received a $ 51 million cash distribution during the year ended December 31, 2020.
The ORRIs include an overriding royalty interest of 1.25 % of the Company’s working interest in all of its operated proved developed properties in West Virginia and Ohio, subject to certain excluded wells (the “Initial PDP Override”), and an overriding royalty interest of 3.75 % of the Company’s working interest in all of its undeveloped properties in West Virginia and Ohio (the “Development Override”). Wells turned to sales after April 1, 2020 and prior to the later of (a) the date on which the Company turns to sales 2.2 million lateral feet (net to the Company’s interest) of horizontal wells burdened by the Development Override and (b) the earlier of (i) April 1, 2023 and (ii) the date on which the Company turns to sales 3.82 million lateral feet (net to the Company’s interest) of horizontal wells are subject to the Development Override.
The ORRIs also include an additional overriding royalty interest of 2.00 % of the Company’s working interest in the properties underlying the Initial PDP Override (the “Incremental Override”). The Incremental Override (or a portion thereof, as applicable) may be re-conveyed to the Company (at the Company’s election) if certain production targets attributable to the ORRIs are achieved through March 31, 2023. Any portion of the Incremental Override that may not be re-conveyed to the Company based on the Company failing to achieve such production volumes through March 31, 2023 will remain with Martica.
Prior to Sixth Street achieving an internal rate of return of 13 % and 1.5 x cash-on-cash return (the “Hurdle”), Sixth Street will receive all distributions in respect of the Initial PDP Override and the Development Override, and the Company will receive all distributions in respect of the Incremental Override, unless certain production targets are not achieved, in which case Sixth Street will receive some or all of the distributions in respect of the Incremental Override. Following Sixth Street achieving the Hurdle, the Company will receive 85 % of the distributions in respect of the ORRIs to which Sixth Street was entitled immediately prior to the Hurdle being achieved.
The conveyance of the ORRIs from the Company to Martica was accounted for as a transaction between entities under common control. As a result, the contributed ORRIs have been recorded by Martica at their historical cost.
(b)
Volumetric Production Payment Transaction
On August 10, 2020, the Company completed a volumetric production payment transaction and received net proceeds of approximately $ 216 million (the "VPP"). In connection with the VPP, the Company entered into a purchase and sale agreement, together with a conveyance agreement and production and marketing agreement, with J.P. Morgan Ventures Energy Corporation ("JPM-VEC") to convey, effective July 1, 2020, an overriding royalty interest in dry gas producing properties in West Virginia (the "VPP Properties") equal to 136,589,000 MMBtu over the expected seven-year term of the VPP.
The Company has accounted for the VPP as a conveyance under ASC 932, and the net proceeds were recorded as deferred revenue in the consolidated balance sheet. Deferred revenue is recognized as volumes are delivered using the units-of-production method over the term of the VPP. Under the production and marketing agreement, Antero and its affiliates provide certain marketing services as JPM-VEC’s agent, and any income or expenses related to these services will be recorded as marketing revenue or marketing expenses as appropriate.
Contemporaneously with the VPP, the Company executed a call option related to the production volumes associated with its retained interest in the VPP properties, which is collateralized by a mortgage on the VPP properties. Additionally, the production and marketing agreement contains an embedded put option related to the production volumes for the Company’s retained interest in the VPP properties, which has been bifurcated from the production and marketing arrangement and accounted for as a derivative instrument recorded at fair value. See Note 12—Derivative Instruments to the consolidated financial statements for more information on the Company’s derivative instruments.
F-18
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(c)
Subsequent Event
Drilling Partnership
On February 17, 2021, Antero Resources announced the formation of a drilling partnership with QL Capital Partners (“QL”), an affiliate of Quantum Energy Partners. Under the terms of the arrangement, QL will fund 20 % of total development capital spending in 2021 and is expected to fund between 15 % and 20 % of total development capital spending on an annual basis from 2022 through 2024. All of the wells spud during each calendar year period will be a separate annual tranche. Capital costs in excess of, and cost savings below, a specified percentage of budgeted amounts for each annual tranche will be for Antero Resources’ account.
For each tranche other than 2021, Antero Resources will propose a capital budget and estimated internal rate of return (“IRR”) for all wells to be spud during the year and, subject to the mutual agreement of the parties that the estimated IRR for each tranche exceeds a specified return, QL will be obligated to participate in such tranche. For each annual tranche in which QL participates, QL will receive a proportionate working interest percentage in each well spud in such tranche. If Antero Resources presents a capital budget for an annual tranche with an estimated IRR equal to or exceeding a specified return that QL in good faith believes is less than such specified return and QL elects not to participate, Antero Resources will not be obligated to offer QL the opportunity to participate in subsequent tranches. No earlier than December 31 following the expiration of each tranche year, Antero Resources will calculate the tranche IRR for such tranche year and, if the tranche IRR exceeds certain specified returns, Antero Resources will receive a carry in the form of a one-time payment from QL for such annual tranche.
(5) Revenue
(a)
Disaggregation of Revenue
Revenue is disaggregated by type in the following table. The table also identifies which reportable segment that the disaggregated revenues relate. See Note 18—Segment Information to the consolidated financial statements for more information on reportable segments.
Year Ended December 31,
(in thousands)
2018
2019
2020
Reportable Segment
Revenues from contracts with customers:
Natural gas sales
$
2,287,939
2,247,162
1,809,952
Exploration and production
Natural gas liquids sales (ethane)
172,653
124,563
113,811
Exploration and production
Natural gas liquids sales (C3+ NGLs)
1,005,124
1,094,599
1,047,872
Exploration and production
Oil sales
187,178
177,549
112,270
Exploration and production
Gathering and compression (1)
17,817
3,972
—
Equity method investment in Antero Midstream Corporation
Water handling and treatment (1)
3,527
506
—
Equity method investment in Antero Midstream Corporation
Marketing
458,901
292,207
310,572
Marketing
Total revenue from contracts with customers
4,133,139
3,940,558
3,394,477
Income from derivatives, deferred revenue and other sources
6,487
468,132
97,222
Total revenue
$
4,139,626
4,408,690
3,491,699
(1)
Gathering and compression and water handling and treatment revenues were included through March 12, 2019. See Note 3—Deconsolidation of Antero Midstream Partners LP to the consolidated financial statements for further discussion on the Transactions.
(b)
Transaction Price Allocated to Remaining Performance Obligations
For the Company’s product sales that have a contract term greater than one year, the Company utilized the practical expedient in ASC 606, which does not require the disclosure of the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under the Company’s product sales contracts, each unit of product delivered to the customer represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required. For the Company’s product sales that have a contract term of one year or less, the Company utilized the practical expedient in ASC 606,
F-19
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
which does not require the disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
(c)
Contract Balances
Under the Company’s sales contracts, the Company invoices customers after its performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s contracts do not give rise to contract assets or liabilities. As of December 31, 2019 and 2020, the Company’s receivables from contracts with customers were $ 318 million and $ 425 million, respectively.
(6) Equity Method Investments
(a) Summary of Equity Method Investments
As of December 31, 2020, Antero owned approximately 29.2 % of Antero Midstream Corporation’s common stock, which is reflected in Antero’s consolidated financial statements using the equity method of accounting. See Note 3—Deconsolidation of Antero Midstream Partners LP to the consolidated financial statements for further discussion on the Transactions.
Prior to March 13, 2019, Antero’s consolidated results included two equity method investments held by Antero Midstream Partners: a 15 % equity interest in Stonewall Gas Gathering LLC (“Stonewall”), which operates a regional gathering pipeline on which the Company is an anchor shipper, and a 50 % interest in the joint venture entered into between Antero Midstream Partners and MarkWest Energy Partners, L.P. (“MarkWest”), a wholly owned subsidiary of MPLX, LP, to develop processing and fractionation assets in Appalachia (the “Joint Venture”). Effective March 13, 2019, the equity in earnings of these investments are accounted for in the equity in earnings (loss) of Antero Midstream Corporation.
The following table is a reconciliation of investments in unconsolidated affiliates for the years ended December 31, 2019 and 2020 in thousands):
Antero
MarkWest
Midstream
Stonewall (1)
Joint Venture
Corporation (2)
Total
Balances as of December 31, 2018
$
68,103
365,539
—
433,642
Investments (3)
—
25,020
—
25,020
Equity in net income (loss) of unconsolidated affiliates
1,894
10,370
( 155,480 )
( 143,216 )
Distributions/dividends from unconsolidated affiliates
( 3,000 )
( 9,605 )
( 145,351 )
( 157,956 )
Return of investment (4)
—
—
( 208,745 )
( 208,745 )
Impairment (5)
—
—
( 467,590 )
( 467,590 )
Elimination of intercompany profit
—
—
44,548
44,548
Effects of deconsolidation (6)
( 66,997 )
( 391,324 )
1,987,795
1,529,474
Balances as of December 31, 2019
—
—
1,055,177
1,055,177
Equity in loss of unconsolidated affiliates
—
—
( 62,660 )
( 62,660 )
Distributions/dividends from unconsolidated affiliates
—
—
( 171,022 )
( 171,022 )
Impairment (5)
—
—
( 610,632 )
( 610,632 )
Elimination of intercompany profit
—
—
44,219
44,219
Balances as of December 31, 2020 (7)
$
—
—
255,082
255,082
(1) Distributions are net of operating and capital requirements retained by Stonewall.
(2) As adjusted for the amortization of the difference between the cost of the equity method investment in Antero Midstream Corporation and the amount of underlying equity in the net assets of Antero Midstream Partners as of the date of deconsolidation and as adjusted for the return of investment.
(3) Investments in the Joint Venture during the year ended December 31, 2019 relate to capital contributions for construction of additional processing facilities.
(4) On December 16, 2019, Antero Midstream Corporation repurchased $ 100 million of its shares of common stock from the Company resulting in a return of investment. The Company recorded an $ 109 million loss on investment due to the carrying value exceeding the fair value of the stock repurchased.
(5) Other-than-temporary impairment of the Company’s investment in Antero Midstream Corporation to reduce the carrying value of such investment to fair value, which was based on the quoted market share price of Antero Midstream Corporation as of December 31, 2019 and March 31, 2020, respectively (Level 1).
(6) Effective March 13, 2019, the equity in earnings of Stonewall and the Joint Venture are accounted for in the equity in earnings of Antero Midstream Corporation.
F-20
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(7) The Company’s investment in Antero Midstream Corporation as of December 31, 2020, based on the quoted market share price of Antero Midstream Corporation on such date, was $ 1.1 billion.
(b) Summarized Financial Information of Antero Midstream Corporation
The following tables present summarized financial information of Antero Midstream Corporation.
Balance Sheet
December 31,
(in thousands)
2019
2020
Current assets
$
108,558
93,931
Noncurrent assets
6,174,320
5,516,981
Total assets
$
6,282,878
5,610,912
Current liabilities
$
242,084
94,005
Noncurrent liabilities
2,897,380
3,098,621
Stockholders' equity
3,143,414
2,418,286
Total liabilities and stockholders' equity
$
6,282,878
5,610,912
Statement of Operations
For the period
March 13, 2019
through
Year Ended
(in thousands)
December 31, 2019
December 31, 2020
Revenues
$
792,588
900,719
Operating expenses
1,177,610
1,018,357
Loss from operations
$
( 385,022 )
( 117,638 )
Loss attributable to the equity method investment
$
( 341,565 )
( 122,527 )
(7) Accrued Liabilities
Accrued liabilities as of December 31, 2019 and 2020 consisted of the following items (in thousands):
December 31,
2019
2020
Capital expenditures
$
105,706
32,372
Gathering, compression, processing, and transportation expenses
134,153
152,724
Marketing expenses
52,612
68,193
Interest expense, net
30,834
25,645
Accrued taxes
39,332
40,796
Other
38,213
23,794
Total accrued liabilities
$
400,850
343,524
F-21
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(8) Long-Term Debt
Long-term debt as of December 31, 2019 and 2020 consisted of the following items (in thousands):
December 31,
2019
2020
Credit Facility (a)
$
552,000
1,017,000
5.375 % senior notes due 2021 (b)
952,500
—
5.125 % senior notes due 2022 (c)
923,041
660,516
5.625 % senior notes due 2023 (d)
750,000
574,182
5.00 % senior notes due 2025 (e)
600,000
590,000
4.25 % convertible senior notes due 2026 (f)
—
287,500
Total principal
3,777,541
3,129,198
Unamortized premium (discount), net
791
( 111,886 )
Unamortized debt issuance costs
( 19,464 )
( 15,719 )
Long-term debt
$
3,758,868
3,001,593
(a)
Senior Secured Revolving Credit Facility
Antero Resources has a senior secured revolving credit facility (the “Credit Facility”) with a consortium of bank lenders. Borrowings under the Credit Facility are subject to borrowing base limitations based on the collateral value of Antero Resources’ assets and are subject to regular semi-annual redeterminations. The borrowing base and lender commitments were each reaffirmed in the semi-annual redetermination in October 2020. The next redetermination of the borrowing base is scheduled to occur in April 2021. The Credit Facility is scheduled to mature on October 26, 2022. As of December 31, 2020, the borrowing base under the Credit Facility was $ 2.85 billion and lender commitments were $ 2.64 billion.
