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, 2021 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, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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, 2021.
The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which appears beginning on page F-2 in this Annual Report on Form 10-K.
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 2022 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 2022 Annual Meeting of Stockholders.
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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 2022 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 2022 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent registered accounting firm is KPMG LLP , Denver , CO, Auditor Firm ID: 185 .
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 2022 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) .
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 5.0% 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).
4.2
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).
4.3
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).
4.4
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).
4.5
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
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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).
4.6
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).
4.7
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).
4.8
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).
4.9
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).
4.10
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).
4.11
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).
4.12
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).
4.13
Indenture related to the 5.375% Senior Notes due 2030, dated as of June 1, 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 June 1, 2021).
4.14
Form of 5.375% Senior Note due 2030 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (Commission File No. 001-36120) filed on June 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-
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Exhibit
Number
Description of Exhibit
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
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
Sixth Amended and Restated Credit Facility, dated as of October 26, 2021, by and among Antero Resources Corporation, as Borrower, 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 October 27, 2021).
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).
10.21†
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 10.2 to the Company's Current Report on Form 8-K (Commission File No. 001-36120) filed on October 10, 2018).
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
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Exhibit
Number
Description of Exhibit
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).
10.33†
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 10.1 to the Company’s Quarterly Report on Form 10-Q (Commission File No. 001-36120) filed on July 28, 2021).
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).
95.1*
Federal Mine Safety and Health Act Information.
99.1*
Report of DeGolyer and MacNaughton, dated as of January 21, 2022, for proved reserves as of December 31, 2021.
99.2
Report of DeGolyer and MacNaughton, dated as of January 29, 2021, for proved reserves as of December 31, 2020 (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 17, 2021).
99.3
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).
99.4*
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, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive 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.
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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/ MICHAEL N. KENNEDY
Michael N. Kennedy
Chief Financial Officer and Senior Vice President–Finance
Date:
February 16, 2022
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, Chief Executive Officer and President
February 16, 2022
Paul M. Rady
(principal executive officer)
/s/ MICHAEL N. KENNEDY
Chief Financial Officer and Senior Vice President–Finance
February 16, 2022
Michael N. Kennedy
(principal financial officer)
/s/ SHERI L. PEARCE
Vice President, Accounting and Chief Accounting Officer
February 16, 2022
Sheri L. Pearce
(principal accounting officer)
/s/ ROBERT J. CLARK
Director
February 16, 2022
Robert J. Clark
/s/ BENJAMIN A. HARDESTY
Director
February 16, 2022
Benjamin A. Hardesty
/s/ W. HOWARD KEENAN, JR.
Director
February 16, 2022
W. Howard Keenan, Jr.
/s/ JACQUELINE C. MUTSCHLER
Director
February 16, 2022
Jacqueline C. Mutschler
/s/ BRENDA R. SCHROER
Director
February 16, 2022
Brenda R. Schroer
/s/ VICKY SUTIL
Director
February 16, 2022
Vicky Sutil
/s/ THOMAS B. TYREE, JR.
Director
February 16, 2022
Thomas B. Tyree, Jr.
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INDEX TO FINANCIAL STATEMENTS
Page
Audited Historical Consolidated Financial Statements as of December 31, 2020 and 2021 and for the Years Ended December 31, 2019, 2020 and 2021
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
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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, 2020 and 2021, 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, 2021, 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, 2021, 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, 2020 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, 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, 2021 based on criteria established in Internal Control –Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
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 accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
F-2
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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, 2021, the Company recorded depletion expense related to proved oil and gas properties of $736 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 related to 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 16, 2022
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ANTERO RESOURCES CORPORATION
Consolidated Balance Sheets
(In thousands, except per share amounts)
December 31,
2020
2021
Assets
Current assets:
Accounts receivable
$
28,457
78,998
Accrued revenue
425,314
591,442
Derivative instruments
105,130
757
Other current assets
15,238
14,922
Total current assets
574,139
686,119
Property and equipment:
Oil and gas properties, at cost (successful efforts method):
Unproved properties
1,175,178
1,042,118
Proved properties
12,260,713
12,646,303
Gathering systems and facilities
5,802
5,802
Other property and equipment
74,361
116,522
13,516,054
13,810,745
Less accumulated depletion, depreciation, and amortization
( 3,869,116 )
( 4,283,700 )
Property and equipment, net
9,646,938
9,527,045
Operating leases right-of-use assets
2,613,603
3,419,912
Derivative instruments
47,293
14,369
Investment in unconsolidated affiliate
255,082
232,399
Other assets
13,790
16,684
Total assets
$
13,150,845
13,896,528
Liabilities and Equity
Current liabilities:
Accounts payable
$
26,728
24,819
Accounts payable, related parties
69,860
76,240
Accrued liabilities
343,524
457,244
Revenue distributions payable
198,117
444,873
Derivative instruments
31,242
559,851
Short-term lease liabilities
266,024
456,347
Deferred revenue, VPP
45,257
37,603
Other current liabilities
2,302
11,140
Total current liabilities
983,054
2,068,117
Long-term liabilities:
Long-term debt
3,001,593
2,125,444
Deferred income tax liability, net
412,252
318,126
Derivative instruments
99,172
181,806
Long-term lease liabilities
2,348,785
2,964,115
Deferred revenue, VPP
156,024
118,366
Other liabilities
59,694
54,462
Total liabilities
7,060,574
7,830,436
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; 268,672 shares and 313,930 shares issued and outstanding as of December 31, 2020 and 2021 , respectively
2,686
3,139
Additional paid-in capital
6,195,497
6,371,398
Accumulated deficit
( 430,478 )
( 617,377 )
Total stockholders' equity
5,767,705
5,757,160
Noncontrolling interests
322,566
308,932
Total equity
6,090,271
6,066,092
Total liabilities and equity
$
13,150,845
13,896,528
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,
2019
2020
2021
Revenue and other:
Natural gas sales
$
2,247,162
1,809,952
3,442,028
Natural gas liquids sales
1,219,162
1,161,683
2,147,499
Oil sales
177,549
112,270
201,232
Commodity derivative fair value gains (losses)
463,972
79,918
( 1,936,509 )
Marketing
292,207
310,572
718,921
Amortization of deferred revenue, VPP
—
14,507
45,236
Gathering, compression, water handling and treatment
4,478
—
—
Other income
4,160
2,797
1,025
Total revenue
4,408,690
3,491,699
4,619,432
Operating expenses:
Lease operating
145,720
98,865
96,793
Gathering, compression, processing, and transportation
2,146,647
2,530,838
2,499,174
Production and ad valorem taxes
125,142
106,775
197,910
Marketing
549,814
469,404
811,698
Exploration
884
1,083
6,566
General and administrative (including equity-based compensation expense of $ 23,559 , $ 23,317 and $ 20,437 in 2019, 2020 and 2021, respectively)
178,696
134,482
145,006
Depletion, depreciation, and amortization
914,867
861,870
742,009
Impairment of oil and gas properties
1,300,444
223,770
90,523
Impairment of midstream assets
14,782
—
—
Accretion of asset retirement obligations
3,762
3,421
3,820
Contract termination and rig stacking
14,026
14,290
4,305
(Gain) loss on sale of assets
951
348
( 2,232 )
Total operating expenses
5,395,735
4,445,146
4,595,572
Operating income (loss)
( 987,045 )
( 953,447 )
23,860
Other income (expense):
Interest expense, net
( 228,111 )
( 199,872 )
( 181,868 )
Equity in earnings (loss) of unconsolidated affiliate
( 143,216 )
( 62,660 )
77,085
Gain (loss) on early extinguishment of debt
36,419
175,962
( 93,191 )
Loss on convertible note equitizations
—
—
( 50,777 )
Loss on the sale of equity method investment shares
( 108,745 )
—
—
Gain on deconsolidation of Antero Midstream Partners LP
1,406,042
—
—
Water earnout
125,000
—
—
Impairment of equity method investment
( 467,590 )
( 610,632 )
—
Transaction expense
—
( 7,244 )
( 3,295 )
Total other income (expense)
619,799
( 704,446 )
( 252,046 )
Loss before income taxes
( 367,246 )
( 1,657,893 )
( 228,186 )
Income tax benefit
74,110
397,482
74,077
Net loss and comprehensive loss including noncontrolling interests
( 293,136 )
( 1,260,411 )
( 154,109 )
Less: net income and comprehensive income attributable to noncontrolling interests
46,993
7,486
32,790
Net loss and comprehensive loss attributable to Antero Resources Corporation
$
( 340,129 )
( 1,267,897 )
( 186,899 )
Loss per share—basic
$
( 1.11 )
( 4.65 )
( 0.61 )
Loss per share—diluted
$
( 1.11 )
( 4.65 )
( 0.61 )
Weighted average number of shares outstanding:
Basic
306,400
272,433
308,146
Diluted
306,400
272,433
308,146
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, 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
Issuance of common shares
42,976
430
363,813
—
—
364,243
Issuance of common units in Martica Holdings, LLC
—
—
—
—
51,000
51,000
Equity component of 2026 Convertible Notes, net
—
—
( 195,056 )
—
—
( 195,056 )
Issuance of common stock upon vesting of equity-based compensation awards, net of shares withheld for income taxes
2,282
23
( 13,293 )
—
—
( 13,270 )
Distributions to noncontrolling interest
—
—
—
—
( 97,424 )
( 97,424 )
Equity-based compensation
—
—
20,437
—
—
20,437
Net income (loss) and comprehensive income (loss)
—
—
—
( 186,899 )
32,790
( 154,109 )
Balances, December 31, 2021
313,930
$
3,139
6,371,398
( 617,377 )
308,932
6,066,092
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,
