What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-26 compared with 2022-10-26 · 130 added, 346 removed, 215 unchanged (69% of the section changed)

14 unchanged sentences

Our drilling opportunities are focused in the Appalachian Basin.

As of September 30, 2022, we held approximately 504,000 net acres of rich gas and dry gas properties located in the Appalachian Basin in West Virginia and Ohio.

Our corporate headquarters are in Denver, Colorado.

Financing Highlights

Debt Repurchase Program

During the nine months ended September 30, 2022 , we (i) fully redeemed the remaining $585 million of our outstanding 5.00% senior notes due March 1, 2025 (the “2025 Notes”) at a redemption price of 101.25% of the principal amount thereof, plus accrued and unpaid interest, and (ii) repurchased through our previously disclosed tender offer and open market transactions $221 million aggregate principal amount of our 8.375% senior notes due July 15, 2026 (the “2026 Notes”) at a weighted average of 109% of the principal amount thereof, plus accrued and unpaid interest, and $168 million aggregate principal amount of our 7.625% senior notes due February 1, 2029 ( the “2029 Notes”) at a weighted average of 107% of the principal amount thereof, plus accrued and unpaid interest.

See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information.

Share Repurchase Program

On October 25, 2022, our Board of Directors authorized a $1.0 billion increase to our share repurchase program that allows us to repurchase up to $2.0 billion of outstanding common stock.

Through September 30, 2022, we have repurchased 19 million shares of our common stock at a total cost of $675 million.

The shares may be repurchased from time to time in open market transactions, through privately negotiated transactions or by other means in accordance with federal securities laws.

The timing, as well as the number and value of shares repurchased under the program, will be determined by us at our discretion and will depend on a variety of factors, including the market price of our common stock, general market and economic conditions and applicable legal requirements.

2026 Convertible Notes Conversions

During the nine months ended September 30, 2022, $20 million in aggregate principal amount of the 4.25% convertible senior notes due 2026 (the “2026 Convertible Notes”) were converted pursuant to their terms, and an additional $5 million in aggregate principal amount of the 2026 Convertible Notes were induced into conversion.

We elected to settle these conversions by issuing approximately 6 million shares of common stock to the noteholders together with a cash inducement premium of $0.2 million.

See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information.

As of March 31, 2023, we held approximately 512,000 net acres in the Appalachian Basin.

Market Conditions and Business Trends

1 unchanged sentence

Prices for natural gas, NGLs and oil that we produce significantly impact our revenues and cash flows.

Natural gas, NGL and oil benchmark prices have increased significantly during the nine months ended September 30, 2022 as compared to same period of 2021.

As a result, we experienced a significant increase in price realizations during the three and nine months ended September 30, 2022.

We monitor the economic factors that impact natural gas, NGL and oil prices, including domestic and foreign supply and demand indicators, domestic and foreign commodity inventories, the actions of Organization of Petroleum Exporting Countries and other large producing nations and the current Russia-Ukraine conflict, among others.

Natural gas, NGLs and oil benchmark prices decreased significantly during the three months ended March 31, 2023 as compared to the same period of 2022.

As a result, we experienced a decrease in price realizations during the three months ended March 31, 2023.

We monitor the economic factors that impact natural gas, NGLs and oil prices, including domestic and foreign supply and demand indicators, domestic and foreign commodity inventories, the actions of Organization of Petroleum Exporting Countries and other large producing nations and the current Russia-Ukraine conflict, among others.

In the current economic environment, we expect that commodity prices for some or all of the commodities we produce could remain volatile.

1 unchanged sentence

The following table details the average benchmark natural gas and oil prices:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Henry Hub (1) ($/Mcf)

West Texas Intermediate (2) ($/Bbl)

(1) New York Mercantile Exchange first of month average natural gas price.

(1) NYMEX first of month average natural gas price.

(2) Energy Information Administration calendar month average settled futures price.

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Antero Resources (Excluding Martica)

We are exposed to certain commodity price risks relating to our ongoing business operations, and we use derivative instruments to manage such risks.