Antero Resources was in compliance with all of the financial covenants under the Credit Facility as of December 31, 2019 and 2020.
As of December 31, 2020, Antero Resources had an outstanding balance under the Credit Facility of $ 1.0 billion with a weighted average interest rate of 3.26 %, and outstanding letters of credit of $ 730 million. As of December 31, 2019, Antero Resources had an outstanding balance under the Credit Facility of $ 552 million, with a weighted average interest rate of 3.28 %, and outstanding letters of credit of $ 623 million. Commitment fees on the unused portion of the Credit Facility are due quarterly at rates ranging from (i) 0.300 % to 0.375 % (subject to certain exceptions) of the unused portion based on utilization.
(b)
5.375 % Senior Notes Due 2021
On November 5, 2013, Antero Resources issued $ 1.0 billion of 5.375 % senior notes due November 1, 2021 (the “2021 Notes”) at par . The 2021 Notes were unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2021 Notes ranked pari passu to Antero Resources’ other outstanding senior notes. The 2021 Notes were guaranteed on a full and unconditional and joint and several senior unsecured basis by Antero Resources’ wholly owned subsidiaries and certain of its future restricted subsidiaries. Interest on the 2021 Notes was payable on May 1 and November 1 of each year. The Company repurchased or otherwise redeemed all of the 2021 Notes from time to time during the years ended December 31, 2019 and 2020. See —Debt Repurchase Program below for further details on 2021 Notes repurchases.
(c)
5.125 % Senior Notes Due 2022
On May 6, 2014, Antero Resources issued $ 600 million of 5.125 % senior notes due December 1, 2022 (the “2022 Notes”) at par . On September 18, 2014, Antero Resources issued an additional $ 500 million of the 2022 Notes at 100.5 % of par. The 2022 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2022 Notes rank pari passu to Antero Resources’ other outstanding senior notes. The 2022 Notes are guaranteed on a full and unconditional and joint and several senior unsecured basis by Antero Resources’ wholly owned subsidiaries and certain of its future restricted subsidiaries. Interest on the 2022 Notes is payable on June 1 and December 1 of each year. Antero Resources may redeem all or part of the 2022 Notes at a redemption price of 100.00 %. If Antero Resources undergoes a change of control followed by a rating decline, the holders of the 2022 Notes will have the right to require Antero Resources to repurchase all or a portion of the notes at a price equal to 101 % of the principal amount of the 2022 Notes, plus accrued and unpaid interest.
F-22
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(d)
5.625 % Senior Notes Due 2023
On March 17, 2015, Antero Resources issued $ 750 million of 5.625 % senior notes due June 1, 2023 (the “2023 Notes”) at par . The 2023 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2023 Notes rank pari passu to Antero Resources’ other outstanding senior notes. The 2023 Notes are guaranteed on a full and unconditional and joint and several senior unsecured basis by Antero Resources’ wholly owned subsidiaries and certain of its future restricted subsidiaries. Interest on the 2023 Notes is payable on June 1 and December 1 of each year. Antero Resources may redeem all or part of the 2023 Notes at any time at redemption prices ranging from 101.406 % to 100.00 % on or after June 1, 2021. If Antero Resources undergoes a change of control followed by a rating decline, the holders of the 2023 Notes will have the right to require Antero Resources to repurchase all or a portion of the notes at a price equal to 101 % of the principal amount of the 2023 Notes, plus accrued and unpaid interest.
(e)
5.00 % Senior Notes Due 2025
On December 21, 2016, Antero Resources issued $ 600 million of 5.00 % senior notes due March 1, 2025 (the “2025 Notes”) at par . The 2025 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2025 Notes rank pari passu to Antero Resources’ other outstanding senior notes. The 2025 Notes are guaranteed on a full and unconditional and joint and several senior unsecured basis by Antero Resources’ wholly owned subsidiaries and certain of its future restricted subsidiaries. Interest on the 2025 Notes is payable on March 1 and September 1 of each year. Antero Resources may redeem all or part of the 2025 Notes at any time on or after March 1, 2020 at redemption prices ranging from 103.750 % on or after March 1, 2020 to 100.00 % on or after March 1, 2023. In addition, on or before March 1, 2020, Antero Resources may redeem up to 35 % of the aggregate principal amount of the 2025 Notes with the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 105.00 % of the principal amount of the 2025 Notes, plus accrued and unpaid interest. At any time prior to March 1, 2020, Antero Resources may also redeem the 2025 Notes, in whole or in part, at a price equal to 100 % of the principal amount of the 2025 Notes plus a “make-whole” premium and accrued and unpaid interest. If Antero Resources undergoes a change of control followed by a rating decline, the holders of the 2025 Notes will have the right to require Antero Resources to repurchase all or a portion of the notes at a price equal to 101 % of the principal amount of the 2025 Notes, plus accrued and unpaid interest.
(f)
4.25 % Convertible Senior Notes Due 2026
On August 21, 2020, Antero Resources issued $ 250 million in aggregate principal amount of 4.25 % senior unsecured convertible notes (the “2026 Convertible Notes”). On September 2, 2020, Antero Resources issued an additional $ 37.5 million aggregate principal amount of 2026 Convertible Notes pursuant to the partial exercise of the initial purchasers’ option to purchase additional 2026 Convertible Notes. The 2026 Convertible Notes were issued pursuant to an indenture and are senior, unsecured obligations of Antero Resources. The 2026 Convertible Notes bear interest at a fixed rate of 4.25 % per annum, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on March 1, 2021. Proceeds from the issuance of the 2026 Convertible Notes totaled $ 278.5 million, net of initial purchasers’ fees and issuance cost of $ 9 million. Each capitalized term used in this subsection but not otherwise defined in this Annual on Form 10-K has the meaning as set forth in the indenture governing the 2026 Convertible Notes.
The initial conversion rate is 230.2026 shares of Antero Resources’ common stock per $1,000 principal amount of 2026 Convertible Notes, subject to adjustment upon the occurrence of specified events. As of December 31, 2020, the if-converted value of the 2026 Convertible Notes was $ 361 million, which exceeded the principal amount of the 2026 Convertible Notes by $ 73 million. The 2026 Convertible Notes will mature on September 1, 2026, unless earlier repurchased, redeemed or converted. Before May 1, 2026, note holders will have the right to convert their 2026 Convertible Notes only upon the occurrence of the following events:
● during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on September 30, 2020, if the Last Reported Sale Price per share of Antero Resources’ common stock exceeds 130 % of the Conversion Price for each of at least 20 Trading Days (whether or not consecutive) during the 30 consecutive Trading Days ending on, and including, the last Trading Day of the immediately preceding calendar quarter;
● during the five consecutive Business Days immediately after any 10 consecutive trading day period (such 10 consecutive Trading Day period, the “Measurement Period”) if the trading Price per $1,000 principal amount of 2026 Convertible Notes, as determined following a request by a noteholder in accordance with the procedures set forth below, for each trading day of the Measurement Period was less than 98 % of the product of the last reported sale price per share of common stock on such trading day and the conversion rate on such trading day;
F-23
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
● if Antero Resources calls any or all of the 2026 Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
● upon the occurrence of certain specified corporate events as set forth in the indenture governing the 2026 Convertible Notes.
From and after May 1, 2026, noteholders may convert their 2026 Convertible Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date.
Upon conversion, Antero Resources may satisfy its conversion obligation by paying and/or delivering, as the case may be, cash, shares of Antero Resources’ common stock or a combination of cash and shares of Antero Resources’ common stock, at Antero Resources’ election, in the manner and subject to the terms and conditions provided in the indenture governing the 2026 Convertible Notes. Antero Resources’ current intent is is to settle the principle amount of the 2026 Convertible Notes in cash upon conversion except as it relates to the Equitization Transactions discussed in Note 8(h) below. At no point since issuance of the 2026 Convertible Notes has the conditions allowing holders of the 2026 Convertible Notes to exercise their conversion right been met.
The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the indenture governing the 2026 Convertible Notes. In addition, following certain corporate events, as described in the indenture governing the 2026 Convertible Notes, that occur prior to the maturity date, Antero Resources will increase the conversion rate for a holder who elects to convert its 2026 Convertible Notes in connection with such a corporate event.
If certain corporate events that constitute a Fundamental Change occur, then noteholders may require Antero Resources to repurchase their 2026 Convertible Notes at a cash repurchase price equal to the principal amount of the 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving Antero Resources and certain de-listing events with respect to Antero Resources’ common stock.
Upon issuance, the Company separately accounted for the liability and equity components of the 2026 Convertible Notes. The liability component was recorded at the estimated fair value of a similar debt instrument without the conversion feature. The difference between the principal amount of the 2026 Convertible Notes and the estimated fair value of the liability component was recorded as a debt discount and will be amortized to interest expense, together with debt issuance costs, over the term of the 2026 Convertible Notes using the effective interest method, with an effective interest rate of 15.1 % per annum. As of the issuance date, the fair value of the 2026 Convertible Notes was estimated at $ 172 million, resulting in a debt discount at inception of $ 116 million. The equity component, representing the value of the conversion option, was computed by deducting the fair value of the liability component from the initial proceeds of the 2026 Convertible Notes issuance. This equity component was recorded, net of deferred taxes and issuance costs, in additional paid-in capital within the consolidated balance sheet and statement of stockholders’ equity and will not be remeasured as long as it continues to meet the conditions for equity classification.
Transaction costs related to the 2026 Convertible Notes issuance were allocated to the liability and equity components based on their relative fair values. Issuance costs attributable to the liability component were recorded within debt issuance costs on the consolidated balance sheet and are amortized over the term of the 2026 Convertible Notes using the effective interest method. Issuance costs attributable to the equity component were recorded as a charge to additional paid-in capital within the consolidated balance sheet and statement of stockholders’ equity.
The 2026 Convertible Notes consist of the following as of December 31, 2020 (in thousands):
Liability component:
Principal
$
287,500
Less: unamortized note discount
( 112,265 )
Less: unamortized debt issuance costs
( 5,852 )
Net carrying value
$
169,383
Equity component (1)
$
115,601
F-24
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(1) Recorded in additional paid-in capital, net of $ 3 million of issuance costs and $ 28 million of deferred taxes .
(g)
Debt Repurchase Program
During the year ended December 31, 2019, Antero Resources repurchased $ 225 million principal amount of debt at a 17 % weighted average discount, including a portion of its 2021 Notes and 2022 Notes. The Company recognized a gain of approximately $ 36 million on the early extinguishment of the debt repurchased.
During the year ended December 31, 2020, Antero Resources repurchased $ 1.4 billion aggregate principal amount of debt at a weighted average discount of 13 % , which purchases included a portion of the 2021 Notes, 2022 Notes, 2023 Notes and 2025 Notes. The Company recognized a gain of approximately $ 176 million for the year ended December 31, 2020 on the early extinguishment of the debt repurchased. Repurchases of the principal amount of debt during year ended December 31, 2020 include repurchases of $ 367 million aggregate principal amount of the 2021 Notes, 2022 Notes and 2023 Notes through previously disclosed tender offers at a weighted average discount of 10 %.