2019
2020
2021
Cash flows provided by (used in) operating activities:
Net loss including noncontrolling interests
$
( 293,136 )
( 1,260,411 )
( 154,109 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depletion, depreciation, amortization, and accretion
918,629
865,291
745,829
Impairments
1,782,816
834,402
90,523
Commodity derivative fair value losses (gains)
( 463,972 )
( 79,918 )
1,936,509
Gains (losses) on settled commodity derivatives
325,090
794,684
( 1,183,400 )
Proceeds from (payments for) derivative monetizations
—
9,007
( 4,569 )
Deferred income tax benefit
( 79,158 )
( 397,273 )
( 74,293 )
Equity-based compensation expense
23,559
23,317
20,437
Equity in (earnings) loss of unconsolidated affiliate
143,216
62,660
( 77,085 )
Distributions/dividends of earnings from unconsolidated affiliate
157,956
171,022
136,609
Amortization of deferred revenue
—
( 14,507 )
( 45,236 )
Amortization of debt issuance costs, debt discount, debt premium and other
10,681
12,027
12,492
(Gain) loss on sale of assets
951
348
( 2,232 )
Loss on the sale of equity method investment shares
108,745
—
—
Water earnout
( 125,000 )
—
—
Gain on deconsolidation of Antero Midstream Partners LP
( 1,406,042 )
—
—
(Gain) loss on early extinguishment of debt
( 36,419 )
( 175,962 )
93,191
Loss on convertible note equitizations
—
—
50,777
Changes in current assets and liabilities:
Accounts receivable
31,631
( 9,492 )
( 55,567 )
Accrued revenue
156,941
( 107,428 )
( 166,128 )
Other current assets
( 1,025 )
( 5,507 )
316
Accounts payable including related parties
( 27,996 )
( 19,282 )
( 1,184 )
Accrued liabilities
( 25,762 )
37,954
77,584
Revenue distributions payable
( 102,839 )
( 5,203 )
246,757
Other current liabilities
4,592
( 89 )
12,895
Net cash provided by operating activities
1,103,458
735,640
1,660,116
Cash flows provided by (used in) investing activities:
Additions to unproved properties
( 88,682 )
( 45,129 )
( 79,138 )
Drilling and completion costs
( 1,254,118 )
( 826,265 )
( 601,175 )
Additions to water handling and treatment systems
( 24,416 )
—
—
Additions to gathering systems and facilities
( 48,239 )
—
—
Additions to other property and equipment
( 6,700 )
( 2,963 )
( 35,623 )
Settlement of water earnout
—
125,000
—
Investments in unconsolidated affiliates
( 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
3,192
Proceeds from VPP sale, net
—
215,789
—
Change in other liabilities
—
—
( 672 )
Change in other assets
7,091
2,806
2,632
Net cash used in investing activities
( 1,041,490 )
( 530,061 )
( 710,784 )
Cash flows provided by (used in) financing activities:
Repurchases of common stock
( 38,772 )
( 43,443 )
—
Issuance of senior notes
650,000
—
1,800,000
Issuance of convertible notes
—
287,500
—
Repayment of senior notes
( 191,092 )
( 1,219,019 )
( 1,554,657 )
Borrowings (repayments) on bank credit facilities, net
232,000
465,000
( 1,017,000 )
Payment of debt issuance costs
( 4,547 )
( 8,984 )
( 31,474 )
Sale of noncontrolling interest
—
351,000
51,000
Distributions to noncontrolling interests
( 85,076 )
( 35,920 )
( 97,424 )
Employee tax withholding for settlement of equity compensation awards
( 2,389 )
( 422 )
( 13,270 )
Convertible note equitizations
—
—
( 85,648 )
Other
( 2,560 )
( 1,291 )
( 859 )
Net cash provided by (used in) financing activities
557,564
( 205,579 )
( 949,332 )
Effect of deconsolidation of Antero Midstream Partners LP
( 619,532 )
—
—
Net increase in cash and cash equivalents
—
—
—
Cash and cash equivalents, beginning of period
—
—
—
Cash and cash equivalents, end of period
$
—
—
—
F-7
Table of Contents
ANTERO RESOURCES CORPORATION
Consolidated Statements of Cash Flows (Continued)
(In thousands)
Year Ended December 31,
2019
2020
2021
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
$
224,331
192,302
141,930
Increase (decrease) in accounts payable and accrued liabilities for additions to property and equipment
( 15,897 )
( 94,619 )
37,049
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 together with its consolidated subsidiaries “Antero Resources,” or the “Company”) is 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 is 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, 2020 and 2021, and its results of operations and cash flows for the years ended December 31, 2019, 2020 and 2021. 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 its variable interest entity (“VIE”), Martica Holdings LLC (“Martica”), for which the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in the Company’s consolidated financial statements.
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 Simplification Transactions resulted in the exchange of the limited partner interest Antero Resources owned in Antero Midstream Partners for common stock of Antero Midstream Corporation (“Antero Midstream”) 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 that provides significant influence, but not control, over Antero Midstream. 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, 2020 and 2021, the Company had a 29.2 % and 29.1 % interest, respectively, in Antero Midstream. 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 Simplification Transactions, respectively.
For the years ended December 31, 2020 and 2021, the Company determined that 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
● Antero provides accounting, administrative and other services to Martica under a Management Services Agreement.
F-9
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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 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 revenue distributions payable were $ 7 million and $ 18 million, respectively. As of December 31, 2021, the book overdraft included within accounts payable and revenue distributions payable were $ 5 million and $ 52 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,
F-10
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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, 2020 and 2021. The sale of a partial interest in a proved property is accounted for as a normal retirement, 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 cost recovery without recognition of any gain or loss until the cost has been recovered. Impairment of unproved properties was $ 393 million, $ 224 million and $ 91 million for the years ended December 31, 2019, 2020 and 2021, 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, 2020 and 2021. The Company did not record any impairment expenses associated with its proved properties in the Marcellus Shale during the years ended December 31, 2019, 2020 and 2021.
As of December 31, 2021, 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 $ 884 million, $ 854 million, and $ 736 million for the years ended December 31, 2019, 2020 and 2021, 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.
Impairment of long-lived assets other than oil and gas properties was $ 15 million for the year ended December 31, 2019, which was associated with midstream assets. There were no such impairments for the years ended December 31, 2020 and 2021.
(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 $ 8 million, $ 8 million and $ 6 million for the years ended December 31, 2019, 2020 and 2021, respectively. A gain or loss is recognized upon the sale or disposal of other property and equipment.
F-11
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(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 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, 2021, the Company had $ 8 million of unamortized debt issuance costs included in other long-term assets, and $ 22 million of unamortized debt issuance costs included as a reduction to long-term debt. The amortization and write-off related to deferred debt issuance costs was $ 11 million, $ 8 million, and $ 7 million for the years ended December 31, 2019, 2020 and 2021, 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, 2020 and 2021, 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.
(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 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
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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 on the Company’s consolidated statements of operations.
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 on the Company’s consolidated statements of operations.
(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 on the Company’s consolidated statements of operations.
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 on the Company’s consolidated statements of operations.
(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 FASB 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.
(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—Reportable Segments to the consolidated financial statements for further discussion on the Simplification 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
F-13
Table of Contents
ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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, 2019, 2020 and 2021 are as follows:
Year Ended December 31,
2019
2020
2021
Six One Commodities LLC (1)
15
%
11
%
10
%
Sabine Pass Liquefaction LLC
16
%
11
%
*
(1) Six One Commodities LLC acquired WGL Midstream during the year ended December 31, 2021. WGL Midstream was the Company's major customer during the years ended December 31, 2019 and 2020.
*
Sabine Pass Liquefaction LLC was not a major customer during the year ended December 31, 2021.
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 10 different counterparties. As of December 31, 2021, the Company did not have any commodity derivative assets with bank counterparties under our Credit Facility (as defined below in Note 8—Long-Term Debt). 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, 2021 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.
(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 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
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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)
Reportable Segments and Geographic Information
Management has evaluated how the Company is organized and managed and has identified the following segments: (i) the exploration, development and production of natural gas, NGLs and oil; (ii) marketing and utilization of excess firm transportation capacity; and (iii) midstream services through the Company’s equity method investment in Antero Midstream. 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 due to its significance to the Company’s operations. See Note 3—Deconsolidation of Antero Midstream Partners LP and Note 18—Reportable Segments to the consolidated financial statements for further discussion on the Simplification 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 outstanding equity awards and shares of common stock issuable upon conversion of the 2026 Convertible Notes (as defined below in Note 8—Long-Term Debt). The Company includes restricted stock unit (“RSU”) awards, performance share unit (“PSU”) 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. The potential dilutive effect of the 2026 Convertible Notes is calculated using the (i) treasury stock method for the year ended December 31, 2020 as a result of the Company’s intent to settle the principal amount of such convertible notes in cash upon conversion during year ended December 31, 2020, and (ii) if-converted method for the year ended December 31, 2021, as a result of the partial equitizations of the 2026 Convertible Notes during the year ended December 31, 2021. See Note 8—Long-Term Debt for further discussion on the equitization transactions. 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 effects of all equity awards and the 2026 Convertible Notes are anti-dilutive.