We are exposed to certain commodity price risks relating to our ongoing business operations, and we use derivative instruments as we deem necessary to manage such risks.

In addition, we periodically enter into contracts that contain embedded features that are required to be bifurcated and accounted for separately as derivatives.

The tables and narrative below excludes derivative instruments attributable to Martica, our consolidated variable interest entity (“VIE”), since all gains or losses from such contracts are fully attributable to the noncontrolling interests in Martica.

As of September 30, 2022, our fixed price natural gas swap positions excluding Martica were as follows:

Due to our improved liquidity and leverage position as compared to past levels, the percentage of our expected production that we hedge has decreased.

For the three months ended March 31, 2022 and 2023, 36% and 2%, respectively, of our production was hedged through fixed price commodity swaps.

Assuming our 2023 production is the same as our production in 2022, 1% of our production for 2023 will be hedged through fixed price commodity swaps.

The tables and narrative below exclude derivative instruments attributable to Martica, our consolidated VIE, since all gains or losses from such contracts are fully attributable to the noncontrolling interests in Martica.

As of March 31, 2023, our fixed price natural gas swap positions excluding Martica were as follows:

Commodity / Settlement Period

Contracted Volume

October-December 2022

January-December 2023

In addition, we have a swaption agreement, which entitles the counterparty the right, but not the obligation, to enter into a fixed price swap agreement for approximately 156 Bcf at a price of $2.77 per MMBtu for the year ending December 31, 2024.

As of September 30, 2022, our natural gas basis swap positions 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:

April-December 2023

As of March 31, 2023, our natural gas basis swap positions 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

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Hedged Differential

October-December 2022

January-December 2023

April-December 2023

January-December 2024

We also have a call option and an embedded put option tied to NYMEX pricing for the production volumes associated with the Company’s retained interest in the volumetric production payment transaction (“VPP”) properties.

As of September 30, 2022, the Company’s call option and embedded put option arrangements were as follows:

We have a call option and an embedded put option tied to NYMEX pricing for the production volumes associated with the Company’s retained interest in the VPP properties.

As of March 31, 2023, our call option and embedded put option arrangements were as follows:

Commodity / Settlement Period

Contracted Volume

October-December 2022

January-December 2023

April-December 2023

January-December 2024

1 unchanged sentence

January-December 2026

We maintain a hedging program designed to mitigate volatility in commodity prices and to protect certain of our expected future cash flows for our future operations and capital spending plans.

As of September 30, 2022 , the estimated fair value of our commodity derivative contracts, excluding Martica, was a net liability of $1.0 billion.

In addition, we had a swaption agreement, which entitled the counterparty the right, but not the obligation, to enter into a fixed price swap agreement for 156 Bcf at a price of $2.77 per MMBtu for the year ending December 31, 2024.

In January 2023, we executed an early settlement of this swaption agreement and made a cash payment of $202 million, which was funded by cash flows from operations and borrowings under our Credit Facility.

As of March 31, 2023, the estimated fair value of our commodity derivative contracts, excluding Martica, was a net liability of $70 million.

See Note 11—Derivative Instruments to the unaudited condensed consolidated financial statements for more information.

Our consolidated VIE, Martica, also maintains a portfolio of fixed swap natural gas, NGL and oil derivatives for the benefit of the noncontrolling interests in Martica.

Our consolidated VIE, Martica, also maintains a portfolio of fixed swap natural gas, NGLs and oil derivatives for the benefit of the noncontrolling interests in Martica.

As such, all gains and losses attributable to Martica’s derivative portfolio are fully attributable to the noncontrolling interests in Martica.