(h)
Subsequent Events
Issuance of 8.375 % Senior Notes Due 2026
On January 4, 2021, Antero Resources issued $ 500 million of 8.375 % senior notes due July 15, 2026 (the “2026 Notes”) at par . The 2026 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2026 Notes rank pari passu to Antero Resources’ other outstanding senior notes. The 2026 Notes are guaranteed on a full and unconditional and joint and several senior unsecured basis by Antero Resources’ wholly owned subsidiaries and certain of its future restricted subsidiaries. Interest on the 2026 Notes is payable on January 15 and July 15 of each year. Antero Resources may redeem all or part of the 2026 Notes at any time on or after January 15, 2024 at redemption prices ranging from 104.188 % on or after January 15, 2024 to 100.00 % on or after January 15, 2026. In addition, on or before January 15, 2024, Antero Resources may redeem up to 35 % of the aggregate principal amount of the 2026 Notes with the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 108.375 % of the principal amount of the 2026 Notes, plus accrued and unpaid interest. At any time prior to January 15, 2024, Antero Resources may also redeem the 2026 Notes, in whole or in part, at a price equal to 100 % of the principal amount of the 2026 Notes plus a “make-whole” premium and accrued and unpaid interest. If Antero Resources undergoes a change of control followed by a rating decline, the holders of the 2026 Notes will have the right to require Antero Resources to repurchase all or a portion of the notes at a price equal to 101 % of the principal amount of the 2026 Notes, plus accrued and unpaid interest.
Partial Equitization of 2026 Convertible Notes
On January 12, 2021, the Company completed a registered direct offering (the “Share Offering”) of an aggregate of 31.4 million shares of its common stock at a price of $ 6.35 per share to certain holders of the 2026 Convertible Notes. The Company used the proceeds from the Share Offering and approximately $ 63 million of borrowings under the Credit Facility to repurchase from such holders $ 150 million aggregate principal amount of the 2026 Convertible Notes in privately negotiated transactions (the “Convertible Note Repurchase,” and, collectively with the Share Offering, the “Equitization Transactions”). The 2026 Convertible Notes have an initial conversion rate of 230.2026 shares of the Company’s common stock per $1,000 principal amount, and the Equitization Transactions had the effect of increasing this conversion rate to 275.3525 shares of common stock per $1,000 principal amount.
Redemption of 2022 Notes
On January 16, 2021, the Company completed a partial redemption of $ 350 million of the 2022 Notes at par, plus accrued and unpaid interest. On February 10, 2021, the Company redeemed $ 311 million of 2022 Notes that remained outstanding at par, plus accrued and unpaid interest, and as a result, the 2022 Notes were fully retired as of February 10, 2021.
Issuance of 7.625 % Senior Notes Due 2029
On January 26, 2021, Antero Resources issued $ 700 million of 7.625 % senior notes due February 1, 2029 (the “2029 Notes”) at par . The 2029 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2029 Notes rank pari passu to Antero Resources’ other outstanding senior notes. The 2029 Notes are guaranteed on a full and unconditional and joint and several senior unsecured basis by Antero Resources’ wholly owned subsidiaries and certain of its future restricted subsidiaries. Interest on the 2029 Notes is payable on February 1 and August 1 of each year. Antero
F-25
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Resources may redeem all or part of the 2029 Notes at any time on or after February 1, 2024 at redemption prices ranging from 103.813 % on or after February 1, 2024 to 100.00 % on or after February 1, 2027. In addition, on or before February 1, 2024, Antero Resources may redeem up to 35 % of the aggregate principal amount of the 2029 Notes with the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 107.625 % of the principal amount of the 2029 Notes, plus accrued and unpaid interest. At any time prior to February 1, 2024, Antero Resources may also redeem the 2029 Notes, in whole or in part, at a price equal to 100 % of the principal amount of the 2029 Notes plus a “make-whole” premium and accrued and unpaid interest. If Antero Resources undergoes a change of control followed by a rating decline, the holders of the 2029 Notes will have the right to require Antero Resources to repurchase all or a portion of the notes at a price equal to 101 % of the principal amount of the 2029 Notes, plus accrued and unpaid interest.
(9) Asset Retirement Obligations
The following is a reconciliation of the Company’s asset retirement obligations for the years ended December 31, 2019 and 2020 (in thousands):
December 31,
2019
2020
Beginning balances
$
58,979
54,845
Obligations incurred
2,312
1,814
Accretion expense
3,762
3,421
Settlement of obligations
( 153 )
( 229 )
Revisions to prior estimates
( 2,537 )
( 5,399 )
Effect of deconsolidation of Antero Midstream Partners LP (1)
( 7,518 )
—
Ending balances
$
54,845
54,452
(1) Effective March 13, 2019, Antero no longer consolidates Antero Midstream Partners in its results.
Revisions to prior estimates in 2020 are primarily due to an increase in estimated well lives. Revisions to prior estimates in 2019 are primarily due to an increase in estimated abandonment costs for vertical wells. Asset retirement obligations are included in other liabilities on the Company’s consolidated balance sheets.
(10) Equity-Based Compensation and Retention Awards
On June 17, 2020, Antero Resources’ stockholders approved the Antero Resources Corporation 2020 Long-Term Incentive Plan (the “2020 Plan”), which replaced the Antero Resources Corporation Long-Term Incentive Plan (the “2013 Plan”), and the 2020 Plan became effective as of such date. The 2020 Plan provides for grants of stock options (including incentive stock options), stock appreciation rights, restricted stock awards, RSU awards, vested stock awards, dividend equivalent awards, and other stock-based and cash awards. The terms and conditions of the awards granted are established by the Compensation Committee of Antero Resources’ Board of Directors. Employees, officers, non-employee directors and other service providers of the Company and its affiliates are eligible to receive awards under the 2020 Plan. No further awards will be granted under the 2013 Plan on or after June 17, 2020.
The 2020 Plan provides for the reservation of 10,050,000 shares of the Company’s common stock, plus the number of certain shares that become available again for delivery from the 2013 Plan in accordance with the share recycling provisions described below. The share recycling provisions allow for all or any portion of an award (including an award granted under the 2013 Plan that was outstanding as of June 17, 2020) that expires or is cancelled, forfeited, exchanged, settled for cash, or otherwise terminated without actual delivery of the shares to be considered not delivered and thus available for new awards under the 2020 Plan. Further, any shares withheld or surrendered in payment of any taxes relating to awards that were outstanding under either the 2013 Plan as of June 17, 2020 or are granted under the 2020 Plan (other than stock options and stock appreciation rights), will again be available for new awards under the 2020 Plan.
A total of 6,921,638 shares were available for future grant under the 2020 Plan as of December 31, 2020.
Antero Midstream Partners’ general partner was authorized to grant up to 10,000,000 common units representing limited partner interests in Antero Midstream Partners under the Antero Midstream Partners LP Long-Term Incentive Plan (the “AMP Plan”) to non-employee directors of its general partner and certain officers, employees, and consultants of Antero Midstream Partners and its affiliates (which includes Antero Resources). As part of the Transactions, each outstanding phantom unit award under the AMP Plan, was assumed by Antero Midstream Corporation and converted into 1.8926 RSUs under the Antero Midstream Corporation Long Term
F-26
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Incentive Plan (the “AMC Plan”). Each RSU award under the AMC Plan represents a right to receive one share of Antero Midstream Corporation common stock.
The Company’s equity-based compensation expense, by type of award, was as follows for the years ended December 31, 2018, 2019 and 2020 (in thousands):
Year Ended December 31,
2018
2019
2020
RSU awards
$
41,505
10,343
12,510
Stock options
1,799
355
—
PSU awards
9,659
8,069
7,219
Antero Midstream Partners phantom unit awards (1)
15,351
3,425
2,519
Equity awards issued to directors
2,100
1,367
1,069
Total expense
$
70,414
23,559
23,317
(1) Antero Resources recognized compensation expense for equity awards granted under the 2013 Plan, 2020 Plan and the AMP Plan because the awards under the AMP Plan are accounted for as if they are distributed by Antero Midstream Partners to Antero Resources. Antero Resources allocates a portion of equity-based compensation expense related to grants prior to the Transactions to Antero Midstream Partners based on its proportionate share of Antero Resources’ labor costs. Through March 12, 2019, the total amount of equity-based compensation is included in the consolidated financial statements of Antero Resources; and effective March 13, 2019 (date of deconsolidation), the amount allocated to Antero Midstream Partners is no longer reflected in Antero Resources’ consolidated financial statements. See Note 3—Deconsolidation of Antero Midstream Partners LP to the consolidated financial statements for further discussion on the Transactions.
(a) Restricted Stock Unit Awards
RSU awards vest subject to the satisfaction of service requirements. Expense related to each RSU award is recognized on a straight-line basis over the requisite service period of the entire award. Forfeitures are accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the period. The grant date fair values of these awards are determined based on the closing price of Antero Resources’ common stock on the date of the grant.
A summary of RSU award activity for the year ended December 31, 2020 is as follows:
Weighted
Average
Aggregate
Number of
Grant Date
Intrinsic Value
Shares
Fair Value
(in thousands)
Total awarded and unvested—December 31, 2019
2,370,575
$
12.81
$
6,756
Granted
7,001,802
2.57
Vested
( 809,008 )
15.62
Forfeited
( 130,972 )
11.91
Total awarded and unvested—December 31, 2020
8,432,397
$
4.06
$
45,957
Intrinsic values are based on the closing price of Antero Resources’ common stock on the referenced dates. As of December 31, 2020, there was $ 23 million of unamortized equity-based compensation expense related to unvested restricted stock units. That expense is expected to be recognized over a weighted average period of approximately 2.2 years.
(b) Stock Options
Stock options granted under the 2013 Plan have a maximum contractual life of 10 years . Expense related to stock options is recognized on a straight- line basis over the requisite service period of the entire award. Forfeitures are accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the period. Stock options were granted with an exercise price equal to or greater than the market price of Antero Resources’ common stock on the dates of grant.
F-27
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
A summary of stock option activity for the year ended December 31, 2020 is as follows:
Weighted
Weighted
Average
Average
Remaining
Intrinsic
Stock
Exercise
Contractual
Value
Options
Price
Life
(in thousands)
Outstanding—December 31, 2019
467,633
$
50.64
5.1
$
—
Granted
—
—
Exercised
—
—
Forfeited
—
—
Expired
( 35,172 )
50.56
Outstanding—December 31, 2020
432,461
$
50.64
4.1
$
—
Vested—December 31, 2020
432,461
$
50.64
4.1
$
—
Exercisable —December 31, 2020
432,461
$
50.64
4.1
$
—
Intrinsic values are based on the exercise price of the options and the closing price of Antero Resources’ common stock on the referenced dates.
A Black-Scholes option- pricing model is used to determine the grant-date fair value of stock options. Expected volatility was derived from the volatility of the historical stock prices of a peer group of similar publicly traded companies’ stock prices as Antero Resources’ common stock had traded for a relatively short period of time at the dates the options were granted. The risk-free interest rate was determined using the implied yield available for zero- coupon U.S. government issues with a remaining term approximating the expected life of the options. A dividend yield of zero was assumed.
(c) Performance Share Unit Awards
Performance Share Unit Awards Based on Stock Price Targets
In 2016, the Company granted PSUs to certain of its executive officers that are based on stock price targets. The vesting of these PSUs is conditioned on the closing price of Antero Resources’ common stock achieving specific price thresholds over 10 -day periods, subject to the following vesting restrictions: no PSUs may vest before the first anniversary of the grant date; no more than one-third of the PSUs may vest before the second anniversary of the grant date; and no more than two-thirds of the PSUs may vest before the third anniversary of the grant date. Any PSUs which have not vested by the fifth anniversary of the grant date will expire. Expense related to these PSUs is recognized on a graded basis over three years . Forfeitures are accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the period.
Performance Share Unit Awards Based on Total Shareholder Return (“TSR”)
In 2016 and 2017, the Company granted PSUs to certain of its employees and executive officers that vest based on the TSR of Antero Resources’ common stock relative to the TSR of a peer group of companies over a three-year performance period. The number of shares of common stock which may ultimately be earned ranges from zero to 200 % of the PSUs granted. Expense related to these PSUs is recognized on a straight-line basis over three years . Forfeitures are accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the period.
In 2019, the Company granted PSUs to certain of its employees and executive officers that vest based on Antero Resources’ absolute TSR, with target payout achieved if the price per share of Antero Resources’ common stock reaches 125 % of the beginning price (as defined in the award agreement) at the end of a three-year performance period. The number of shares of common stock which may ultimately be earned ranges from zero to 200 % of the PSUs granted. Expense related to these PSUs is recognized on a straight-line basis over three years . Forfeitures are accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the period.