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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,
2019
2020
2021
Basic weighted average number of shares outstanding
306,400
272,433
308,146
Add: Dilutive effect of RSUs
—
—
—
Add: Dilutive effect of PSUs
—
—
—
Add: Dilutive effect of outstanding stock options
—
—
—
Add: Dilutive effect of 2026 Convertible Notes
—
—
—
Diluted weighted average number of shares outstanding
306,400
272,433
308,146
Weighted average number of outstanding securities excluded from calculation of diluted earnings per common share (1) :
RSUs
2,357
6,810
6,407
PSUs
1,443
432
2,832
Outstanding stock options
527
327
379
2026 Convertible Notes (2)
—
31,388
18,778
(1) The potential dilutive effects of these awards were excluded from the computation of earnings (loss) per common share—diluted because the inclusion of these awards would have been anti-dilutive.
(2) Under the treasury stock method, only the amount by which the conversion value exceeds the aggregate principal amount of the 2026 Convertible Notes is considered in the diluted earnings per share computation. As of December 31, 2020, the conversion value did not exceed the principal amount of the notes. On January 12, 2021, the Company completed the January 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 (deficit) thereafter. 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 share unit awards, performance share 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 Cash Awards to the consolidated financial statements for additional information regarding the Company’s equity-based compensation.
(x)
Recently Issued Accounting Standard
Convertible Instruments
In August 2020, the FASB issued ASU 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. It is effective for interim and annual reporting periods beginning after December 15, 2021. The Company will adopt the standard effective January 1, 2022 under the modified retrospective transition method.
Upon adoption of this new standard, the Company will reclassify $ 24 million, net of deferred income taxes and equity
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
issuance costs, from additional paid-in capital and increase long-term debt by $27 million, reduce deferred income tax liability by $6 million and reduce accumulated deficit by $3 million as of January 1, 2022. Additionally, annual interest expense for the 2026 Convertible Notes beginning January 1, 2022 will be based on an effective interest rate of 4.9 % as compared to 15.3 % for the year ended December 31, 2021. The Company does not believe that adoption of the standard will impact its operational strategies or development prospects.
Income Taxes
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes . This ASU removes certain exceptions to the general principles in ASC 740, Income Taxes (“ASC 740”) and also simplifies portions of ASC 740 by clarifying and amending existing guidance. It is effective for interim and annual reporting periods beginning after December 15, 2020. The Company adopted this ASU on January 1, 2021, and it did not have a material impact on the Company's consolidated financial statements.
(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, dated as of October 9, 2018, by and among Antero Midstream GP LP, Antero Midstream Partners and certain of their affiliates (the “Simplification Agreement”), 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 “ Simplification 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 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 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 continued to be included in the Company’s consolidated statement of operations and comprehensive income (loss) through March 12, 2019.
(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 thresholds related to the third quarter of 2020 and the first quarter of 2021 as of September 30, 2020 and March 31, 2021, respectively. The Company received a $ 51 million cash distribution during each of the years ended December 31, 2020 and 2021.
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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 or (b) the earlier of (i) April 1, 2023 or (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 as of the transaction closing. 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.
(c)
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, for the Company’s 2021 through 2024 drilling program . Under the terms of the arrangement, each year in which QL participates represents an annual tranche, and QL will be conveyed a working interest in any wells spud by Antero Resources during such tranche year. For 2021 and 2022, Antero Resources and QL agreed to the estimated internal rate of return (“IRR”) of the Company’s capital budget for each annual tranche, and QL agreed to participate in the 2021 and 2022 tranches. For each subsequent year through 2024, Antero Resources will propose a capital budget and estimated IRR for all wells to be spud during such year, and subject to the mutual agreement of the parties that the estimated IRR for the year exceeds a specified return, QL will be obligated to participate in such tranche. Antero Resources develops and manages the drilling program associated with each tranche, including the selection of wells. Additionally, for each annual tranche in which QL participates, Antero Resources and QL will enter into assignments, bills of sale and conveyances pursuant to which QL will be conveyed a proportionate working interest
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
percentage in each well spud in that year, which conveyances will not be subject to any reversion.
Under the terms of the arrangement, QL funded 20 % of development capital for wells spud in 2021, is expected to fund 15 % in 2022 and between 15 % and 20 % of development capital spending for wells spud on an annual basis from 2023 through 2024, which funding amounts represent QL’s proportionate working interest in such wells. Additionally, Antero Resources may receive a carry in the form of a one-time payment from QL for each annual tranche if the IRR for such tranche exceeds certain specified returns, which will be determined no earlier than October 31 and no later December 1 following the end of each tranche year . 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.
Subject to the preceding sentence, for any wells included in a tranche, QL is obligated and responsible for its working interest share of costs and liabilities, and is entitled to its working interest share of revenues, associated with such wells for the life of such wells. 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 annual tranches.
The Company has accounted for the drilling partnership as a conveyance under ASC 932 and such conveyances are recorded in the consolidated financial statements as QL obtains its proportionate working interest in each well. No gain or loss was recognized for the interests conveyed during the year ended December 31, 2021.
(5 ) Revenue
(a)
Disaggregation of Revenue
The table set forth below presents revenue disaggregated by type and reportable segment to which it relates (in thousands). See Note 18—Reportable Segments to the consolidated financial statements for more information on reportable segments.
Year Ended December 31,
2019
2020
2021
Reportable Segment
Revenues from contracts with customers:
Natural gas sales
$
2,247,162
1,809,952
3,442,028
Exploration and production
Natural gas liquids sales (ethane)
124,563
113,811
206,889
Exploration and production
Natural gas liquids sales (C3+ NGLs)
1,094,599
1,047,872
1,940,610
Exploration and production
Oil sales
177,549
112,270
201,232
Exploration and production
Marketing
292,207
310,572
718,921
Marketing
Gathering and compression (1)
3,972
—
—
Equity method investment in Antero Midstream
Water handling and treatment (1)
506
—
—
Equity method investment in Antero Midstream
Total revenue from contracts with customers
3,940,558
3,394,477
6,509,680
Income (loss) from derivatives, deferred revenue and other sources, net
468,132
97,222
( 1,890,248 )
Total revenue
$
4,408,690
3,491,699
4,619,432
(1)
Gathering and compression and water handling and treatment revenues were included through March 12, 2019. See Note 3—Deconsolidation of Antero Midstream Partners to the consolidated financial statements for further discussion on the Simplification 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, Revenue from Contracts with Customers (“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, 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
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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, 2020 and 2021, the Company’s receivables from contracts with customers were $ 425 million and $ 591 million, respectively.
(6) Equity Method Investment
(a) Summary of Equity Method Investment
As of December 31, 2021, Antero owned approximately 29.1 % of Antero Midstream’s common stock, which is reflected in Antero’s consolidated financial statements using the equity method of accounting.
The following table sets forth a reconciliation of Antero’s investment in unconsolidated affiliate (in thousands):
Balances as of December 31, 2019
$
1,055,177
Equity in loss of unconsolidated affiliate
( 62,660 )
Dividends from unconsolidated affiliate
( 171,022 )
Impairment (1)
( 610,632 )
Elimination of intercompany profit
44,219
Balance as of December 31, 2020 (2)
255,082
Equity in earnings of unconsolidated affiliate
77,085
Dividends from unconsolidated affiliate
( 136,609 )
Elimination of intercompany profit
36,841
Balance as of December 31, 2021 (2)
$
232,399
(1) Other-than-temporary impairment of the Company’s investment in Antero Midstream to reduce the carrying value of such investment to fair value, which was based on the quoted market share price of Antero Midstream as of March 31, 2020 (Level 1).
(2) The fair value of the Company’s investment in Antero Midstream as of December 31, 2020 and 2021 was $ 1.1 billion and $ 1.3 billion, respectively, based on the quoted market share price of Antero Midstream.
(b) Summarized Financial Information of Antero Midstream
The tables set forth below present summarized financial information of Antero Midstream (in thousands).
Balance Sheet
December 31,
2020
2021
Current assets
$
93,931
83,804
Noncurrent assets
5,516,981
5,460,197
Total assets
$
5,610,912
5,544,001
Current liabilities
$
94,005
114,009
Noncurrent liabilities
3,098,621
3,143,294
Stockholders' equity
2,418,286
2,286,698
Total liabilities and stockholders' equity
$
5,610,912
5,544,001
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Statement of Operations
Year Ended December 31,
2020
2021
Revenues
$
900,719
898,202
Operating expenses
1,018,357
342,875
Income (loss) from operations
( 117,638 )
555,327
Net income (loss)
$
( 122,527 )
331,617
(7) Accrued Liabilities
Accrued liabilities consisted of the following items (in thousands):
December 31,
2020
2021
Capital expenditures
$
32,372
46,983
Gathering, compression, processing, and transportation expenses
152,724
164,900
Marketing expenses
68,193
50,589
Interest expense, net
25,645
65,093
Accrued production and ad valorem taxes
37,371
44,298
Derivative settlements payable
3,425
35,202
Accrued general and administrative expense
14,363
27,740
Other
9,431
22,439
Total accrued liabilities
$
343,524
457,244
(8) Long-Term Debt
Long-term debt consisted of the following items (in thousands):
December 31,
2020
2021
Credit Facility (a)
$
1,017,000
—
5.125 % senior notes due 2022 (b)
660,516
—
5.625 % senior notes due 2023 (c)
574,182
—
5.00 % senior notes due 2025 (d)
590,000
584,635
8.375 % senior notes due 2026 (e)
—
325,000
7.625 % senior notes due 2029 (f)
—
584,000
5.375 % senior notes due 2030 (g)
—
600,000
4.25 % convertible senior notes due 2026 (h)
287,500
81,570
Total principal
3,129,198
2,175,205
Unamortized discount, net
( 111,886 )
( 27,772 )
Unamortized debt issuance costs
( 15,719 )
( 21,989 )
Long-term debt
$
3,001,593
2,125,444
(a)
Senior Secured Revolving Credit Facility
Antero Resources has a senior secured revolving credit facility with a consortium of bank lenders. On October 26, 2021, Antero Resources entered into an amended and restated senior secured revolving credit facility, the New Credit Facility. 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. As of December 31, 2021, the borrowing base under the New Credit Facility was $ 3.5 billion and lender commitments were $ 1.5 billion. The next redetermination of the borrowing base is scheduled to occur in April 2022. The maturity date of the Credit Facility is the earlier of (i) October 26, 2026 and (ii) the date that is 180 days prior to the earliest stated redemption date of any series of the Company’s then outstanding senior notes .