As of September 30, 2022, Martica’s fixed price natural gas, NGL and oil swap positions were as follows:

As of March 31, 2023, Martica’s fixed price natural gas, NGLs and oil swap positions were as follows:

Commodity / Settlement Period

Contracted Volume

October-December 2022

January-December 2023

April-December 2023

January-December 2024

January-March 2025

October-December 2022

Mont Belvieu Propane-OPIS Non-TET

Natural Gasoline

October-December 2022

Mont Belvieu Natural Gasoline-OPIS Non-TET

January-December 2023

April-December 2023

Mont Belvieu Natural Gasoline-OPIS Non-TET

October-December 2022

West Texas Intermediate

January-December 2023

April-December 2023

West Texas Intermediate

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West Texas Intermediate

As of September 30, 2022 , the estimated fair value of Martica’s commodity derivative contracts was a net liability of $84 million.

As of March 31, 2023, the estimated fair value of Martica’s commodity derivative contracts was a net liability of $19 million.

See Note 11—Derivative Instruments to the unaudited condensed consolidated financial statements for more information.

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The economy is experiencing elevated inflation levels as a result of global supply and demand imbalances, where global demand continues to outpace current supplies.

For example, the BLS Consumer Price Index (“CPI”) for all urban consumers increased 8% from September 2021 to September 2022 as compared to the average annual increase of 3% over the previous 10 years.

For example, the BLS Consumer Price Index (“CPI”) for all urban consumers increased 5% from March 2022 to March 2023 as compared to the Federal Reserve’s stated goal of 2%.

In order to manage the inflation risk currently present in the United States’ economy, the Federal Reserve has utilized monetary policy in the form of interest rate increases in an effort to bring the inflation rate in line with its stated goal of 2% on a long-term basis.

The global economy also continues to be impacted by the effects of the COVID-19 pandemic and global events, among other factors.

The economy also continues to be impacted by the effects of global events and the aftermath of the COVID-19 pandemic, among other factors.

These events have often caused global supply chain disruptions with additional pressure due to trade sanctions on Russia and other global trade restrictions, among others.

However, our supply chain has not experienced any significant interruptions as a result of the COVID-19 pandemic or global supply and demand imbalances.

Inflationary pressures, particularly as they relate to certain of our long-term contracts with CPI-based adjustments, and supply chain disruptions could result in increases to our operating and capital costs that are not fixed and/or renegotiation of contracts and/or supply agreements, among others.

However, our supply chain has not experienced any significant interruptions as a result of such events.

Inflationary pressures, particularly as they relate to certain of our long-term contracts with CPI-based adjustments, and supply chain disruptions have and could continue to result in increases to our operating and capital costs that are not fixed.

For example, our 2023 capital budget reflects an approximate 10% increase in service cost inflation as compared to the year ended December 31, 2022.

These economic variables are beyond our control and may adversely impact our business, financial condition, results of operations and future cash flows.

We have increased our 2022 drilling and completion capital budget by 15% during the nine months ended September 30, 2022, primarily due to (i) development optimization to retain our preferred crews resulting in more completions than budgeted and (ii) inflationary pressure related in part to higher services, diesel and steel costs.

See “—Capital Resources and Liquidity—2022 Capital Budget and Capital Spending” for more information.

COVID-19 Pandemic

We have continued to operate throughout the COVID-19 pandemic, in some cases subject to federal, state and local regulations, and we are taking steps to protect the health and safety of our workers.

We have implemented protocols to reduce the risk of an outbreak within our field operations and offices, and these protocols have not impacted our production, throughput or business activities.

During the third quarter of 2022, we transitioned from a hybrid working arrangement for non-field level employees, which involved a combination of in-office and remote work-from-home arrangements, to an in-office working arrangement for all non-field level employees.

We have been able to maintain a consistent level of effectiveness through these arrangements, including maintaining our day-to-day operations, our financial reporting systems and our internal control over financial reporting.

We continue to monitor the COVID-19 environment in order to protect the health and safety of our employees.

Results of Operations

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Revenues from Antero Midstream’s operations were primarily derived from intersegment transactions for services provided to our exploration and production operations by Antero Midstream .

All intersegment transactions were eliminated upon consolidation, including revenues from water handling and treatment services provided by Antero Midstream , which we capitalized as proved property development costs.

All intersegment transactions were eliminated upon consolidation, including revenues from water handling services provided by Antero Midstream , which we capitalized as proved property development costs.