F-28
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
In 2020, the Company granted PSU awards to certain of its executive officers that vest based on Antero Resources’ absolute TSR determined as of the last day of each of three one-year performance periods ending on April 15, 2021, April 15, 2022, and April 15, 2023, and one cumulative three-year performance period ending on April 15, 2023, in each case, subject to the executive officer’s continued employment through April 15, 2023. The number of shares of common stock that may ultimately be earned following the end of the cumulative three-year performance period ranges from zero to 150 % of the target number of PSUs granted. Expense related to these PSUs is recognized on a graded-vested basis over approximately three years . Forfeitures are accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the period.
Additionally, in 2020, the Company granted PSUs to certain of its executive officers that vest based on Antero Resources’ TSR relative to the TSR of certain peer companies determined as of the last day of each of three one-year performance periods ending on April 15, 2021, April 15, 2022, and April 15, 2023, and one cumulative three-year performance period ending on April 15, 2023, in each case, subject to the executive officer’s continued employment through April 15, 2023. The number of shares of common stock that may ultimately be earned following the end of the cumulative three-year performance period ranges from zero to 150 % of the target number of PSUs granted. Expense related to these PSUs is recognized on a graded-vested basis over approximately three years . Forfeitures are accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the period.
Performance Share Unit Awards Based on TSR and Return on Capital Employed (“ROCE”)
In 2018, the Company granted PSUs to certain of its employees and executive officers, a portion of which vest based on the Company’s absolute TSR, with target payout achieved if the price per share of Antero Resources’ common stock reaches 125 % of the beginning price (as defined in the award agreement) at the end of a three-year performance period (“2018 TSR PSUs”). The number of awards actually earned with respect to the 2018 TSR PSUs will be subject to further adjustment based on the TSR of Antero Resources’ common stock relative to the TSR of a peer group of companies over the same period. The number of shares of common stock that may ultimately be earned with respect to the 2018 TSR PSUs ranges from zero to 200 % of the target number of 2018 TSR PSUs originally granted. Expense related to the 2018 TSR PSUs is recognized on a straight-line basis over three years . Forfeitures are accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the period.
The other portion of the PSUs granted in 2018 vest based on the Company’s actual ROCE (as defined in the award agreement) over a three-year period as compared to a targeted ROCE (“ROCE PSUs”). The number of shares of common stock that may ultimately be earned with respect to the ROCE PSUs ranges from zero to 200 % of the target number of ROCE PSUs originally granted. Expense related to the ROCE PSUs is recognized based on the number of shares of common stock that are expected to be issued at the end of the measurement period, and is reversed if the likelihood of achieving the performance condition decreases. As of December 31, 2019, the likelihood of achieving the performance conditions related to the ROCE PSUs decreased to a level below probable and therefore, expense has not been recognized in the current year and will not be recognized unless the likelihood of achieving the performance condition becomes probable.
Summary Information for Performance Share Unit Awards
A summary of PSU activity for the year ended December 31, 2020 is as follows:
Weighted
Number of
Average Grant
Units
Date Fair Value
Total awarded and unvested—December 31, 2019
2,537,283
$
16.74
Granted
469,000
2.97
Forfeited
( 29,316 )
12.21
Cancelled (unearned)
( 429,169 )
26.21
Total awarded and unvested—December 31, 2020
2,547,798
$
12.66
The grant-date fair values of market-based PSUs were determined using Monte Carlo simulations, which use a probabilistic approach for estimating the fair values of the awards. Expected volatilities were derived from the volatility of the historical stock prices of a peer group of similar publicly-traded companies. The risk-free interest rate was determined using the yield available for zero-coupon U.S. government issues with remaining terms corresponding to the service periods of the PSUs. A dividend yield of zero was assumed. The grant-date fair value for the ROCE-based PSUs is based on the closing price of Antero Resources’ common stock on the date of the grant, assuming the achievement of the performance condition.
F-29
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
The following table presents information regarding the weighted average fair values for market-based PSUs granted during the years ended December 31, 2018, 2019 and 2020, and the assumptions used to determine the fair values:
Year Ended December 31,
2018
2019
2020
Dividend yield
—
%
—
%
—
%
Volatility
41
%
36
%
80
%
Risk-free interest rate
2.49
%
2.35
%
0.17
%
Weighted average fair value of awards granted—Absolute TSR
$
24.85
9.26
2.63
Weighted average fair value of awards granted—Relative TSR
$
—
—
3.30
As of December 31, 2020, there was $ 8 million of unamortized equity-based compensation expense related to unvested PSUs. That expense is expected to be recognized over a weighted average period of approximately 1.2 years.
(d) Cash Retention Awards
In January 2020, the Company granted cash awards of approximately $ 3.3 million to certain executives under the 2013 Plan, and compensation expense for these awards is recognized ratably over the vesting period for each of three tranches through January 20, 2023. In July 2020, the Company granted additional cash awards on the aggregate of $ 2.6 million to certain non-executive employees under the 2020 Plan that vest ratably over four years . As of December 31, 2020, the Company has accrued approximately $ 3.2 million in Other liabilities in the consolidated balance sheet related to cash awards.
(e) Antero Midstream Corporation Restricted Stock Unit Awards
Phantom units granted by Antero Midstream Partners vested subject to the satisfaction of service requirements, upon the completion of which common units in Antero Midstream Partners were delivered to the holder of the phantom units. Phantom units also contained distribution equivalent rights which entitled the holder of vested common units to receive a “catch up” payment equal to common unit distributions paid by Antero Midstream Partners during the vesting period of the phantom unit award. These phantom units were treated, for accounting purposes, as if Antero Midstream Partners distributed the units to Antero Resources. Antero Resources recognized compensation expense as the units were granted to its employees, and a portion of the expense is allocated to Antero Midstream Partners. Expense related to each phantom unit award was recognized on a straight-line basis over the requisite service period of the entire award. Forfeitures were accounted for as they occurred by reversing the expense previously recognized for awards that were forfeited during the period. The grant date fair values of these awards were determined based on the closing price of Antero Midstream Partners’ common units on the date of grant.
In connection with the closing of the Transactions, the Board of Directors of Antero Midstream Corporation adopted the AMC Plan. In accordance with the terms of the Transactions, each outstanding phantom unit under the AMP Plan was assumed by Antero Midstream Corporation and converted into 1.8926 restricted stock units under the AMC Plan.
A summary of Antero Midstream Corporation RSU awards for the year ended December 31, 2020 is as follows:
Weighted
Average
Aggregate
Number of
Grant Date
Intrinsic Value
Units
Fair Value
(in thousands)
Total awarded and unvested—December 31, 2019
657,757
$
14.71
$
4,992
Granted
—
—
Vested
( 338,412 )
14.44
Forfeited
( 22,955 )
14.08
Total awarded and unvested—December 31, 2020
296,390
$
15.06
$
2,285
Intrinsic values are based on the closing price of shares of Antero Midstream Corporation’s common stock or Antero Midstream Partners’ common units, as applicable, on the referenced dates. As of December 31, 2020, there was $ 2.2 million of unamortized equity-based compensation expense related to unvested phantom unit awards. That expense is expected to be recognized over a weighted average period of approximately 1.0 years, and the Company’s proportionate share will be allocated to it as it is recognized.
F-30
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(11) Fair Value
The carrying values of accounts receivable and accounts payable as of December 31, 2019 and 2020 approximated market values because of their short- term nature. The carrying values of the amounts outstanding under the Credit Facility as of December 31, 2019 and 2020 approximated fair value because the variable interest rates are reflective of current market conditions.
The fair value and carrying value of the senior notes and 2026 Convertible Notes as of December 31, 2019 and 2020 are as follows (in thousands):
December 31, 2019
December 31, 2020
Fair
Carrying
Fair
Carrying
Value (1)
Value (2)
Value (1)
Value (2)
5.375 % senior notes due 2021
$
906,304
948,904
—
—
5.125 % senior notes due 2022
823,906
918,640
658,468
658,400
5.625 % senior notes due 2023
602,550
744,938
562,698
571,370
5.00 % senior notes due 2025
450,600
594,386
560,500
585,440
4.25 % convertible senior notes due 2026 (3)
—
—
430,963
169,383
Total
$
2,783,360
3,206,868
2,212,629
1,984,593
(1) Fair values are based on Level 2 market data inputs.
(2) Carrying values are presented net of unamortized debt issuance costs and debt discounts or premiums.
(3) Carrying value excludes the equity component of $ 116 million recorded to additional paid-in-capital for the 2026 Convertible Notes.
See Note 12—Derivative Instruments to the consolidated financial statements for information regarding the fair value of derivative financial instruments.
(12) Derivative Instruments
The Company is exposed to certain risks relating to its ongoing business operations, and it uses derivative instruments to manage its commodity price risk. In addition, the Company periodically enters into contracts that contain embedded features that are required to be bifurcated and accounted for separately as derivatives.
(a)
Commodity Derivative Positions
The Company periodically enters into natural gas, NGLs, and oil derivative contracts with counterparties to hedge the price risk associated with its production. These derivatives are not entered into for trading purposes. To the extent that changes occur in the market prices of natural gas, NGLs, and oil, the Company is exposed to market risk on these open contracts. This market risk exposure is generally offset by the change in market prices of natural gas, NGLs, and oil recognized upon the ultimate sale of the Company’s production.
The Company was party to various fixed price commodity swap contracts that settled during the years ended December 31, 2018, 2019 and 2020. The Company enters into these swap contracts when management believes that favorable future sales prices for the Company’s production can be secured. Under these swap agreements, when actual commodity prices upon settlement exceed the fixed price provided by the swap contracts, the Company pays the difference to the counterparty. When actual commodity prices upon settlement are less than the contractually provided fixed price, the Company receives the difference from the counterparty. In addition, the Company has entered into basis swap contracts in order to hedge the difference between the New York Mercantile Exchange (“NYMEX”) index price and a local index price.
The Company also entered into NGL derivative contracts, which establish a contractual price for the settlement month as a fixed percentage of the West Texas Intermediate Crude Oil index (“WTI”) price for the settlement month. When the percentage of the contractual price is above the contracted percentage, the Company pays the difference to the counterparty. When it is below the contracted percentage, the Company receives the difference from the counterparty.
The Company’s derivative contracts have not been designated as hedges for accounting purposes; therefore, all gains and losses are recognized in the Company’s statements of operations.
F-31
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2020, the Company’s fixed price natural gas, oil and NGL swap positions from January 1, 2021 through December 31, 2023 were as follows:
Weighted
Average
Commodity / Settlement Period
Index
Contracted Volume
Price
Natural Gas
January-December 2021
Henry Hub
2,160,000
MMBtu/day
$
2.77
/MMBtu
January-December 2022
Henry Hub
1,155,486
MMBtu/day
2.50
/MMBtu
January-December 2023
Henry Hub
43,000
MMBtu/day
2.37
/MMBtu
OPIS Ethane Mt Belv
January-March 2021
Mont Belvieu Purity Ethane-OPIS
19,000
Bbl/day
$
8.40
/Bbl
Oil
January-December 2021
West Texas Intermediate
3,000
Bbl/day
$
55.16
/Bbl
In addition, the Company has a call option agreement, which entitles the holder the right, but not the obligation, to enter into a fixed price swap agreement on December 21, 2023 to purchase 427,500 MMBtu per day at a price of $ 2.77 per MMBtu for the year ending December 31, 2024.