The Credit Facility contains requirements with respect to leverage and current ratios, and certain covenants, including
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
restrictions on our ability to incur debt and limitations on our ability to pay dividends unless certain customary conditions are met, in each case, subject to customary carve-outs and exceptions. Antero Resources was in compliance with all of the financial covenants under the Prior Credit Facility as of December 31, 2020 and New Credit Facility as of December 31, 2021.
The Prior Credit Facility provides for borrowing under either an Alternate Base Rate or as a Eurodollar Loan (as each term is defined in the Prior Credit Facility), and the New Credit Facility provides for borrowing at either an Adjusted Term Secured Overnight Financing Rate (“SOFR”), an Adjusted Daily Simple SOFR or an Alternate Base Rate (each as defined in the New Credit Facility). The Credit Facility provides for interest only payments until maturity at which time all outstanding borrowings are due. Interest is payable at a variable rate based on (i) LIBOR or the Alternate Base Rate, determined by Antero Resources’ election at the time of borrowing, plus an applicable margin rate under the Prior Credit Facility and (ii) SOFR or the Alternate Base Rate, determined by Antero Resources’ election at the time of borrowing, plus an applicable margin rate under the New Credit Facility. Interest at the time of borrowing is determined with reference to the Antero Resources’ then-current leverage ratio subject to certain exceptions. Commitment fees on the unused portion of the Credit Facility are due quarterly at rates ranging from (i) 0.300 % to 0.375 % with respect to the Prior Credit Facility, determined with reference to borrowing base utilization and (ii) 0.375 % to 0.500 % with respect to the New Credit Facility, determined with reference to borrowing base utilization, both rates subject to certain exceptions based on the leverage ratio then in effect. The New Credit Facility includes fall away covenants, lower interest rates and reduced collateral requirements that Antero Resources may elect if Antero Resources is assigned an Investment Grade Rating (as defined in the New Credit Facility).
As of December 31, 2021, Antero Resources had no borrowings under the New Credit Facility and outstanding letters of credit of $ 531 million. 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.
(b)
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 Company repurchased or otherwise fully redeemed all of the 2022 Notes between 2019 and the first quarter of 2021. Interest on the 2022 Notes was payable on June 1 and December 1 of each year. See “—Debt Repurchase Program” below for further details on 2022 Notes repurchases.
(c)
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 Company repurchased or otherwise fully redeemed all of the 2023 Notes between 2020 and the second quarter of 2021. Interest on the 2023 Notes was payable on June 1 and December 1 of each year. See “—Debt Repurchase Program” below for further details on 2023 Notes repurchases and redemption.
(d)
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 Company repurchased $ 15 million of the 2025 Notes from time to time during 2020 and 2021, and as of December 31, 2021, $ 585 million principal amount of the 2025 Notes remained outstanding. 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’ existing subsidiaries that guarantee the Credit Facility 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 at redemption prices ranging from 102.5 % currently to 100.00 % on or after March 1, 2023, which option the Company exercised on January 27, 2022 with its notice to redeem all remaining 2025 Notes on March 1, 2022. See “—Subsequent Event” below for further details on the 2025 Notes redemption. 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.
(e)
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 Company redeemed $ 175 million of the 2026 Notes on July 1, 2021, and as of December 31, 2021, $ 325 million principal
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
amount of the 2026 Notes remained outstanding. See “—Debt Repurchase Program” below for further details on the 2026 Notes redemption. 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’ existing subsidiaries that guarantee the Credit Facility 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. 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.
(f)
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 Company redeemed $ 116 million of the 2029 Notes on November 2, 2021, and as of December 31, 2021, $ 584 million principal amount of the 2029 Notes remained outstanding. See “—Debt Repurchase Program” below for further details on the 2029 Notes redemption. 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’ existing subsidiaries that guarantee the Credit Facility and certain of its future restricted subsidiaries. Interest on the 2029 Notes is payable on February 1 and August 1 of each year. Antero 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, but in an amount not greater than 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, which option the Company partially exercised on October 18, 2021 with its notice to redeem $ 116 million aggregate principal amount of outstanding 2029 Notes. 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.
(g)
5.375 % Senior Notes Due 2030
On June 1, 2021, Antero Resources issued $ 600 million of 5.375 % senior notes due March 1, 2030 (the “2030 Notes”) at par. The 2030 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2030 Notes rank pari passu to Antero Resources’ other outstanding senior notes. The 2030 Notes are guaranteed on a full and unconditional and joint and several senior unsecured basis by Antero Resources’ existing subsidiaries that guarantee the Credit Facility and certain of its future restricted subsidiaries. Interest on the 2030 Notes is payable on March 1 and September 1 of each year. Antero Resources may redeem all or part of the 2030 Notes at any time on or after March 1, 2025 at redemption prices ranging from 102.688 % on or after March 1, 2025 to 100.00 % on or after March 1, 2028. In addition, on or before March 1, 2025, Antero Resources may redeem up to 35 % of the aggregate principal amount of the 2030 Notes, but in an amount not greater than the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 105.375 % of the principal amount of the 2030 Notes, plus accrued and unpaid interest. At any time prior to March 1, 2025, Antero Resources may also redeem the 2030 Notes, in whole or in part, at a price equal to 100 % of the principal amount of the 2030 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 2030 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 2030 Notes, plus accrued and unpaid interest.
(g)
4.25 % Convertible Senior Notes Due 2026
On August 21, 2020, Antero Resources issued $ 250 million in aggregate principal amount of 4.25 % convertible senior notes due September 1, 2026 (the “2026 Convertible Notes”). On September 2, 2020, Antero Resources issued an additional $ 37.5 million of the 2026 Convertible Notes. During the year ended December 31, 2021, the Company completed the equitization transactions described below under “—Partial Equitizations of 2026 Convertible Notes,” that extinguished $ 206 million principal amount of the
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
2026 Convertible Notes, and as of December 31, 2021, $ 82 million principal amount of the 2026 Convertible Notes remained outstanding. 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 Report 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, 2021, the if-converted value of the 2026 Convertible Notes was $ 329 million, which exceeded the principal amount of the 2026 Convertible Notes by $ 247 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 (the “Stock Price Condition”) ;
● 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;
● 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. The 2026 Convertible Notes have met the Stock Price Condition allowing holders of the 2026 Convertible Notes to exercise their conversion right as of December 31, 2021.
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
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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.
Partial Equitizations of 2026 Convertible Notes
On January 12, 2021, the Company completed a registered direct offering (the “January 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 January 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 “January Convertible Note Repurchase,” and, collectively with the January Share Offering, the “January 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 January Equitization Transactions had the effect of increasing this conversion rate to 275.3525 shares of common stock per $1,000 principal amount. The Company accounted for this transaction as an inducement of the 2026 Convertible Notes, and as a result, the Company recorded a $ 39 million loss on convertible note equitization in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021 for the consideration paid in excess of the original terms of the 2026 Convertible Notes. Additionally, the January Equitization Transactions resulted in a loss on early extinguishment of debt of $ 41 million in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2021.
On May 13, 2021, the Company completed a registered direct offering (the “May Share Offering”) of an aggregate of 11.6 million shares of its common stock at a price of $ 11.01 per share to certain holders of the 2026 Convertible Notes. The Company used the proceeds from the May Share Offering and approximately $ 26 million of borrowings under the Credit Facility to repurchase from such holders $ 56 million aggregate principal amount of the 2026 Convertible Notes in privately negotiated transactions (the “May Convertible Note Repurchase,” and, collectively with the May Share Offering, the “May 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 May Equitization Transactions had the effect of increasing this conversion rate to 245.2802 shares of common stock per $1,000 principal amount. The Company accounted for this transaction as an inducement of the 2026 Convertible Notes, and as a result, the Company recorded a $ 12 million loss on convertible note equitization in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021 for the consideration paid in excess of the original terms of the 2026 Convertible Notes. Additionally, the May Equitization Transactions resulted in a loss on early extinguishment of debt of $ 21 million in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2021.
The 2026 Convertible Notes consist of the following (in thousands):
December 31,
2020
2021
Liability component:
Principal
$
287,500
81,570
Less: unamortized note discount
( 112,265 )
( 27,772 )
Less: unamortized debt issuance costs
( 5,852 )
( 1,592 )
Net carrying value
$
169,383
52,206
Equity component (1)
$
115,601
32,799
(1) As of December 31, 2020, the equity component attributable to the outstanding 2026 Convertible Notes was recorded in additional paid-in capital, net of $ 3 million of issuance costs and $ 28 million of deferred taxes. As of December 31, 2021, the equity component attributable to the outstanding 2026 Convertible Notes was recorded in additional paid-in capital net of $ 1 million of issuance costs and $ 8 million of deferred taxes.
Interest expense recognized on the 2026 Convertible Notes related to the stated interest rate, amortization of the debt discount
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
and debt issuance costs totaled $ 8 million and $ 11 million for the years ended December 31, 2020 and 2021, respectively.
(f)
Debt Repurchase Program
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 %.