Marketing revenues are primarily derived from activities to purchase and sell third-party natural gas and NGLs and to market and utilize excess firm transportation capacity.

See Note 16—Reportable Segments to the unaudited condensed consolidated financial statements.

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2022

See Note 16—Reportable Segments to the unaudited condensed consolidated financial statements for more information.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2023

The operating results of our reportable segments were as follows (in thousands):

Three Months Ended September 30, 2021

Equity Method

Investment in

Elimination of

Unconsolidated

Revenue and other:

Natural gas sales

Natural gas liquids sales

Commodity derivative fair value losses

Gathering, compression, water handling and treatment

Amortization of deferred revenue, VPP

Other income (loss)

Total revenue

Operating expenses:

Lease operating

Gathering and compression

Transportation

Water handling

Production and ad valorem taxes

General and administrative (excluding equity-based compensation)

Equity-based compensation

Depletion, depreciation and amortization

Impairment of oil and gas properties

Accretion of asset retirement obligations

Contract termination and other expenses

Gain on sale of assets

Total operating expenses

Operating income (loss)

Equity in earnings of unconsolidated affiliates

Three Months Ended September 30, 2022

Three Months Ended March 31, 2022

Equity Method

6 unchanged sentences

Commodity derivative fair value losses

Gathering, compression, water handling and treatment

Gathering, compression and water handling

Amortization of deferred revenue, VPP

Other income (loss)

Other revenue and income

Total revenue

9 unchanged sentences

Depletion, depreciation and amortization

Impairment of oil and gas properties

Accretion of asset retirement obligations

Contract termination and other expenses

Loss (gain) on sale of assets

Total operating expenses

Operating income (loss)

Equity in earnings of unconsolidated affiliates

Exploration and Production Segment

The following table sets forth selected operating data of the exploration and production segment:

Three Months Ended September 30,

Production data (1) (2) :

Natural gas (Bcf)

C2 Ethane (MBbl)

C3+ NGLs (MBbl)

Combined (Bcfe)

Daily combined production (MMcfe/d)

Average prices before effects of derivative settlements (3) :

Natural gas (per Mcf)

C2 Ethane (per Bbl)

C3+ NGLs (per Bbl)

Oil (per Bbl)

Weighted Average Combined (per Mcfe)

Average realized prices after effects of derivative settlements (3) :

Natural gas (per Mcf)

C2 Ethane (per Bbl)

C3+ NGLs (per Bbl)

Oil (per Bbl)

Weighted Average Combined (per Mcfe)

Average costs (per Mcfe):

Lease operating

Gathering and compression

Transportation

Production and ad valorem taxes

Marketing (revenue) expense, net

Depletion, depreciation, amortization and accretion

General and administrative (excluding equity-based compensation)

* Not meaningful.

(1) Production data excludes volumes related to the VPP.

(2) Oil and NGLs production was converted at 6 Mcf per Bbl to calculate total Bcfe production and per Mcfe amounts.

This ratio is an estimate of the equivalent energy content of the products and may not reflect their relative economic value.

(3) Average prices reflect the before and after effects of our settled commodity derivatives.

Our calculation of such after effects includes gains on settlements of commodity derivatives, which do not qualify for hedge accounting because we do not designate or document them as hedges for accounting purposes.

Natural gas sales .

Revenues from sales of natural gas increased from $885 million for the three months ended September 30, 2021 to $1.7 billion for the three months ended September 30, 2022, an increase of $851 million, or 96 %.

Higher commodity prices (excluding the effects of derivative settlements) during the three months ended September 30, 2022 accounted for an approximate $875 million increase in year-over-year natural gas sales revenue (calculated as the change in the year-to-year average price times current year production volumes).

Lower natural gas production volumes accounted for an approximate $ 24 million decrease in year-over-year natural gas sales revenue (calculated as the change in year-to-year volumes times the prior year average price).

Revenues from sales of NGLs increased from $598 million for the three months ended September 30, 2021 to $621 million for the three months ended September 30, 2022, an increase of $23 million, or 4% .