As of December 31, 2020, the Company’s natural gas basis swap positions, which settle on the pricing index to basis differential of the Columbia Gas Transmission pipeline (“TCO”) to the NYMEX Henry Hub natural gas price, were as follows:
Weighted Average
Commodity / Settlement Period
Index to Basis Differential
Contracted Volume
Hedged Differential
Natural Gas
January-December 2021
NYMEX to TCO
40,000
MMBtu/day
$
0.414
/MMBtu
January-December 2022
NYMEX to TCO
60,000
MMBtu/day
0.515
/MMBtu
January-December 2023
NYMEX to TCO
50,000
MMBtu/day
0.525
/MMBtu
January-December 2024
NYMEX to TCO
50,000
MMBtu/day
0.530
/MMBtu
As of December 31, 2020, the Company had natural gas and NGL contracts for January 1, 2021 through December 31, 2021 that fix the Mont Belvieu index price to percentages of WTI as follows:
Weighted Average
Commodity / Settlement Period
Index to Basis Differential
Contracted Volume
Payout Ratio
Gas Liquids
January-December 2021
Mont Belvieu Natural Gasoline to WTI
9,325
Bbl/day
78
%
F-32
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2020, the Company’s fixed price natural gas, oil and NGL swap positions from January 1, 2021 through March 31, 2025 for Martica, the Company’s consolidated VIE, were as follows:
Weighted
Average
Commodity / Settlement Period
Index
Contracted Volume
Price
Natural Gas
January-December 2021
Henry Hub
46,536
MMBtu/day
$
2.62
/MMBtu
January-December 2022
Henry Hub
38,356
MMBtu/day
2.39
/MMBtu
January-December 2023
Henry Hub
35,615
MMBtu/day
2.35
/MMBtu
January-December 2024
Henry Hub
23,885
MMBtu/day
2.33
/MMBtu
January-March 2025
Henry Hub
18,021
MMBtu/day
2.53
/MMBtu
OPIS Propane Mt Belv Non-TET
January-December 2021
Mont Belvieu Propane-OPIS
1,121
Bbl/day
$
18.90
/Bbl
January-December 2022
Mont Belvieu Propane-OPIS
934
Bbl/day
19.32
/Bbl
OPIS Natural Gasoline Mt Belv Non-TET
January-December 2021
Mont Belvieu Natural Gasoline-OPIS
282
Bbl/day
$
29.82
/Bbl
January-December 2022
Mont Belvieu Natural Gasoline-OPIS
282
Bbl/day
34.44
/Bbl
OPIS Ethane Mt Belv
January-December 2021
Mont Belvieu Purity Ethane-OPIS
987
Bbl/day
$
7.14
/Bbl
January-March 2022
Mont Belvieu Purity Ethane-OPIS
521
Bbl/day
6.72
/Bbl
Oil
January-December 2021
West Texas Intermediate
117
Bbl/day
$
39.94
/Bbl
January-December 2022
West Texas Intermediate
71
Bbl/day
41.09
/Bbl
January-December 2023
West Texas Intermediate
52
Bbl/day
42.45
/Bbl
January-December 2024
West Texas Intermediate
43
Bbl/day
44.02
/Bbl
January-March 2025
West Texas Intermediate
39
Bbl/day
45.06
/Bbl
(b)
Embedded Derivatives
The VPP includes an embedded put option tied to NYMEX pricing for the production volumes associated with the Company’s retained interest in the VPP properties of 111,743,000 MMBtu remaining through December 31, 2026 at a weighted average strike price of $ 2.60 per MMBtu. The embedded put option is not clearly and closely related to the host contract, and therefore, the Company bifurcated this derivative instrument and reflected it at fair value in the consolidated financial statements.
(c)
Marketing Derivatives
In 2017, due to delay of the in-service date for a pipeline on which the Company is to be an anchor shipper, the Company realized it would not be able to fulfill its delivery obligations under a 2018 natural gas sales contract. In order to acquire gas to fulfill its delivery obligations, the Company entered into several natural gas purchase agreements with index-based pricing to purchase gas for resale under this sales contract. Subsequently, the Company and the counterparty to the sales contract came to an agreement that the Company’s delivery obligations under the contract would not begin until the earlier of (1) the in-service date of the pipeline and (2) January 1, 2019. Consequently, in December 2017, the Company entered into natural gas sales agreements with index-based pricing to resell the purchased gas for delivery during the period from February to October 2018. The natural gas that it had purchased for January was sold on the spot market during January 2018.
The Company determined that these gas purchase and sales agreements should be accounted for as derivatives and measured at fair value at the end of each period. For the year ended December 31, 2018, the Company recognized a fair value gain of $ 94
F-33
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
million and realized proceeds of $ 73 million. There were no marketing derivative fair value gains or losses for the years ended December 31, 2019 and 2020.
(d)
Summary
The following table presents a summary of the fair values of the Company’s derivative instruments and where such values are recorded in the consolidated balance sheets as of December 31, 2019 and 2020. None of the Company’s derivative instruments are designated as hedges for accounting purposes.
Balance Sheet
December 31,
Location
2019
2020
Asset derivatives not designated as hedges for accounting purposes:
Commodity derivatives—current
Derivative instruments
$
422,849
97,144
Embedded derivatives—current
Derivative instruments
—
7,986
Commodity derivatives—noncurrent
Derivative instruments
333,174
14,689
Embedded derivatives—noncurrent
Derivative instruments
—
32,604
Total asset derivatives
756,023
152,423
Liability derivatives not designated as hedges for accounting purposes:
Commodity derivatives—current (1)
Derivative instruments
6,721
31,242
Commodity derivatives—noncurrent (1)
Derivative instruments
3,519
99,172
Total liability derivatives
10,240
130,414
Net derivatives assets
$
745,783
22,009
(1) As of December 31, 2020, approximately $ 14 million of commodity derivative liabilities, including $ 7 million of current commodity derivatives and $ 7 million of noncurrent commodity derivatives, are attributable to the Company’s consolidated VIE, Martica.
The following table presents the gross values of recognized derivative assets and liabilities, the amounts offset under master netting arrangements with counterparties, and the resulting net amounts presented in the consolidated balance sheets as of the dates presented, all at fair value (in thousands):
December 31, 2019
December 31, 2020
Net Amounts of
Net Amounts of
Gross
Gross Amounts
Assets
Gross
Gross Amounts
Assets
Amounts on
Offset on
(Liabilities) on
Amounts on
Offset on
(Liabilities) on
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
Balance Sheet
Commodity derivative assets
$
882,817
( 126,794 )
756,023
$
181,375
( 69,542 )
111,833
Embedded derivative assets
$
—
—
—
$
40,590
—
40,590
Commodity derivative liabilities
$
( 137,034 )
126,794
( 10,240 )
$
( 199,956 )
69,542
( 130,414 )
The following is a summary of derivative fair value gains and losses and where such values are recorded in the consolidated statements of operations for the years ended December 31, 2018, 2019 and 2020 (in thousands):
F-34
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Statement of
Operations
Year Ended December 31,
Location
2018
2019
2020
Commodity derivative fair value gains (losses)
Revenue
$
( 87,594 )
463,972
40,565
Embedded derivative fair value gains (losses)
Revenue
$
—
—
39,353
Commodity derivative fair value gains (losses) for the years ended December 31, 2018 and 2020, include gains of $ 370 million and $ 9 million, respectively, related to certain natural gas derivatives that were monetized prior to their contractual settlement dates. Proceeds received from the monetizations are classified as operating cash flows on the Company’s consolidated statement of cash flows for the years ended December 31, 2018 and 2020. There were no commodity derivatives monetizations in the year ended December 31, 2019.
The 2018 monetizations were affected by the early settlement of April through December 2019 swaps and reducing the average fixed index prices on certain natural gas swap contracts maturing in 2020 while maintaining the total volumes hedged. The April through December 2019 swaps were replaced with collar agreements for which the Company paid a $ 13 million premium.
The fair value of derivative instruments was determined using Level 2 inputs.
The Company’s commodity derivative position presented in Note 12(a) above reflects the volume and adjusted fixed price indices after the 2020 monetization.
(13) Leases
On February 25, 2016, the FASB issued ASU No. 2016-02, Leases , which requires lessees to record lease liabilities and right-of-use assets as of the date of adoption and was incorporated into GAAP as ASC Topic 842, Leases . The new lease standard does not substantially change accounting by lessors. The Company adopted the new standard effective January 1, 2019. The Company is a lessee to both operating and finance lease arrangements. The standard resulted in an increase in assets and liabilities related to the Company’s operating leases.
The Company leases certain office space, processing plants, drilling rigs and completion services, gas gathering lines, compressor stations, and other office and field equipment. Leases with an initial term of 12 months or less are considered short-term and are not recorded on the balance sheet. Instead, the short-term leases are recognized in expense on a straight-line basis over the lease term.
Most leases include one or more options to renew , with renewal terms that can extend the lease from one to 20 years or more. The exercise of the lease renewal options are at the Company’s sole discretion. The depreciable lives of the leased assets are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Certain of the Company’s lease agreements include minimum payments based on a percentage of produced volumes over contractual levels and others include rental payments adjusted periodically for inflation.
The Company elected the effective date method for adoption of the new leasing standard. This method allows the Company to not make retrospective adjustments for leases that were in effect prior to the adoption date of January 1, 2019 when disclosing comparable prior periods, but instead, account for the prior period leases under ASC Topic 840, which was the guidance in place at the time of the original reporting.
The Company considers all contracts that have assets specified in the contract, either explicitly or implicitly, that the Company has substantially all of the capacity of the asset, and has the right to obtain substantially all of the economic benefits of that asset, without the lessor’s ability to have a substantive right to substitute that asset, as leased assets. For any contract deemed to include a leased asset, that asset is capitalized on the balance sheet as a right-of-use asset and a corresponding lease liability is recorded at the present value of the known future minimum payments of the contract using a discount rate on the date of commencement. The leased asset classification is determined at the date of recording as either operating or financing, depending upon certain criteria of the contract.
The discount rate used for present value calculations is the discount rate implicit in the contract. If an implicit rate is not determinable, a collateralized incremental borrowing rate is used at the date of commencement. As new leases commence or previous leases are modified the discount rate used in the present value calculation is the current period applicable discount rate.
F-35
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
The Company has made an accounting policy election to adopt the practical expedient for combining lease and non-lease components on an asset class basis. This expedient allows the Company to combine non-lease components such as real estate taxes, insurance, maintenance, and other operating expenses associated with the leased premises with the lease component of a lease agreement on an asset class basis when the non-lease components of the agreement cannot be easily bifurcated from the lease payment. Currently, the Company is only applying this expedient to certain office space agreements.
Supplemental Balance Sheet Information Related to Leases
The Company’s lease assets and liabilities as of December 31, 2019 and 2020 consisted of the following items (in thousands):
December 31,
Leases
Balance Sheet Classification
2019
2020
Operating Leases
Operating lease right-of-use assets:
Processing plants
Operating lease right-of-use assets
$
1,460,770
1,302,290
Drilling rigs and completion services
Operating lease right-of-use assets
71,662
29,894
Gas gathering lines and compressor stations (1)
Operating lease right-of-use assets
1,308,428
1,241,090
Office space
Operating lease right-of-use assets
40,491
36,879
Vehicles
Operating lease right-of-use assets
4,983
2,704
Other office and field equipment
Operating lease right-of-use assets
166
746
Total operating lease right-of-use assets
$
2,886,500
2,613,603
Short-term operating lease obligation
Short-term lease liabilities
$
304,397
265,178
Long-term operating lease obligation
Long-term lease liabilities
2,582,103
2,348,425
Total operating lease obligation
$
2,886,500
2,613,603
Finance Leases
Finance lease right-of-use assets:
Vehicles
Other property and equipment
$
2,328
1,206
Other office and field equipment
Other property and equipment
170
—
Total finance lease right-of-use assets (2)
$
2,498
1,206
Short-term finance lease obligation
Short-term lease liabilities
$
923
845
Long-term finance lease obligation
Long-term lease liabilities
1,575
361
Total finance lease obligation
$
2,498
1,206
(1) Gas gathering lines and compressor stations leases includes $ 1.1 billion related to Antero Midstream Corporation as of December 31, 2019 and 2020. See “—Related party lease disclosure” for additional discussion.
(2) Financing lease assets are recorded net of accumulated amortization of $ 9 million and $ 3 million as of December 31, 2019 and 2020, respectively.
The processing plants, gathering lines and compressor stations that are classified as lease liabilities are classified as such under ASC Topic 842, Leases , because Antero is the sole customer of the assets and because Antero makes the decisions that most impact the economic performance of the assets.
F-36
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Supplemental Information Related to Leases
Costs associated with operating leases were included in the consolidated statement of operations and comprehensive loss for the years ended December 31, 2019 and 2020 (in thousands):
Year Ended
December 31,
Cost
Classification
Location
2019
2020
Operating lease cost
Statement of operations
Gathering, compression, processing, and transportation
$
842,440
1,498,221
Operating lease cost
Statement of operations
General and administrative
11,228
11,530
Operating lease cost
Statement of operations
Contract termination and rig stacking
10,692
8,528
Operating lease cost
Balance sheet
Proved properties (1)
194,522
104,146
Total operating lease cost
$
1,058,882
1,622,425
Finance lease cost:
Amortization of right-of-use assets
Statement of operations
Depletion, depreciation, and amortization
$
1,471
872
Interest on lease liabilities
Statement of operations
Interest expense
335
208
Total finance lease cost
$
1,806
1,080
Short-term lease payments
$
162,654
122,577
(1) Capitalized costs related to drilling and completion activities.