During the first quarter of 2021, the Company redeemed the remaining $ 661 million of the 2022 Notes at par, plus accrued and unpaid interest, and as a result, the 2022 Notes were fully retired as of February 10, 2021. The Company redeemed the remaining $ 574 million of the 2023 Notes at par, plus accrued and unpaid interest, during the second quarter of 2021. The 2023 Notes were fully retired as of June 1, 2021. During the third quarter of 2021, the Company redeemed $ 175 million of the principal amount of its 2026 Notes at a redemption price of 108.375 % of the principal amount thereof, plus accrued and unpaid interest, and recognized a loss on early debt extinguishment of $ 17 million. During the fourth quarter of 2021, the Company redeemed $ 116 million of the principal amount of its 2029 Notes at a redemption price of 107.625 % of the principal amount thereof, plus accrued and unpaid interest, and recognized a loss on early debt extinguishment of $ 10 million.
(g)
Subsequent Event
On January 27, 2022, Antero Resources announced that it will redeem all $ 585 million in aggregate principal amount of its 2025 Notes at a redemption price of 101.25 % of the principal amount thereof, plus accrued and unpaid interest on March 1, 2022. Immediately following the redemption, the 2025 Notes will be fully retired. The $ 7 million premium to the principal amount to be redeemed along with the write-off of unamortized debt issuance costs will be included in our loss on early debt extinguishment during the first quarter of 2022.
(9) Asset Retirement Obligations
The following table presents a reconciliation of the Company’s asset retirement obligations (in thousands):
December 31,
2020
2021
Beginning balance
$
54,845
54,452
Obligations incurred
1,814
3,208
Accretion expense
3,421
3,820
Settlement of obligations
( 229 )
( 40 )
Revisions to prior estimates
( 5,399 )
( 7,488 )
Ending balance
$
54,452
53,952
Revisions to prior estimates in 2020 and 2021 are primarily due to an increase in estimated well lives. Asset retirement obligations are included in other liabilities on the Company’s consolidated balance sheets.
(10) Equity-Based Compensation and Cash 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
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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 7,922,468 shares were available for future grant under the 2020 Plan as of December 31, 2021.
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 Simplification Transactions, each outstanding phantom unit award under the AMP Plan, was assumed by Antero Midstream and converted into 1.8926 RSUs (all such RSUs, the “Converted AM RSU Awards”) under the Antero Midstream Corporation Long Term Incentive Plan (the “AM Plan”). Each RSU award under the AM Plan represents a right to receive one share of Antero Midstream common stock.
The Company’s equity-based compensation expense, by type of award, is as follows (in thousands):
Year Ended December 31,
2019
2020
2021
RSU awards
$
10,343
12,510
13,232
PSU awards
8,069
7,219
4,662
Converted AM RSU Awards (1)
3,425
2,519
1,160
Stock options
355
—
—
Equity awards issued to directors
1,367
1,069
1,383
Total expense
$
23,559
23,317
20,437
(1) Antero Resources recognized compensation expense for equity awards granted under both the 2013 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 Simplification 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 to the consolidated financial statements for further discussion on the Simplification 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 is as follows:
Weighted
Average
Number of
Grant Date
Shares
Fair Value
Total awarded and unvested—December 31, 2020
8,432,397
$
4.06
Granted
1,447,806
9.63
Vested
( 3,622,741 )
4.37
Forfeited
( 326,855 )
5.45
Total awarded and unvested—December 31, 2021
5,930,607
$
5.15
As of December 31, 2021, there was approximately $ 24 million of unamortized equity-based compensation expense related to unvested RSUs. That expense is expected to be recognized over a weighted average period of approximately 2.5 years.
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(b) 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 were based on stock price targets. The vesting of these PSUs was 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 could vest before the first anniversary of the grant date; no more than one-third of the PSUs could vest before the second anniversary of the grant date; and no more than two-thirds of the PSUs could vest before the third anniversary of the grant date. Any PSUs that had not vested by the fifth anniversary of the grant date expired in 2021. Expense related to these PSUs was recognized on a graded basis over three years . Forfeitures were accounted for as they occurred by reversing the expense previously recognized for awards that were forfeited during the period. One of the performance conditions was met, and vesting for one-third of these PSUs was achieved.
Performance Share Unit Awards Based on Total Shareholder Return and Return on Capital Employed
In 2018, the Company granted PSUs to certain of its employees and executive officers, a portion of which would vest based on the Company’s absolute total shareholder return (“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 were 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 could ultimately be earned with respect to the 2018 TSR PSUs ranged from zero to 200 % of the target number of 2018 TSR PSUs originally granted. Expense related to the 2018 TSR PSUs was recognized on a straight-line basis over three years . Forfeitures were accounted for as they occurred by reversing the expense previously recognized for awards that were forfeited during the period.
The other portion of the PSUs granted in 2018 would vest based on the Company’s actual return on capital employed (“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 could ultimately be earned with respect to the ROCE PSUs ranged from zero to 200 % of the target number of ROCE PSUs originally granted. Expense related to the ROCE PSUs was recognized based on the number of shares of common stock that were expected to be issued at the end of the measurement period, and was reversed if the likelihood of achieving the performance condition decreased. 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 was not recognized during the years ended December 31, 2020 and 2021. The performance conditions for the 2018 TSR PSUs and ROCE PSUs were not met, and no vesting for these awards was achieved.
Performance Share Unit Awards Based on Total Shareholder Return
In 2016 and 2017, the Company granted PSUs to certain of its employees and executive officers that would 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 that were available to be earned ranged from zero to 200 % of the PSUs granted. Expense related to these PSUs was recognized on a straight-line basis over three years . Forfeitures were accounted for as they occurred by reversing the expense previously recognized for awards that were forfeited during the period. The performance conditions for the 2016 and 2017 PSUs were not met, and no vesting was achieved.
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.
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
F-28
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
occur by reversing the expense previously recognized for awards that were forfeited during the period. The performance condition for the performance period ending April 15, 2021 was met, and 150 % vesting was achieved for the award tranche.
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. The performance condition for the performance period ending April 15, 2021 was met, and 150 % vesting was achieved for the award tranche.
In 2021, 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, 2022, April 15, 2023, and April 15, 2024, and one cumulative three-year performance period ending on April 15, 2024, in each case, subject to the executive officer’s continued employment through April 15, 2024. The number of shares of common stock that may ultimately be earned following the end of the cumulative three-year performance period with respect to the TSR PSUs ranges from zero to 200 % of the target number of TSR PSUs originally granted. Expense related to these PSUs is recognized on a graded-vested basis over the term of each performance period. 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 Leverage Ratio
In April 2021, the Company granted PSUs to certain of its executive officers that vest based on the Company’s total debt less cash and cash equivalents divided by the Company’s Adjusted EBITDAX ( as defined in the award agreement ) determined as of the last day of each of three one-year performance periods ending on December 31, 2021, December 31, 2022, and December 31, 2023, in each case, subject to the executive officer’s continued employment through December 31, 2023 (“Leverage Ratio PSUs”). The number of shares of common stock that may ultimately be earned with respect to the Leverage Ratio PSUs ranges from zero to 200 % of the target number of Leverage Ratio PSUs originally granted. Expense related to the Leverage Ratio PSUs is recognized based on the number of shares of common stock that are expected to be issued at the end of each measurement period, and such expense is reversed if the likelihood of achieving the performance condition becomes improbable. As of December 31, 2021, the likelihood of achieving the performance conditions related to the Leverage Ratio PSUs was probable.
Summary Information for Performance Share Unit Awards
A summary of PSU activity is as follows:
Weighted
Number of
Average Grant
Units
Date Fair Value
Total awarded and unvested—December 31, 2020
2,547,798
$
12.66
Granted
479,120
9.71
Forfeited
( 67,000 )
2.97
Cancelled (unearned)
( 1,112,639 )
19.19
Total awarded and unvested—December 31, 2021
1,847,279
$
8.31
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 and Adjusted EBITDAX-based PSUs was based on the closing price of Antero Resources’ common stock on the date of the grant, assuming target achievement of the performance condition.
The following table presents information regarding the weighted average fair values for market-based PSUs, and the assumptions used to determine the fair values:
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Year Ended December 31,
2019
2020
2021
Dividend yield
—
%
—
%
—
%
Volatility
36
%
80
%
85
%
Risk-free interest rate
2.35
%
0.17
%
0.32
%
Weighted average fair value of awards granted—Absolute TSR
$
9.26
2.63
11.99
Weighted average fair value of awards granted—Relative TSR
$
—
3.30
—
As of December 31, 2021, there was $ 6 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 1.9 years.
(c) Converted AM Restricted Share 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 Simplification Transactions, the Board of Directors of Antero Midstream adopted the AM Plan. In accordance with the terms of the Simplification Transactions, each outstanding phantom unit under the AMP Plan was assumed by Antero Midstream and converted into 1.8926 restricted stock units under the AM Plan.
A summary of the Converted AM RSU Awards is as follows:
Weighted
Average
Number of
Grant Date
Units
Fair Value
Total awarded and unvested—December 31, 2020
296,390
$
15.06
Granted
—
—
Vested
( 209,964 )
15.73
Forfeited
( 4,719 )
13.25
Total awarded and unvested—December 31, 2021
81,707
$
13.46
As of December 31, 2021, there was $ 0.4 million of unamortized equity-based compensation expense related to unvested Converted AM RSU Awards. That expense is expected to be recognized over a weighted average period of approximately 0.3 years, and the Company’s proportionate share will be allocated to it as it is recognized
(d) 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.