Higher commodity prices (excluding the effects of derivative settlements) during the three months ended September 30, 2022 accounted for an approximate $30 million increase in year-over-year revenues (calculated as the change in the year-to-year average price times current year production volumes).

Lower NGLs production volumes accounted for an approximate $ 7 million decrease in year-over-year NGL revenues (calculated as the change in year-to-year volumes times the prior year average price).

Revenues from sales of oil increased from $57 million for the three months ended September 30, 2021 to $67 million for the three months ended September 30, 2022, an increase of $10 million, or 18 %.

Higher oil prices, excluding the effects of derivative settlements, accounted for an approximate $ 18 million increase in year-over-year oil revenues (calculated as the change in the year-to-year average price times current year production volumes).

Lower oil production volumes during the three months ended September 30, 2022 accounted for an approximate $8 million decrease in year-over-year oil revenues (calculated as the change in year-to-year volumes times the prior year average price).

Commodity derivative fair value losses.

To achieve more predictable cash flows, and to reduce our exposure to price fluctuations, we enter into fixed for variable price swap contracts, swaptions, basis swap contracts and collar contracts when we believe that favorable future sales prices for our production can be secured.

Because we do not designate these derivatives as accounting hedges, they do not receive hedge accounting treatment.

Consequently, all mark-to-market gains or losses, as well as cash receipts or payments on settled derivative instruments, are recognized in our statements of operations.

For the three months ended September 30, 2021 and 2022, our commodity hedges resulted in derivative fair value losses of $1.3 billion and $531 million, respectively.

For the three months ended September 30, 2021 and 2022, commodity derivative fair value losses included $416 million and $640 million, respectively, of cash payments for settled commodity derivatives.

Commodity derivative fair value gains or losses vary based on future commodity prices and have no cash flow impact until the derivative contracts are settled or monetized prior to settlement.

Derivative asset or liability positions at the end of any accounting period may reverse to the extent future commodity prices increase or decrease from their levels at the end of the accounting period, or as gains or losses are realized through settlement.

We expect continued volatility in commodity prices and the related fair value of our derivative instruments in the future.

Amortization of deferred revenue, VPP.

Amortization of deferred revenues associated with the VPP decreased from $11 million for the three months ended September 30, 2021 to $9 million for the three months ended September 30, 2022, a decrease of $2 million, or 17 %, primarily due to lower production volumes between periods.

Under the terms of the agreement, the production volumes are delivered at approximately $1.61 per MMBtu over the contractual term.

Lease operating expense .

Lease operating expense increased from $25 million, or $0.08 per Mcfe, for the three months ended September 30, 2021 to $27 million, or $0.09 per Mcfe, for the three months ended September 30, 2022, an increase of $2 million, or $0.01 per Mcfe, primarily due to higher oilfield service costs and water disposal costs.

Gathering, compression, processing and transportation expense.

Gathering, compression, processing and transportation expense increased from $628 million for the three months ended September 30, 2021 to $716 million for the three months ended September 30, 2022, an increase of $88 million, or 14 %.

Gathering and compression costs increased from $ 0.73 per Mcfe for the three months ended September 30, 2021 to $0.81 per Mcfe for the three months ended September 30, 2022 , primarily due to higher compressor fuel costs as a result of higher commodity prices and an annual CPI-based adjustment between periods, partially offset by $12 million in incentive fee rebates earned from Antero Midstream during the three months ended September 30, 2022 that were not earned during the three months ended September 30, 2021.

Processing costs increased from $ 0.69 per Mcfe for the three months ended September 30, 2021 to $0.82 per Mcfe for the three months ended September 30, 2022 , primarily due to increased costs for NGL processing, which includes an annual CPI-based adjustment during the first quarter of 2022, and higher NGL transportation fees.

Transportation costs increased from $ 0.68 per Mcfe for the three months ended September 30, 2021 to $0.80 per Mcfe for the three months ended September 30, 2022 primarily due to higher fuel costs as a result of higher commodity prices and demand fees between periods.