Supplemental Cash Flow Information Related to Leases
The following is the Company’s supplemental cash flow information related to leases for years ended December 31, 2019 and 2020 (in thousands):
Year Ended December 31,
2019
2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
809,667
1,576,984
Operating cash flows from finance leases
335
208
Investing cash flows from operating leases
178,898
106,867
Financing cash flows from finance leases
2,507
1,291
Noncash activities:
ROU assets obtained in exchange for new operating lease obligations
$
3,720,945
202,125
Maturities of Lease Liabilities
The table below is a schedule of future minimum payments for operating and financing lease liabilities as of December 31, 2020 (in thousands):
(in thousands)
Operating Leases
Financing Leases
Total
2021
$
611,093
901
611,994
2022
579,079
366
579,445
2023
575,228
8
575,236
2024
566,461
—
566,461
2025
493,783
—
493,783
Thereafter
1,558,470
—
1,558,470
Total lease payments
4,384,114
1,275
4,385,389
Less: imputed interest
( 1,770,511 )
( 69 )
( 1,770,580 )
Total
$
2,613,603
1,206
2,614,809
F-37
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Lease Term and Discount Rate
The table below is the Company’s weighted-average remaining lease term and discount rate as of December 31, 2020:
December 31, 2020
Operating Leases
Finance Leases
Weighted-average remaining lease term
8.0 years
1.5 years
Weighted-average discount rate
13.7
%
6.2
%
Related Party Lease Disclosure
The Company has a gathering and compression agreement with Antero Midstream Corporation, whereby Antero Midstream Corporation receives a low-pressure gathering fee per Mcf, a high-pressure gathering fee per Mcf, and a compression fee per Mcf, in each case subject to adjustments based on the consumer price index. If and to the extent the Company requests that Antero Midstream Corporation construct new high pressure lines and compressor stations, the gathering and compression agreement contains minimum volume commitments that require Antero Resources to utilize or pay for 75 % of the gathering capacity and 70 % of the compression capacity of such new construction for 10 years .
In December 2019, the Company and Antero Midstream Corporation agreed to extend the initial term of the gathering and compression agreement to 2038 and established a growth incentive fee program whereby low-pressure gathering fees will be reduced from 2020 through 2023 to the extent the Company achieves certain volumetric targets at certain points during such time. Upon completion of the initial contract term, the gathering and compression agreement will continue in effect from year to year until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the Company or Antero Midstream Corporation on or before the 180 th day prior to the anniversary of such effective date. The Company achieved the volumetric targets during each quarter during the year ended December 31, 2020. Antero Midstream Corporation has provided rebates of $ 48 million for the year ended December 31, 2020.
For the years ended December 31, 2019 and 2020, gathering and compression fees paid by Antero related to this agreement were $ 643 million and $ 679 million, respectively. As of December 31, 2019 and 2020, $ 57 million and $ 55 million was included within Accounts payable, related parties, respectively, on the consolidated balance sheet as due to Antero Midstream Corporation related to this agreement.
(14) Income Taxes
For the years ended December 31, 2018, 2019 and 2020, income tax benefit consisted of the following (in thousands):
Year Ended December 31,
2018
2019
2020
Federal income tax expense (benefit)
$
—
5,048
( 209 )
State income tax expense (benefit), net of federal benefit
( 128,857 )
( 79,158 )
( 397,273 )
Total income tax benefit
$
( 128,857 )
( 74,110 )
( 397,482 )
F-38
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Income tax expense (benefit) differs from the amount that would be computed by applying the U.S. statutory federal income tax rate of 21 % to the years ended December 31, 2018, 2019 and 2020 to income or loss before taxes as a result of the following (in thousands):
Year Ended December 31,
2018
2019
2020
Federal income tax expense (benefit)
$
( 36,657 )
( 77,122 )
( 348,158 )
State income tax expense (benefit), net of federal benefit
( 12,627 )
( 8,826 )
( 50,584 )
Change in state tax rate, net of federal effect
( 40,415 )
24,041
2,291
Nondeductible equity-based compensation
6,079
6,920
4,490
Dividends received deduction
—
( 4,201 )
( 4,013 )
Noncontrolling interest
( 73,881 )
( 10,998 )
( 1,801 )
Deconsolidation adjustment
—
( 6,626 )
—
Change in valuation allowance
28,116
1,325
789
Other
528
1,377
( 496 )
Total income tax benefit
$
( 128,857 )
( 74,110 )
( 397,482 )
Deferred income taxes reflect the impact of temporary differences between assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. The tax effect of the temporary differences giving rise to net deferred tax assets and liabilities as of December 31, 2019 and 2020 is as follows (in thousands):
December 31,
2019
2020
Deferred tax assets:
NOL carryforwards
$
560,136
565,433
Equity-based compensation
7,669
8,445
Investment in Antero Midstream
172,460
330,301
Other
15,754
17,206
Total deferred tax assets
756,019
921,385
Valuation allowance
( 46,802 )
( 46,013 )
Net deferred tax assets
709,217
875,372
Deferred tax liabilities:
Unrealized gains on derivative instruments
206,677
13,189
Oil and gas properties
1,284,528
1,188,599
Investment in Martica
—
59,586
2026 Convertible Notes
—
26,250
Total deferred tax liabilities
1,491,205
1,287,624
Net deferred tax liabilities
$
( 781,988 )
( 412,252 )
In assessing the realizability of deferred tax assets, management considers whether some portion or all of the deferred tax assets will be realized based on a more-likely-than-not standard of judgment. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the Company’s temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes that the Company will not realize the benefits of certain of these deductible differences and has recorded a valuation allowance of approximately $ 47 million and $ 46 million as of December 31, 2019 and 2020, respectively. The valuation allowance for each of the years ended December 31, 2019 and 2020, relates to Colorado and Oklahoma state NOL carryforwards and is primarily the result of expected future reduced income tax apportionment in those states. The amount of the deferred tax asset considered realizable could be further reduced in the near term if estimates of future taxable income during the carryforward period are revised.
The calculation of the Company’s tax liabilities involves uncertainties in the application of complex tax laws and regulations. The Company gives financial statement recognition to those tax positions that it believes are more-likely-than-not to be sustained upon
F-39
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
examination by the Internal Revenue Service or state revenue authorities. The Company monitors potential uncertain tax positions but does not anticipate any changes in 2021. The Company has no unrecognized tax benefit balances through December 31, 2020.
As of December 31, 2020, the Company has U.S. federal and state NOL carryforwards of $ 2.3 billion and $ 2.0 billion, respectively, exclusive of the valuation allowances discussed above. The U.S. federal and West Virginia NOL carryforwards generated in tax years prior to 2018 expire between 2032 and 2037. The Colorado NOL carryforwards generated in tax years prior to 2018 expire between 2025 and 2037. For tax years 2018 and thereafter, NOL carryforwards generated in these jurisdictions have no expiration date. The Pennsylvania NOL carryforwards expire between 2037 and 2040.
Tax years 2017 through 2020 remain open to examination by the U.S. Internal Revenue Service. The Company and its subsidiaries file tax returns with various state taxing authorities and those returns remain open to examination for tax years 2016 through 2020.
(15) Commitments
The table below is a schedule of future minimum payments for firm transportation, drilling rig and completion services, processing, gathering and compression, and office and equipment agreements, which include leases that have remaining lease terms in excess of one year as of December 31, 2020 (in thousands).
Processing,
Firm
Gathering and
Land Payment
Operating and
Imputed Interest
Transportation
Compression
Obligations
Financing Leases
for Leases
(a)
(b)
(c)
(d)
(d)
Total
2021
$
1,080,150
54,873
2,859
265,849
346,145
1,749,876
2022
1,037,503
52,265
328
267,888
311,557
1,669,541
2023
1,064,981
59,140
—
300,971
274,265
1,699,357
2024
1,024,833
59,262
—
334,694
231,767
1,650,556
2025
984,743
47,960
—
306,918
186,865
1,526,486
Thereafter
6,947,951
113,379
—
1,138,489
419,981
8,619,800
Total
$
12,140,161
386,879
3,187
2,614,809
1,770,580
16,915,616
(a)
Firm Transportation
The Company has entered into firm transportation agreements with various pipelines in order to facilitate the delivery of its production to market. These contracts commit the Company to transport minimum daily natural gas or NGLs volumes at negotiated rates, or pay for any deficiencies at specified reservation fee rates. The amounts in this table are based on the Company’s minimum daily volumes at the reservation fee rate. The values in the table represent the gross amounts that the Company is committed to pay; however, the Company will record in the consolidated financial statements its proportionate share of costs based on its working interest.
F-40
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(b)
Processing, Gathering, and Compression Service Commitments
The Company has entered into various long-term gas processing, gathering and compression service agreements. Certain of these agreements were determined to be leases. The minimum payment obligations under the agreements that are not leases are presented in this column.
The values in the table represent the gross amounts that the Company is committed to pay; however, the Company will record in the consolidated financial statements its proportionate share of costs based on its working interest.
(c)
Land Payment Obligations
The Company has entered into various land acquisition agreements. Certain of these agreements contain minimum payment obligations over various terms. The values in the table represent the minimum payments due under these arrangements. None of these agreements were determined to be leases.
(d)
Leases, including imputed interest
The Company has obligations under contracts for services provided by drilling rigs and completion fleets, processing, gathering, and compression services agreements, and office and equipment leases. The values in the table represent the gross amounts that Antero Resources is committed to pay; however, the Company will record in its financial statements its proportionate share of costs based on its working interests. See Note 13—Leases to the consolidated financial statements for more information on the Company’s operating and finance leases.
(e)
Contract Terminations and Rig Stacking
The Company incurs costs associated with the delay or cancellation of drilling and completion contracts with third-party contractors. These costs are recorded in Contract termination and rig stacking and included in the statement of operations and comprehensive income (loss) for the years ended December 31, 2018, 2019 and 2020 (in thousands):
Year Ended December 31,
2018
2019
2020
Contract termination and rig stacking
$
—
14,026
14,290
(16) Contingencies
Environmental
In June 2018, the Company received a Notice of Violation (“NOV”) from the U.S. Environmental Protection Agency (“EPA”) Region III for alleged violations of the federal Clean Air Act and the West Virginia State Implementation Plan. The NOV alleges that combustion devices at these facilities did not meet applicable air permitting requirements. Separately, in June 2018, the Company received an information request from EPA Region III pursuant to Section 114(a) of the Clean Air Act relating to the facilities that were inspected in September 2017 as well as additional Antero Resources facilities for the purpose of determining if the additional facilities have the same alleged compliance issues that were identified during the September 2017 inspections. Subsequently, the West Virginia Department of Environmental Protection (“WVDEP”), and EPA Region V (covering Ohio facilities) each conducted its own inspections, and the Company has separately received NOVs from WVDEP and EPA Region V related to similar issues being investigated by the EPA Region III. The Company continues to negotiate with EPA overall and WVDEP to resolve the issues alleged in the NOVs and the information request. The Company’s operations at these facilities are not suspended, and management does not expect these matters to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.
F-41
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
SJGC
In March 2015 and December 2017, the Company filed lawsuits against South Jersey Gas Company and South Jersey Resources Group, LLC (collectively, “SJGC”) in United States District Court in Colorado seeking relief for breach of contracts and damages for amounts that SJGC short paid the Company. The contractual price for gas was based on specified indices in the contracts and SJGC began short paying the Company based on price indices unilaterally selected by SJGC and not the applicable index specified in the contracts. On May 8, 2017, a jury in the United States District Court in Colorado returned a unanimous verdict finding in favor of Antero Resources’ positions in the initial lawsuit against SJGC and the Tenth Circuit Court of Appeals affirmed the judgment of the trial court. SJGC declined further appeal and stipulated to the liability in the second suit. During the year ended December 31, 2019, the Company and its royalty owners received a gross settlement of $ 82 million from SJGC, which was in full satisfaction and discharge of judgments entered in favor of the Company in the above described lawsuits.
WGL
The Company and Washington Gas Light Company and WGL Midstream, Inc. (collectively, “WGL”) were involved in multiple contractual disputes involving firm gas sales contracts executed June 20, 2014 (the “Contracts”) that the Company began delivering gas under in January 2016. In late 2015, WGL asserted that the natural gas index price specified in the Contracts was no longer appropriate and sought to invoke an alternative index clause in the Contracts. This dispute was referred to arbitration. In January 2017, the arbitration panel ruled in the Company’s favor and found that the natural gas index price specified in the Contracts should remain.