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
A summary of stock option activity is as follows:
Weighted
Weighted
Average
Average
Remaining
Intrinsic
Stock
Exercise
Contractual
Value
Options
Price
Life
(in thousands)
Outstanding—December 31, 2020
432,461
$
50.64
4.1
$
—
Granted
—
—
Exercised
—
—
Forfeited
—
—
Expired
( 80,667 )
50.00
Outstanding—December 31, 2021
351,794
$
50.79
3.0
$
—
Vested—December 31, 2021
351,794
$
50.79
3.0
$
—
Exercisable—December 31, 2021
351,794
$
50.79
3.0
$
—
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.
(e) Cash Awards
In January 2020, the Company granted cash awards of approximately $ 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 $ 3 million to certain non-executive employees under the 2020 Plan that vest ratably over four years . As of December 31, 2020 and 2021, the Company has recorded approximately $ 3 million and $ 2 million, respectively, in Other liabilities in the consolidated balance sheets related to unvested cash awards.
(11) Fair Value
The carrying values of accounts receivable and accounts payable as of December 31, 2020 and 2021 approximated market values because of their short- term nature. The carrying values of the amounts outstanding under the Credit Facility as of December 31, 2020 and 2021 approximated fair value because the variable interest rates are reflective of current market conditions.
The following table sets forth the fair value and carrying value of the senior notes and 2026 Convertible Notes (in thousands):
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
December 31,
2020
2021
Fair
Carrying
Fair
Carrying
Value (1)
Value (2)
Value (1)
Value (2)
2022 Notes
$
658,468
658,400
—
—
2023 Notes
562,698
571,370
—
—
2025 Notes
560,500
585,440
594,866
581,117
2026 Notes
—
—
370,013
321,738
2029 Notes
—
—
654,080
577,149
2030 Notes
—
—
641,400
593,234
2026 Convertible Notes
430,963
169,383
331,655
52,206
Total
$
2,212,629
1,984,593
2,592,014
2,125,444
(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.
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, 2019, 2020 and 2021. 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 NYMEX index price and a local index price.
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.
As of December 31, 2021, the Company’s fixed price swap positions excluding Martica, the Company’s consolidated VIE were as follows:
Weighted
Average
Commodity / Settlement Period
Index
Contracted Volume
Price
Natural Gas
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
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
In addition, the Company has a swaption agreement, which entitles the counterparty 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, 2021, 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 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, 2021, the Company’s fixed price swap positions for Martica, the Company’s consolidated VIE, were as follows:
Weighted
Average
Commodity / Settlement Period
Index
Contracted Volume
Price
Natural Gas
January-December 2022
Henry Hub
38,356
MMBtu/day
$
2.39
/MMBtu
January-December 2023
Henry Hub
35,616
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
Ethane
January-March 2022
Mont Belvieu Purity Ethane-OPIS
521
Bbl/day
$
6.68
/Bbl
Propane
January-December 2022
Mont Belvieu Propane-OPIS Non-TET
934
Bbl/day
$
19.20
/Bbl
Natural Gasoline
January-December 2022
Mont Belvieu Natural Gasoline-OPIS Non-TET
282
Bbl/day
$
34.37
/Bbl
January-December 2023
Mont Belvieu Natural Gasoline-OPIS Non-TET
247
Bbl/day
40.74
/Bbl
Oil
January-December 2022
West Texas Intermediate
112
Bbl/day
$
43.51
/Bbl
January-December 2023
West Texas Intermediate
99
Bbl/day
44.88
/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
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(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 88,748,000 MMBtu remaining through December 31, 2026 at a weighted average strike price of $ 2.55 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)
Summary
The table below presents a summary of the fair values of the Company’s derivative instruments and where such values are recorded in the consolidated balance sheets (in thousands).
Balance Sheet
December 31,
December 31,
Location
2020
2021
Asset derivatives not designated as hedges for accounting purposes:
Commodity derivatives—current
Derivative instruments
$
97,144
—
Embedded derivatives—current
Derivative instruments
7,986
757
Commodity derivatives—noncurrent
Derivative instruments
14,689
—
Embedded derivatives—noncurrent
Derivative instruments
32,604
14,369
Total asset derivatives (1)
152,423
15,126
Liability derivatives not designated as hedges for accounting purposes:
Commodity derivatives—current (2)
Derivative instruments
31,242
559,851
Commodity derivatives—noncurrent (2)
Derivative instruments
99,172
181,806
Total liability derivatives (1)
130,414
741,657
Net derivatives asset (liability) (1)
$
22,009
( 726,531 )
(1) The fair value of derivative instruments was determined using Level 2 inputs.
(2) 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. As of December 31, 2021, approximately $ 55 million of commodity derivative liabilities, including $ 31 million of current commodity derivatives and $ 24 million of noncurrent commodity derivatives, are attributable to the Company’s consolidated VIE, Martica
The following table sets forth 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, 2020
December 31, 2021
Net Amounts of
Net Amounts of
Gross
Gross
Assets
Gross
Gross
Assets
Amounts
Amounts Offset
(Liabilities) on
Amounts
Amounts Offset
(Liabilities) on
Recognized
Recognized
Balance Sheet
Recognized
Recognized
Balance Sheet
Commodity derivative assets
$
181,375
( 69,542 )
111,833
2,177
( 2,177 )
—
Embedded derivative assets
$
40,590
—
40,590
15,126
—
15,126
Commodity derivative liabilities
$
( 199,956 )
69,542
( 130,414 )
( 743,834 )
2,177
( 741,657 )
The following table sets forth a summary of derivative fair value gains and losses and where such values are recorded in the consolidated statements of operations (in thousands):
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Statement of
Operations
Year Ended December 31,
Location
2019
2020
2021
Commodity derivative fair value gains (losses) (1)
Revenue
$
463,972
40,565
( 1,886,551 )
Embedded derivative fair value gains (losses) (1)
Revenue
$
—
39,353
( 49,958 )
(1) The fair value of derivative instruments was determined using Level 2 inputs .
Commodity derivative fair value gains (losses) for the years ended December 31, 2020 and 2021, include a gain of $ 9 million and a loss of $ 5 million, respectively, related to certain natural gas derivatives that were monetized prior to their contractual settlement dates. Proceeds received from and payments for the monetizations are classified as operating cash flows on the Company’s consolidated statement of cash flows for the years ended December 31, 2020 and 2021. There were no commodity derivatives monetizations in the year ended December 31, 2019.
The Company’s commodity derivative position presented in Note 12(a) above reflects the volume and adjusted fixed price indices after the 2020 and 2021 monetizations.
(13) 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 is at the Company’s sole discretion. The depreciable lives of the leased assets are limited by the expected lease term, unless there are 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 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.
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.
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(a) Supplemental Balance Sheet Information Related to Leases
The Company’s lease assets and liabilities consisted of the following items (in thousands):
December 31,
Leases
Balance Sheet Classification
2020
2021
Operating Leases
Operating lease right-of-use assets:
Processing plants
Operating lease right-of-use assets
$
1,302,290
1,739,550
Drilling rigs and completion services
Operating lease right-of-use assets
29,894
9,860
Gas gathering lines and compressor stations (1)
Operating lease right-of-use assets
1,241,090
1,634,928
Office space
Operating lease right-of-use assets
36,879
33,083
Vehicles
Operating lease right-of-use assets
2,704
2,009
Other office and field equipment
Operating lease right-of-use assets
746
482
Total operating lease right-of-use assets
$
2,613,603
3,419,912
Short-term operating lease obligation
Short-term lease liabilities
$
265,178
455,950
Long-term operating lease obligation
Long-term lease liabilities
2,348,425
2,963,962
Total operating lease obligation
$
2,613,603
3,419,912
Finance Leases
Finance lease right-of-use assets:
Vehicles
Other property and equipment
$
1,206
550
Total finance lease right-of-use assets (2)
$
1,206
550
Short-term finance lease obligation
Short-term lease liabilities
$
845
397
Long-term finance lease obligation
Long-term lease liabilities
361
153
Total finance lease obligation
$
1,206
550
(1) Gas gathering lines and compressor stations leases includes $ 1.1 billion and $ 1.5 billion related to Antero Midstream as of December 31, 2020 and 2021 , respectively. See “—Related party lease disclosure” for additional discussion.
(2) Financing lease assets are recorded net of accumulated amortization of $ 3 million and $ 2 million as of December 31, 2020 and 2021 , respectively.
The processing plants, gathering lines and compressor stations that are classified as lease liabilities are classified as such under ASC 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.
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(b) Supplemental Information Related to Leases
Costs associated with operating and finance leases were included in the consolidated statement of operations and comprehensive loss (in thousands):
Year Ended December 31,
Cost
Classification
Location
2019
2020
2021
Operating lease cost
Statement of operations
Gathering, compression, processing, and transportation
$
842,440
1,498,221
1,518,305
Operating lease cost
Statement of operations
General and administrative
11,228
11,530
10,901
Operating lease cost
Statement of operations
Contract termination and rig stacking
10,692
8,528
4,213
Operating lease cost
Statement of operations
Lease operating
—
—
142
Operating lease cost
Balance sheet
Proved properties (1)
194,522
104,146
103,741
Total operating lease cost
$
1,058,882
1,622,425
1,637,302
Finance lease cost:
Amortization of right-of-use assets
Statement of operations
Depletion, depreciation, and amortization
$
1,471
872
522
Interest on lease liabilities
Statement of operations
Interest expense
335
208
—
Total finance lease cost
$
1,806
1,080
522
Short-term lease payments
$
162,654
122,577
86,039
(1) Capitalized costs related to drilling and completion activities.