Production and ad valorem tax expense.

Total production and ad valorem taxes increased from $52 million for the three months ended September 30, 2021 to $93 million for the three months ended September 30, 2022, an increase of $41 million, or 78 %, primarily due to higher commodity prices between periods.

Production and ad valorem taxes as a percentage of natural gas revenues remained relatively consistent at 6% and 5% for the three months ended September 30, 2021 and 2022, respectively.

General and administrative expense .

General and administrative expense (excluding equity-based compensation expense) increased from $27 million for the three months ended September 30, 2021 to $33 million for the three months ended September 30, 2022, an increase of $6 million, or 20% , primarily due to higher salary and wage expense, professional service fees and software license costs between periods.

We had 506 and 554 employees as of September 30, 2021 and 2022 , respectively.

The higher general and administrative expense excluding equity-based compensation together with lower production volumes between periods resulted in per unit costs of $0.09 per Mcfe and $0.11 per Mcfe for the three months ended September 30, 2021 and 2022, respectively.

Equity-based compensation expense .

Noncash equity-based compensation expense increased from $5 million for the three months ended September 30, 2021 to $10 million for the three months ended September 30, 2022, an increase of $5 million, or 96%,

primarily due to an increase in the annual equity awards granted during the second quarter of 2022 as compared to prior years, which were temporarily and significantly reduced during 2020 and supplemented by our cash awards program .

Our equity awards vest over three or four year service periods, and our equity incentive program returned to normal levels during 2021.

See Note 9—Equity Based Compensation and Cash Awards to the unaudited condensed consolidated financial statements for more information.

Depletion, depreciation, and amortization expense .

Depletion, depreciation and amortization (“DD&A”) expense decreased from $183 million, or $0.61 per Mcfe, for the three months ended September 30, 2021 to $170 million, or $0.58 per Mcfe, for the three months ended September 30, 2022, a decrease of $13 million, or $0.03 per Mcfe, primarily as a result of increased proved reserve volumes due to higher commodity prices as well as lower production volumes between periods.

Impairment of oil and gas properties .

Impairment of oil and gas properties increased from $ 26 million for the three months ended September 30, 2021 to $ 34 million for the three months ended September 30, 2022 , an increase of $ 8 million, or 29 %, primarily related to higher impairments of expiring leases between periods.

During both periods, we recognized impairments primarily related to expiring leases and initial costs related to pads we no longer plan to place into service.

Contract termination expense .

Contract termination expense increased from $3 million for the three months ended September 30, 2021 to $18 million for the three months ended September 30, 2022, an increase of $15 million primarily due to a $12 million payment for the cancellation of the Smithburg 2 gas processing plant during the three months ended September 30, 2022.

Marketing Segment

Where feasible, we purchase and sell third-party natural gas and NGLs and market our excess firm transportation capacity, or engage third parties to conduct these activities on our behalf, in order to optimize the revenues from these transportation agreements.

We have entered into long-term firm transportation agreements for a significant portion of our current and expected future production in order to secure guaranteed capacity to favorable markets.

Net marketing expense decreased from $34 million, or $0.11 per Mcfe, for the three months ended September 30, 2021 to $25 million, or $0.09 per Mcfe, for the three months ended September 30, 2022, primarily due to lower firm transportation commitments, partially offset by higher marketing losses between periods.

Marketing revenue.

Marketing revenue decreased from $233 million for the three months ended September 30, 2021 to $160 million for the three months ended September 30, 2022, a decrease of $73 million, or 31 %, primarily due to lower marketing volumes between periods, partially offset by increased commodity prices between periods.

Lower natural gas marketing volumes accounted for a $276 million decrease in year-over-year marketing revenues (calculated as the change in year-to-year volumes times the prior year average price), and higher natural gas prices accounted for an approximate $201 million increase in year-over-year marketing revenues (calculated as the change in the year-to-year average price times current year marketing volumes).