In March of 2017, WGL filed a lawsuit against the Company in Colorado district court claiming that the Company breached contractual obligations by failing to deliver “TCO pool” gas, ultimately seeking damages of more than $ 40 million. Subsequently, after WGL failed to take certain volumes of gas required under the Contracts, the Company filed a separate lawsuit against WGL to recover damages that WGL refused to pay. These two lawsuits were consolidated and tried in June 2019. On June 20, 2019, the Company was awarded a jury verdict of approximately $ 96 million in damages against WGL. In addition, the jury rejected WGL’s claim against the Company, finding that the Company did not breach the Contracts. On December 10, 2020, the Colorado Court of Appeals affirmed the judgment of the trial court in favor of the Company. In February 2021, the Company and its royalty owners received a gross payment of approximately $ 107 million from WGL, which was in full satisfaction and discharge of the June 2019 judgment entered in favor of the Company.
Other
The Company is party to various other legal proceedings and claims in the ordinary course of its business. The Company believes that certain of these matters will be covered by insurance and that the outcome of other matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.
(17) Related Parties
Antero Midstream Partners’ operations comprised substantially all of the operations reflected in the gathering and processing, and water handling and treatment, results through March 12, 2019. Effective March 13, 2019, Antero Resources accounts for Antero Midstream Corporation as an equity method investment. See Note 3—Deconsolidation of Antero Midstream Partners LP to the consolidated financial statements for more discussion on the Transactions.
Substantially all of the revenues for Antero Midstream Partners or Antero Midstream Corporation were and are derived from transactions with Antero Resources. See Note 18—Segment Information to the consolidated financial statements for the operating results of the Company’s reportable segments.
(18) Segment Information
See Note 2(t)—Summary of Significant Accounting Policies—Industry Segments and Geographic Information to the consolidated financial statements for a description of the Company’s determination of its reportable segments. Revenues from midstream services were primarily derived from intersegment transactions for services provided to the Company’s exploration and production operations prior to the closing of the Transactions. Through March 12, 2019, Antero Resources included the results of Antero Midstream Partners in its consolidated financial statements. Effective March 13, 2019, Antero no longer consolidates the results of Antero Midstream in its results; however, the Company’s segment disclosures include the results of the Company’s unconsolidated affiliates due to their significance to the Company’s operations. See Note 3—Deconsolidation of Antero Midstream
F-42
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Partners LP to the consolidated financial statements for further discussion on the Transactions. Marketing revenues are primarily derived from activities to purchase and sell third-party natural gas and NGLs and to market excess firm transportation capacity to third parties.
Operating segments are evaluated based on their contribution to consolidated results, which is primarily determined by the respective operating income (loss) of each segment. General and administrative expenses were allocated to the midstream segment based on the nature of the expenses and on a combination of the segments’ proportionate share of the Company’s consolidated property and equipment, capital expenditures, and labor costs, as applicable. General and administrative expenses related to the marketing segment are not allocated because they are immaterial. Other income, income taxes, and interest expense are primarily managed and evaluated on a consolidated basis. Intersegment sales were transacted at prices which approximate market. Accounting policies for each segment are the same as the Company’s accounting policies described in Note 2—Summary of Significant Accounting Policies to the consolidated financial statements.
The operating results and assets of the Company’s reportable segments were as follows for the years ended December 31, 2018, 2019 and 2020 (in thousands):
Exploration
Elimination of
and
Midstream
Intersegment
Consolidated
Production
Marketing
Services
Transactions
Total
Year Ended December 31, 2018
Sales and revenues:
Third-party
$
3,565,300
552,982
21,344
—
4,139,626
Intersegment
( 87,472 )
—
1,007,178
( 919,706 )
—
Total
$
3,477,828
552,982
1,028,522
( 919,706 )
4,139,626
Operating expenses:
Lease operating
$
142,234
—
262,704
( 268,785 )
136,153
Gathering, compression, processing, and transportation
1,792,898
—
49,550
( 503,090 )
1,339,358
Impairment of oil and gas properties
549,437
—
—
—
549,437
Impairment of midstream assets
—
—
9,658
—
9,658
Depletion, depreciation, and amortization
841,645
—
130,820
—
972,465
General and administrative
181,305
—
61,629
( 2,590 )
240,344
Other
129,947
686,055
( 88,715 )
93,019
820,306
Total
3,637,466
686,055
425,646
( 681,446 )
4,067,721
Operating income (loss)
$
( 159,638 )
( 133,073 )
602,876
( 238,260 )
71,905
Equity in earnings of unconsolidated affiliates
$
—
—
40,280
—
40,280
Segment assets
$
12,986,945
34,499
3,542,862
( 1,044,842 )
15,519,464
Capital expenditures for segment assets
$
1,923,488
—
542,112
( 255,014 )
2,210,586
F-43
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Equity Method
Elimination of
Investment in
Intersegment
Exploration
Antero
Transactions and
and
Midstream
Unconsolidated
Consolidated
Production
Marketing
Corporation (1)
Affiliates
Total
Year Ended December 31, 2019
Sales and revenues:
Third-party
$
4,107,845
292,207
50
—
4,400,102
Intersegment
5,812
—
792,538
( 789,762 )
8,588
Total
$
4,113,657
292,207
792,588
( 789,762 )
4,408,690
Operating expenses:
Lease operating
$
146,990
—
162,376
( 163,646 )
145,720
Gathering, compression, processing, and transportation
2,257,099
—
41,013
( 151,465 )
2,146,647
Impairment of oil and gas properties
1,300,444
—
—
—
1,300,444
Impairment of midstream assets
—
—
776,832
( 762,050 )
14,782
Depletion, depreciation, and amortization
893,161
—
95,526
( 73,820 )
914,867
General and administrative
160,402
—
118,113
( 99,819 )
178,696
Other
143,762
549,814
12,093
( 11,090 )
694,579
Total
4,901,858
549,814
1,205,953
( 1,261,890 )
5,395,735
Operating income (loss)
$
( 788,201 )
( 257,607 )
( 413,365 )
472,128
( 987,045 )
Equity in earnings (loss) of unconsolidated affiliates
$
—
—
51,315
( 194,531 )
( 143,216 )
Investments in unconsolidated affiliates
$
—
—
709,639
345,538
1,055,177
Segment assets
$
14,121,523
20,869
6,282,878
( 5,227,701 )
15,197,569
Capital expenditures for segment assets
$
1,369,003
—
391,990
( 338,838 )
1,422,155
(1) Includes the consolidated results of Antero Midstream Partners through March 12, 2019 and results of the Company’s equity method investment in Antero Midstream Corporation effective March 13, 2019.
F-44
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Equity Method
Elimination of
Investment in
Intersegment
Exploration
Antero
Transactions and
and
Midstream
Unconsolidated
Consolidated
Production
Marketing
Corporation
Affiliates
Total
Year Ended December 31, 2020
Sales and revenues:
Third-party
$
3,178,330
310,572
—
—
3,488,902
Intersegment
2,797
—
900,719
( 900,719 )
2,797
Total
$
3,181,127
310,572
900,719
( 900,719 )
3,491,699
Operating expenses:
Lease operating
$
98,865
—
—
—
98,865
Gathering, compression, processing, and transportation
2,530,838
—
165,386
( 165,386 )
2,530,838
Impairment of oil and gas properties
223,770
—
—
—
223,770
Impairment of midstream assets
—
—
673,640
( 673,640 )
—
Depletion, depreciation, and amortization
861,870
—
108,790
( 108,790 )
861,870
General and administrative
134,482
—
52,213
( 52,213 )
134,482
Other
125,917
469,404
18,328
( 18,328 )
595,321
Total
3,975,742
469,404
1,018,357
( 1,018,357 )
4,445,146
Operating loss
$
( 794,615 )
( 158,832 )
( 117,638 )
117,638
( 953,447 )
Equity in earnings (loss) of unconsolidated affiliates
$
( 62,660 )
—
86,430
( 86,430 )
( 62,660 )
Investments in unconsolidated affiliates
$
255,082
—
—
—
255,082
Segment assets
$
13,150,845
—
5,610,912
( 5,610,912 )
13,150,845
Capital expenditures for segment assets
$
874,357
—
196,724
( 196,724 )
874,357
(19) Subsidiary Guarantors
Each of the Company’s wholly owned subsidiaries has fully and unconditionally guaranteed Antero Resources’ senior notes. In the event a subsidiary guarantor is sold or disposed of (whether by merger, consolidation, the sale of a sufficient amount of its capital stock so that it no longer qualifies as a “Subsidiary” of Antero (as defined in the indentures governing the notes) or the sale of all or substantially all of its assets (other than by lease)) and whether or not the subsidiary guarantor is the surviving entity in such transaction to a person that is not Antero or a restricted subsidiary of Antero, such subsidiary guarantor will be released from its obligations under its subsidiary guarantee if the sale or other disposition does not violate the covenants set forth in the indentures governing the notes.
In addition, a subsidiary guarantor will be released from its obligations under the indentures and its guarantee, upon the release or discharge of the guarantee of other Indebtedness (as defined in the indentures governing the notes) that resulted in the creation of such guarantee, except a release or discharge by or as a result of payment under such guarantee; if Antero designates such subsidiary as an unrestricted subsidiary and such designation complies with the other applicable provisions of the indentures governing the notes or in connection with any covenant defeasance, legal defeasance or satisfaction and discharge of the notes.
The following tables present summarized financial information of Antero and its guarantor subsidiaries. The Company’s wholly owned subsidiaries are not restricted from making distributions to the Company.
F-45
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Balance Sheet
December 31,
2020
Parent (Antero)
and
Guarantor
(in thousands)
Subsidiaries
Accounts receivable, non-guarantor subsidiaries
$
—
Accounts receivable, related parties
—
Other current assets
543,841
Total current assets
543,841
Noncurrent assets
11,783,502
Total assets
$
12,327,343
Accounts payable, non-guarantor subsidiaries
$
—
Accounts payable, related parties
69,860
Other current liabilities
906,348
Total current liabilities
976,208
Noncurrent liabilities
6,070,388
Total liabilities
$
7,046,596
Statement of Operations
Year Ended
December 31,
2020
Parent (Antero)
and
Guarantor
(in thousands)
Subsidiaries
Revenues
$
3,458,390
Operating expenses
4,419,323
Loss from operations
( 960,933 )
Net loss and comprehensive loss including noncontrolling interests
( 1,267,897 )
Net loss and comprehensive loss attributable to Antero Resources Corporation
$
( 1,267,897 )
F-46
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(20) Quarterly Financial Information (Unaudited)
The Company’s quarterly consolidated financial information for the years ended December 31, 2019 and 2020 is summarized in the tables below (in thousands, except per share amounts). The Company’s quarterly operating results are affected by the volatility of commodity prices and the resulting effect on the Company’s production revenues and the fair value of commodity derivatives.
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
Year Ended December 31, 2019
Total operating revenues
$
1,037,407
1,299,664
1,118,881
952,738
Total operating expenses
1,071,114
1,199,668
2,104,759
1,020,194
Operating income (loss)
( 33,707 )
99,996
( 985,878 )
( 67,456 )
Gain on deconsolidation of Antero Midstream Partners LP
1,406,042
—
—
—
Net income (loss) and comprehensive income (loss) including noncontrolling interest
1,025,756
42,168
( 878,864 )
( 482,196 )
Net income attributable to noncontrolling interest
46,993
—
—
—
Net income (loss) attributable to Antero Resources Corporation
978,763
42,168
( 878,864 )
( 482,196 )
Earnings (loss) per common share—basic
$
3.17
0.14
( 2.86 )
( 1.61 )
Earnings (loss) per common share—diluted
$
3.17
0.14
( 2.86 )
( 1.61 )
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
Year Ended December 31, 2020
Total operating revenues
$
1,317,105
484,911
380,591
1,309,092
Total operating expenses
1,054,672
1,091,833
1,134,700
1,163,941
Operating income (loss)
262,433
( 606,922 )
( 754,109 )
145,151
Net income (loss) and comprehensive income (loss) including noncontrolling interest
( 338,810 )
( 463,068 )
( 553,846 )
95,313
Net income (loss) attributable to noncontrolling interest
—
236
( 18,233 )
25,483
Net income (loss) attributable to Antero Resources Corporation
( 338,810 )
( 463,304 )
( 535,613 )
69,830
Earnings (loss) per common share—basic
$
( 1.19 )
( 1.73 )
( 1.99 )
0.26
Earnings (loss) per common share—diluted
$
( 1.19 )
( 1.73 )
( 1.99 )
0.24
Operating income is calculated as operating revenues minus operating expenses. During the third and fourth quarters of 2019, operating expenses were impacted by impairments for proved properties, unproved properties and equity method investments that were material to the quarters as presented. See Note 2—Summary of Significant Accounting Policies to the consolidated financial statement for more information.