(c) Supplemental Cash Flow Information Related to Leases
The following is the Company’s supplemental cash flow information related to leases (in thousands):
Year Ended December 31,
2019
2020
2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
809,667
1,576,984
1,352,941
Operating cash flows from finance leases
335
208
—
Investing cash flows from operating leases
178,898
106,867
88,910
Financing cash flows from finance leases
2,507
1,291
859
Noncash activities:
Right-of-use assets obtained in exchange for new operating lease obligations
$
3,720,945
202,125
437,045
Increase (decrease) to existing right-of-use assets and lease obligations from operating lease modifications, net (1)
$
( 681,686 )
( 173,563 )
702,512
(1) During the year ended December 31, 2019, the weighted average discount rate for remeasured operating leases increased from 6.0 % as of January 1, 2019 to 12.4 % as of December 31, 2019 . During the year ended December 31, 2020 , the weighted average discount rate for remeasured operating leases increased from 10.0 % as of December 31, 2019 to 14.4 % as of December 31, 2020 . During the year ended December 31, 2021 , the weighted average discount rate for remeasured operating leases decreased from 14.4 % as of December 31, 2020 to 5.0 % as of December 31, 2021.
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(d) Maturities of Lease Liabilities
The table below is a schedule of future minimum payments for operating and financing lease liabilities as of December 31, 2021 (in thousands):
Operating Leases
Financing Leases
Total
2022
$
634,632
424
635,056
2023
622,266
76
622,342
2024
612,344
67
612,411
2025
540,291
22
540,313
2026
489,589
—
489,589
Thereafter
1,386,882
—
1,386,882
Total lease payments
4,286,004
589
4,286,593
Less: imputed interest
( 866,092 )
( 39 )
( 866,131 )
Total
$
3,419,912
550
3,420,462
(e) Lease Term and Discount Rate
The following table sets forth the Company’s weighted-average remaining lease term and discount rate:
December 31, 2020
December 31, 2021
Operating Leases
Finance Leases
Operating Leases
Finance Leases
Weighted average remaining lease term
8.0 years
1.5 years
7.6 years
1.9 years
Weighted average discount rate
13.7
%
6.2
%
5.5
%
5.6
%
(f) Related Party Lease Disclosure
The Company has a gathering and compression agreement with Antero Midstream, whereby Antero Midstream 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 annual adjustments based on the consumer price index. If and to the extent the Company requests that Antero Midstream construct new high pressure lines and compressor stations, the gathering and compression agreement contains options at Antero Midstream’s election for either (i) minimum volume commitments that require Antero Resources to utilize or pay for 75 % of the high pressure gathering capacity and 70 % of the compression capacity of such new construction for 10 years or (ii) a cost of service fee that allows the Antero Midstream to earn a 13 % rate of return on such new construction over seven years .
In December 2019, the Company and Antero Midstream 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 on or before the 180 th day prior to the anniversary of such effective date. The Company achieved the volumetric targets during each quarter for the year ended December 31, 2020, and earned rebates of $ 48 million. The Company achieved the volumetric target during the fourth quarter of 2021, and earned a rebate of $ 12 million.
For the years ended December 31, 2019, 2020 and 2021, gathering and compression fees paid by Antero related to this agreement were $ 643 million, $ 679 million and $ 705 million, respectively. As of December 31, 2020 and 2021, $ 55 million and $ 54 million was included within Accounts payable, related parties, respectively, on the consolidated balance sheet as due to Antero Midstream related to this agreement.
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(14) Income Taxes
The Company’s income tax benefit consisted of the following (in thousands):
Year Ended December 31,
2019
2020
2021
Current income tax expense (benefit)
$
5,048
( 209 )
216
Deferred income tax benefit
( 79,158 )
( 397,273 )
( 74,293 )
Total income tax benefit
$
( 74,110 )
( 397,482 )
( 74,077 )
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 income or loss before taxes as a result of the following (in thousands):
Year Ended December 31,
2019
2020
2021
Federal income tax expense (benefit)
$
( 77,122 )
( 348,158 )
( 47,919 )
State income tax expense (benefit), net of federal benefit
( 8,826 )
( 50,584 )
( 6,576 )
Change in state tax rate, net of federal effect
24,041
2,291
( 30,910 )
Nondeductible equity-based compensation
6,920
4,490
1,117
Dividends received deduction
( 4,201 )
( 4,013 )
( 3,832 )
Noncontrolling interest
( 10,998 )
( 1,801 )
( 7,862 )
Deconsolidation adjustment
( 6,626 )
—
—
Change in valuation allowance
1,325
789
4,606
Nondeductible loss on 2026 Convertible Notes equitization
—
—
12,174
Other
1,377
( 496 )
5,125
Total income tax benefit
$
( 74,110 )
( 397,482 )
( 74,077 )
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 is as follows (in thousands):
December 31,
2020
2021
Deferred tax assets:
NOL carryforwards
$
565,433
569,523
Equity-based compensation
8,445
2,462
Investment in Antero Midstream
330,301
297,893
Unrealized losses on derivative instruments
—
158,779
Asset retirement obligations and other
17,206
15,051
Total deferred tax assets
921,385
1,043,708
Valuation allowance
( 46,013 )
( 50,304 )
Net deferred tax assets
875,372
993,404
Deferred tax liabilities:
Unrealized gains on derivative instruments
13,189
—
Oil and gas properties
1,188,599
1,254,182
Investment in Martica
59,586
51,166
2026 Convertible Notes and other
26,250
6,182
Total deferred tax liabilities
1,287,624
1,311,530
Net deferred tax liabilities
$
( 412,252 )
( 318,126 )
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
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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 $ 46 million and $ 50 million as of December 31, 2020 and 2021, respectively. The valuation allowance as of December 31, 2020 and 2021, relates to Colorado, Oklahoma and West Virginia 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 examination by the Internal Revenue Service or state revenue authorities. The Company monitors potential uncertain tax positions but does not anticipate any changes in 2022. The Company has no unrecognized tax benefit balances through December 31, 2021.
As of December 31, 2021, 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 2041. For tax years 2018 and thereafter, NOL carryforwards generated in these jurisdictions have no expiration date. The Pennsylvania NOL carryforwards expire between 2024 and 2041.
Tax years 2018 through 2021 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 2017 through 2021.
(15) Commitments
The following table sets forth 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 a lease term in excess of one year as of December 31, 2021 (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
2022
$
1,042,280
52,265
1,361
456,345
178,711
1,730,962
2023
1,072,523
59,140
—
466,960
155,382
1,754,005
2024
1,045,442
59,262
—
481,688
130,723
1,717,115
2025
1,024,783
47,960
—
433,507
106,806
1,613,056
2026
1,018,812
14,783
—
404,381
85,208
1,523,184
Thereafter
6,033,138
98,596
—
1,177,581
209,301
7,518,616
Total
$
11,236,978
332,006
1,361
3,420,462
866,131
15,856,938
(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.
(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.
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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 loss. There are no remaining payment obligations related to these delayed or cancelled drilling and completion contracts as of December 31, 2021.
(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 the 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 the 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 the EPA 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.
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.
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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, including, but not limited to, royalty claims. 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 as an equity method investment. See Note 3—Deconsolidation of Antero Midstream Partners LP to the consolidated financial statements for more discussion on the Simplification Transactions.
Substantially all of Antero Midstream Partners’ and Antero Midstream’s revenues were and are derived from transactions with Antero Resources. See Note 18—Reportable Segments to the consolidated financial statements for the operating results of the Company’s reportable segments.
(18) Reportable Segments
See Note 2(t)—Summary of Significant Accounting Policies—Reportable 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 Simplification 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 Partners LP to the consolidated financial statements for further discussion on the Simplification 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
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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 (in thousands):
Year Ended December 31, 2019
Equity Method
Elimination of
Investment in
Intersegment
Exploration
Antero
Transactions and
and
Midstream
Unconsolidated
Consolidated
Production
Marketing
Corporation (1)
Affiliates
Total
Sales and revenues:
Third-party
$
4,107,845
292,207
50
—
4,400,102
Intersegment
5,812
—
792,538
( 789,762 )
8,588
Total revenue
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
General and administrative
160,402
—
118,113
( 99,819 )
178,696
Depletion, depreciation, and amortization
893,161
—
95,526
( 73,820 )
914,867
Impairment of oil and gas properties
1,300,444
—
—
—
1,300,444
Impairment of midstream assets
—
—
776,832
( 762,050 )
14,782
Other
143,762
549,814
12,093
( 11,090 )
694,579
Total operating expenses
4,901,858
549,814
1,205,953
( 1,261,890 )
5,395,735
Operating loss
$
( 788,201 )
( 257,607 )
( 413,365 )
472,128
( 987,045 )
Equity in earnings 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 effective March 13, 2019.