(21) Supplemental Information on Oil and Gas Producing Activities (Unaudited)
The following is supplemental information regarding the Company’s consolidated oil and gas producing activities. The amounts shown include the Company’s net working interests in all of its oil and gas properties.
(a) Capitalized Costs Relating to Oil and Gas Producing Activities
Year Ended December 31,
(In thousands)
2019
2020
Proved properties
$
11,859,817
12,260,713
Unproved properties
1,368,854
1,175,178
Total oil and gas properties
13,228,671
13,435,891
Accumulated depletion and depreciation
( 3,284,330 )
( 3,818,279 )
Net capitalized costs
$
9,944,341
9,617,612
F-47
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(b) Costs Incurred in Certain Oil and Gas Activities
Year Ended December 31,
(In thousands)
2018
2019
2020
Acquisition costs:
Proved property
$
—
—
—
Unproved property
172,387
88,682
45,129
Development costs
1,164,800
1,104,336
823,271
Exploration costs
323,773
149,782
2,993
Total costs incurred
$
1,660,960
1,342,800
871,393
(c) Results of Operations for Oil and Gas Producing Activities
Year Ended December 31,
(In thousands)
2018
2019
2020
Revenues
$
3,652,894
3,643,873
3,083,905
Operating expenses:
Production expenses
1,601,985
2,417,509
2,736,478
Exploration expenses
4,958
884
1,083
Depletion and depreciation
832,326
884,350
854,331
Impairment of unproved properties
549,437
1,300,444
223,770
Results of operations before income tax (expense) benefit
664,188
( 959,314 )
( 731,757 )
Income tax (expense) benefit
( 156,350 )
224,511
( 176,061 )
Results of operations
$
507,838
( 734,803 )
( 907,818 )
(d) Oil and Gas Reserves
The following table sets forth the net quantities of proved reserves and proved developed reserves during the periods indicated. This information includes the Company’s royalty and net working interest share of the reserves in oil and gas properties. Net proved oil and gas reserves for the years ended December 31, 2018, 2019 and 2020 were prepared by the Company’s reserve engineers and audited by DeGolyer and MacNaughton (“D&M”) utilizing data compiled by the Company. There are many uncertainties inherent in estimating proved reserve quantities, and projecting future production rates and timing of future development costs. In addition, reserve estimates of new discoveries are more imprecise than those of properties with a production history. Accordingly, these estimates are subject to change as additional information becomes available. All reserves are located in the United States.
Proved reserves are the estimated quantities of oil, condensate, NGLs and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known oil and gas reservoirs under existing economic and operating conditions at the end of the respective years. Proved developed reserves are those reserves expected to be recovered through existing wells with existing equipment and operating methods. The Company estimates proved reserves using average prices received for the previous 12 months .
Proved undeveloped reserves include drilling locations that are more than one offset location away from productive wells and are reasonably certain of containing proved reserves and which are scheduled to be drilled within five years under the Company’s development plans. The Company’s development plans for drilling scheduled over the next five years are subject to many
F-48
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
uncertainties and variables, including availability of capital, future commodity prices, net cash provided by operating activities, future drilling and completion costs, and other economic factors.
Oil and
Natural Gas
NGLs
Condensate
Equivalents
(Bcf)
(MMBbl)
(MMBbl)
(Bcfe)
Proved reserves:
December 31, 2017
11,098
989
38
17,261
Revisions
( 1,087 )
8
( 1 )
( 1,042 )
Extensions, discoveries and other additions
2,125
98
12
2,781
Production
( 711 )
( 43 )
( 3 )
( 989 )
Purchases of reserves
—
—
—
—
December 31, 2018
11,425
1,052
46
18,011
Revisions
( 1,735 )
25
( 11 )
( 1,648 )
Extensions, discoveries and other additions
2,626
169
11
3,705
Production
( 822 )
( 55 )
( 4 )
( 1,175 )
Purchases of reserves
—
—
—
—
December 31, 2019
11,494
1,191
42
18,893
Revisions
( 1,280 )
65
( 8 )
( 940 )
Extensions, discoveries and other additions
799
48
3
1,105
Production
( 875 )
( 68 )
( 4 )
( 1,310 )
Sales
( 113 )
—
—
( 113 )
Purchases of reserves
—
—
—
—
December 31, 2020 (1)
10,025
1,236
33
17,635
(1)
Proved reserves for the noncontrolling interest in Martica as of December 31, 2020 were 254 Bcfe, which consists of 159 Bcf of natural gas, 15 MMBbl of NGLs and 0.5 MMBbl of oil and condensate.
Oil and
Natural Gas
NGLs
Condensate
Equivalents
(Bcf)
(MMBbl)
(MMBbl)
(Bcfe)
Proved developed reserves:
December 31, 2018
6,669
600
20
10,389
December 31, 2019
7,229
731
21
11,740
December 31, 2020 (1)
6,901
810
19
11,873
Proved undeveloped reserves:
December 31, 2018
4,756
452
26
7,622
December 31, 2019
4,265
460
21
7,153
December 31, 2020 (2)
3,124
426
14
5,762
(1) Proved developed reserves for the noncontrolling interest in Martica as of December 31, 2020 were 181 Bcfe, which consists of 110 Bcf of natural gas, 11 MMBbl of NGLs and 0.3 MMBbl of oil and condensate.
(2) Proved undeveloped reserves for the noncontrolling interest in Martica as of December 31, 2020 were 73 Bcfe, which consists of 49 Bcf of natural gas, 4 MMBbl of NGLs and 0.2 MMBbl of oil and condensate.
Significant items included in the categories of proved developed and undeveloped reserve changes for the years ended December 31, 2018, 2019 and 2020 in the above table include the following:
2018 Changes in Reserves
● Extensions, discoveries, and other additions of 2,781 Bcfe resulted from delineation and development drilling in the Appalachian Basin.
● Net downward revisions of 1,042 Bcfe include:
● Downward revisions of 433 Bcfe related to well performance.
F-49
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
● Net downward revisions of 742 Bcfe related to optimization to the Company’s five-year development plan. This figure includes upward revisions of 1,722 Bcfe for previously proved undeveloped properties reclassified from non-proved properties due to their addition to the Company’s five-year development plan, and downward revisions of 2,464 Bcfe for locations that were not developed within five years of initial booking as proved reserves.
● Upward revisions of 18 Bcfe were due to increases in prices for natural gas, NGLs, and oil.
● Upward revisions of 115 Bcfe are due to an increase in the Company’s assumed future ethane recovery.
The Company produced 989 Bcfe during the year ended December 31, 2018.
2019 Changes in Reserves
● Extensions, discoveries, and other additions of 3,705 Bcfe resulted from delineation and development drilling in the Appalachian Basin.
● Net downward revisions of 1,648 Bcfe include:
● Upward revisions of 63 Bcfe related to well performance.
● Net downward revisions of 1,705 Bcfe related to optimization to the Company’s five-year development plan. This figure includes upward revisions of 595 Bcfe for previously proved undeveloped properties reclassified from non-proved properties due to their addition to the Company’s five-year development plan, and downward revisions of 2,300 Bcfe for locations that were not developed within five years of initial booking as proved reserves.
● Downward revisions of 157 Bcfe were due to increases in prices for natural gas, NGLs, and oil.
● Upward revisions of 315 Bcfe are due to an increase in the Company’s assumed future ethane recovery.
● Downward revisions of 164 Bcfe are due to the deconsolidation of Antero Midstream Partners. Deconsolidation of Antero Midstream Partners resulted in Antero Resources recording the full fees paid to Antero Midstream Partners for services rendered and no longer including future capital expenditures associated with Antero Midstream Partners’ assets in future development costs. Prior to deconsolidation, Antero Resources’ consolidated reserves included the elimination of full fees paid by Antero Resources to Antero Midstream Partners and the inclusion of the operating costs and capital incurred by Antero Midstream Partners.
The Company produced 1,175 Bcfe during the year ended December 31, 2019.
2020 Changes in Reserves
● Extensions, discoveries, and other additions of 1,105 Bcfe resulted from delineation and development drilling in the Appalachian Basin.
● Net downward revisions of 940 Bcfe include:
● Net downward revision of 1,126 Bcfe due to decreases in prices for natural gas, NGLs, and oil.
● Net downward revision of 922 Bcfe for locations that were not developed within five years of initial booking as proved reserves.
● Upward revisions of 485 Bcfe are due to an increase in the Company’s assumed future ethane recovery.
● Net upward revision of 132 Bcfe due to schedule optimization primarily driven by previously proved undeveloped properties reclassified from non-proved to proved undeveloped.
● Net upward performance revisions of 491 Bcfe.
F-50
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
● Sales of reserves of 113 Bcfe related to the VPP.
The Company produced 1,310 Bcfe during the year ended December 31, 2020.
(e) Standardized Measure of Discounted Future Net Cash Flow
The following table sets forth the standardized measure of the discounted future net cash flows attributable to the Company’s proved reserves. Future cash inflows were computed by applying historical 12 month unweighted first day of the month average prices. Future prices actually received may materially differ from current prices or the prices used in the standardized measure.
Future production and development costs represent the estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, assuming continuation of existing economic conditions. Future income tax expenses were computed by applying statutory income tax rates to the difference between pretax net cash flows relating to the Company’s proved reserves and the tax basis of proved oil and gas properties. In addition, the effects of available NOL carryforwards and alternative minimum tax credits were used in computing future income tax expense. The resulting annual net cash inflows were then discounted using a 10 % annual rate.
Year Ended December 31,
(in millions)
2018
2019
2020
Future cash inflows
$
64,199
54,228
37,845
Future production costs
( 30,007 )
( 36,524 )
( 32,202 )
Future development costs
( 3,453 )
( 2,772 )
( 1,685 )
Future net cash flows before income tax
30,739
14,932
3,958
Future income tax expense (1)
( 5,505 )
( 1,639 )
—
Future net cash flows
25,234
13,293
3,958
10 % annual discount for estimated timing of cash flows
( 14,756 )
( 7,824 )
( 2,748 )
Standardized measure of discounted future net cash flows (2)
$
10,478
5,469
1,210
(1) Based on the 12-month average of the first-day-of-the-month prices used in the computation of PV-10 as of December 31, 2020, the future taxable net income generated over the life of the Company’s proved reserves is expected to be less than its NOL carryforward deductions and therefore, under the standardized measure, there is no deduction for federal or state income taxes.
(2) The standardized measure of discounted future net cash flows for the noncontrolling interest in Martica was $ 359 million for the year ended December 31, 2020.
The Company used the following 12-month weighted average prices to estimate its total equivalent reserves (per Mcfe):
Year Ended December 31,
2018
2019
2020
12-month weighted average price
$
3.56
2.87
2.15
F-51
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(f) Changes in Standardized Measure of Discounted Future Net Cash Flow
Year Ended December 31,
(in millions)
2018
2019
2020
Sales of oil and gas, net of productions costs
$
( 2,051 )
( 1,116 )
( 347 )
Net changes in prices and production costs (1)
707
( 6,729 )
( 5,455 )
Development costs incurred during the period
755
758
704
Net changes in future development costs (2)
37
( 92 )
249
Extensions, discoveries and other additions
1,925
782
31
Acquisitions
—
—
—
Divestitures
—
—
( 174 )
Revisions of previous quantity estimates
( 53 )
( 1,011 )
( 379 )
Accretion of discount
1,018
1,259
607
Net change in income taxes
( 563 )
1,513
598
Changes in timing and other
76
( 373 )
( 93 )
Net increase (decrease)
1,851
( 5,009 )
( 4,259 )
Beginning of year
8,627
10,478
5,469
End of year (3)
$
10,478
5,469
1,210
(1) Includes $ 3.3 billion in increased production costs due to the deconsolidation of Antero Midstream Partners for the year ended December 31, 2019.
(2) Includes $ 185 million in increased future development costs due to the deconsolidation of Antero Midstream Partners for the year ended December 31, 2019.
(3) The standardized measure of discounted future net cash flows for the noncontrolling interest in Martica was $ 359 million for the year ended December 31, 2020.
F-52