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Year Ended December 31, 2020
Equity Method
Elimination of
Investment in
Intersegment
Exploration
Antero
Transactions and
and
Midstream
Unconsolidated
Consolidated
Production
Marketing
Corporation
Affiliates
Total
Sales and revenues:
Third-party
$
3,178,330
310,572
—
—
3,488,902
Intersegment
2,797
—
900,719
( 900,719 )
2,797
Total revenue
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
General and administrative
134,482
—
52,213
( 52,213 )
134,482
Depletion, depreciation, and amortization
861,870
—
108,790
( 108,790 )
861,870
Impairment of oil and gas properties
223,770
—
—
—
223,770
Impairment of midstream assets
—
—
673,640
( 673,640 )
—
Other
125,917
469,404
18,328
( 18,328 )
595,321
Total operating expenses
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
Year Ended December 31, 2021
Equity Method
Elimination of
Investment in
Intersegment
Exploration
Antero
Transactions and
and
Midstream
Unconsolidated
Consolidated
Production
Marketing
Corporation
Affiliates
Total
Sales and revenues:
Third-party
$
3,899,486
718,921
—
—
4,618,407
Intersegment
1,025
—
898,202
( 898,202 )
1,025
Total revenue
3,900,511
718,921
898,202
( 898,202 )
4,619,432
Operating expenses:
Lease operating
96,793
—
—
—
96,793
Gathering, compression, processing, and transportation
2,499,174
—
157,120
( 157,120 )
2,499,174
General and administrative
145,006
—
63,838
( 63,838 )
145,006
Depletion, depreciation, and amortization
742,009
—
108,790
( 108,790 )
742,009
Impairment of oil and gas properties
90,523
—
—
—
90,523
Other
210,369
811,698
13,127
( 13,127 )
1,022,067
Total operating expenses
3,783,874
811,698
342,875
( 342,875 )
4,595,572
Operating income (loss)
$
116,637
( 92,777 )
555,327
( 555,327 )
23,860
Equity in earnings of unconsolidated affiliates
$
77,085
—
90,451
( 90,451 )
77,085
Investments in unconsolidated affiliates
$
232,399
—
696,009
( 696,009 )
232,399
Segment assets
$
13,864,402
32,126
5,544,001
( 5,544,001 )
13,896,528
Capital expenditures for segment assets
$
715,936
—
232,825
( 232,825 )
715,936
(19) Subsidiary Guarantors
Antero Resources’ senior notes are fully and unconditionally guaranteed by Antero Resources’ existing subsidiaries that guarantee the Credit Facility. 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
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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 tables set forth below present summarized financial information of Antero, as parent, and its guarantor subsidiaries (in thousands). The Company’s wholly owned subsidiaries are not restricted from making distributions to the Company.
Balance Sheet
December 31, 2021
Accounts receivable, non-guarantor subsidiaries
$
—
Accounts receivable, related parties
—
Other current assets
633,014
Total current assets
633,014
Noncurrent assets
12,480,350
Total assets
$
13,113,364
Accounts payable, non-guarantor subsidiaries
$
—
Accounts payable, related parties
76,240
Other current liabilities
1,961,041
Total current liabilities
2,037,281
Noncurrent liabilities
5,737,999
Total liabilities
$
7,775,280
Statement of Operations
Year Ended
December 31, 2021
Revenues
$
4,545,912
Operating expenses
4,561,383
Loss from operations
( 15,471 )
Net loss and comprehensive loss including noncontrolling interests
( 186,899 )
Net loss and comprehensive loss attributable to Antero Resources Corporation
$
( 186,899 )
(20) Supplemental Information on Oil and Gas Producing Activities (Unaudited)
The following tables set forth supplemental information regarding the Company’s consolidated oil and gas producing activities (in thousands). 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,
2020
2021
Proved properties
$
12,260,713
12,646,303
Unproved properties
1,175,178
1,042,118
Total oil and gas properties
13,435,891
13,688,421
Accumulated depletion
( 3,818,279 )
( 4,229,300 )
Net capitalized costs
$
9,617,612
9,459,121
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(b) Costs Incurred in Certain Oil and Gas Activities
Year Ended December 31,
2019
2020
2021
Acquisition costs:
Proved property
$
—
—
—
Unproved property
88,682
45,129
79,138
Development costs
1,104,336
823,271
581,352
Exploration costs
149,782
2,993
19,822
Total costs incurred
$
1,342,800
871,393
680,312
(c) Results of Operations for Oil and Gas Producing Activities
Year Ended December 31,
2019
2020
2021
Revenues
$
3,643,873
3,083,905
5,790,759
Operating expenses:
Production expenses
2,417,509
2,736,478
2,793,877
Exploration expenses
884
1,083
1,164
Depletion
884,350
854,331
735,687
Impairment of unproved properties
1,300,444
223,770
90,523
Results of operations before income tax (expense) benefit
( 959,314 )
( 731,757 )
2,169,508
Income tax (expense) benefit
224,511
( 176,061 )
520,168
Results of operations
$
( 734,803 )
( 907,818 )
2,689,676
(d) Oil and Gas Reserves
Net proved oil and gas reserves for the years ended December 31, 2019, 2020 and 2021 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 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.
The tables below set forth the changes in quantities of proved reserves and net quantities of proved developed and proved undeveloped reserves for the periods indicated. This information includes the Company’s royalty and net working interest share of the reserves in oil and gas properties.
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Oil and
Natural Gas
NGLs
Condensate
Equivalents
(Bcf)
(MMBbl)
(MMBbl)
(Bcfe)
Proved 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 )
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 )
December 31, 2020 (1)
10,025
1,236
33
17,635
Revisions
993
77
6
1,486
Extensions, discoveries and other additions
349
18
2
472
Production
( 826 )
( 58 )
( 4 )
( 1,194 )
Sales
( 337 )
( 54 )
( 1 )
( 670 )
December 31, 2021 (1)
10,204
1,219
36
17,729
(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. Proved reserves for the noncontrolling interest in Martica as of December 31, 2021 were 167 Bcfe, which consists of 101 Bcf of natural gas, 11 MMBbl of NGLs and 0.4 MMBbl of oil and condensate.
Oil and
Natural Gas
NGLs
Condensate
Equivalents
(Bcf)
(MMBbl)
(MMBbl)
(Bcfe)
Proved developed reserves:
December 31, 2019
7,229
731
21
11,740
December 31, 2020 (1)
6,901
810
19
11,873
December 31, 2021 (1)
7,395
876
17
12,753
Proved undeveloped reserves:
December 31, 2019
4,265
460
21
7,153
December 31, 2020 (2)
3,124
426
14
5,762
December 31, 2021 (2)
2,809
343
19
4,976
(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. Proved developed reserves for the noncontrolling interest in Martica as of December 31, 2021 were 133 Bcfe, which consists of 78 Bcf of natural gas, 9 MMBbl of NGLs and 0.2 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. Proved undeveloped reserves for the noncontrolling interest in Martica as of December 31, 2021 were 34 Bcfe, which consists of 23 Bcf of natural gas, 2 MMBbl of NGLs and 0.2 MMBbl of oil and condensate.
Significant changes in proved reserves for the years ended December 31, 2019, 2020 and 2021 include the following:
Year Ended December 31, 2019 Proved Reserve Changes
● 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.
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
● 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.
Year Ended December 31, 2020 Proved Reserve Changes
● 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.
● Sales of reserves of 113 Bcfe related to the VPP.
Year Ended December 31, 2021 Proved Reserve Changes
● Extensions, discoveries, and other additions of 472 Bcfe resulted from delineation and development drilling in the Appalachian Basin.
● Net upward revisions of 1,486 Bcfe include:
● Upward revisions of 149 Bcfe due to increases in prices for natural gas, NGLs and oil.
● Upward revisions of 121 Bcfe are due to an increase in the Company’s assumed future ethane recovery.
● Net upward performance revisions of 565 Bcfe.
● Net upward revision of 651 Bcfe related to optimization to the Company’s five-year development plan. This figure includes upward revisions of 1,475 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 824 Bcfe for locations that were not developed within five years of initial booking as proved reserves.
● Sales of reserves of 670 Bcfe related to the drilling partnership.
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(e) Standardized Measure of Discounted Future Net Cash Flow
The standardized measure relating to proved oil and reserves was prepared in accordance with the provisions of ASC 932. 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.
The following table sets forth the Standardized Measure of the discounted future net cash flows attributable to the Company’s proved reserves (in millions):
Year Ended December 31,
2019
2020
2021
Future cash inflows
$
54,228
37,845
74,622
Future production costs
( 36,524 )
( 32,202 )
( 34,665 )
Future development costs
( 2,772 )
( 1,685 )
( 1,704 )
Future net cash flows before income tax
14,932
3,958
38,253
Future income tax expense (1)
( 1,639 )
—
( 7,813 )
Future net cash flows
13,293
3,958
30,440
10 % annual discount for estimated timing of cash flows
( 7,824 )
( 2,748 )
( 17,007 )
Standardized measure of discounted future net cash flows (2)
$
5,469
1,210
13,433
(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 was expected to be less than its NOL carryforward deductions and therefore, under the standardized measure, there was 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 and $ 501 million for the years ended December 31, 2020 and 2021, respectively.
The Company used the following 12-month weighted average prices to estimate its total equivalent reserves (per Mcfe):
Year Ended December 31,
2019
2020
2021
12-month weighted average price
$
2.87
2.15
4.21
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ANTERO RESOURCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(f) Changes in Standardized Measure of Discounted Future Net Cash Flow
The changes in the Standardized Measure relating to proved oil and natural gas reserves, which were prepared in accordance with the provisions of ASC 932, are as follows (in millions):
Year Ended December 31,
2019
2020
2021
Sales of oil and gas, net of productions costs
$
( 1,116 )
( 347 )
( 2,917 )
Net changes in prices and production costs (1)
( 6,729 )
( 5,455 )
14,099
Development costs incurred during the period
758
704
454
Net changes in future development costs (2)
( 92 )
249
( 117 )
Extensions, discoveries and other additions
782
31
504
Divestitures
—
( 174 )
( 125 )
Revisions of previous quantity estimates
( 1,011 )
( 379 )
2,543
Accretion of discount
1,259
607
121
Net change in income taxes
1,513
598
( 3,115 )
Changes in timing and other
( 373 )
( 93 )
776
Net increase (decrease)
( 5,009 )
( 4,259 )
12,223
Beginning of year
10,478
5,469
1,210
End of year (3)
$
5,469
1,210
13,433
(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 for the noncontrolling interest in Martica was $ 359 million and $ 501 million for the years ended December 31, 2020 and 2021, respectively.
F-50