Higher oil marketing volumes accounted for a $5 million increase in year-over-year marketing revenues (calculated as the change in year-to-year volumes times the prior year average price), and higher oil prices accounted for an approximate $5 million increase in year-over-year marketing revenues (calculated as the change in the year-to-year average price times current year marketing volumes).

Lower ethane marketing volumes accounted for a $13 million decrease in year-over-year marketing revenues (calculated as the change in year-to-year volumes times the prior year average price), and higher ethane prices accounted for an approximate $5 million increase in year-over-year marketing revenues (calculated as the change in the year-to-year average price times current year marketing volumes).

Marketing expense.

Marketing expense decreased from $267 million for the three months ended September 30, 2021 to $185 million for the three months ended September 30, 2022, a decrease of $82 million, or 31 %.

Marketing expense includes the cost of third-party purchased natural gas, NGLs and oil as well as firm transportation costs, including costs related to current excess firm capacity.

The cost of third-party natural gas and NGL purchases decreased approximately $67 million and $1 million, respectively, which was partially offset by increased oil purchases of approximately $9 million, between periods.

The total costs decreased primarily due to lower marketing volumes between periods, partially offset by increased commodity prices.

Firm transportation costs were $58 million for the three months ended September 30, 2021 and $35 million for the three months ended September 30, 2022, a decrease of $23 million due to the reduction in firm transportation commitments and third-party marketed volumes between periods.

Antero Midstream Segment

Antero Midstream revenue.

Revenue from the Antero Midstream segment increased from $225 million for the three months ended September 30, 2021 to $231 million for the three months ended September 30, 2022, an increase of $6 million, primarily due to higher (i) compression, high pressure gathering and fresh water delivery revenues due to annual CPI-based adjustments and (ii)

compression throughput between periods, partially offset by a decrease in low pressure revenues due to $12 million in higher fee rebates earned by us between periods.

Antero Midstream operating expense.

Total operating expense related to the Antero Midstream segment increased from $ 83 million for the three months ended September 30, 2021 to $93 million for the three months ended September 30, 2022, an increase of $10 million, primarily due to higher low pressure gathering and compression throughput volumes, two new compressor stations that came online between periods and higher chemical, fuel and heavy maintenance expense.

Discussion of Items Not Allocated to Segments

Interest expense.

Interest expense decreased from $45 million for the three months ended September 30, 2021 to $28 million for the three months ended September 30, 2022, a decrease of $17 million, or 38 %, primarily due to the reduction in debt as a result of the repurchase of certain of our unsecured senior notes between periods.

Interest expense includes approximately $2 million and $1 million of amortization of debt issuance costs and debt discounts and premiums for the three months ended September 30, 2021 and 2022, respectively.

Loss on early extinguishment of debt.

During the three months ended September 30, 2021, we redeemed $175 million of our 2026 Notes at a redemption price of 108.375% of the principal amount thereof, plus accrued and unpaid interest, which resulted in a loss on early debt extinguishment of $17 million.

During the three months ended September 30, 2022, we repurchased $208 million aggregate principal amount of our 2026 Notes at a weighted average of 109% of the principal amount thereof, plus accrued and unpaid interest and $118 million aggregate principal amount of our 2029 Notes at a weighted average of 107% of the principal amount thereof, plus accrued and unpaid interest , which resulted in a loss on early debt extinguishment of $30 million.

See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information.

Income tax benefit (expense) .

For the three months ended September 30, 2021, we had an income tax benefit of $159 million, with an effective tax rate of 22 %, due to a loss before income taxes of $725 million.

For the three months ended September 30, 2022, we had income tax expense of $136 million, with an effective tax rate of 19 %, due to income before income taxes of $730 million.

The decrease in the effective tax rate between periods was primarily due to the impact of tax law changes in Pennsylvania enacted in 2022.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2022

The operating results of our reportable segments were as follows (in thousands):

Nine Months Ended September 30, 2021

Equity Method

Investment in

Elimination of

Unconsolidated

Revenue and other:

Natural gas sales

Natural gas liquids sales

Commodity derivative fair value losses

Gathering, compression, water handling and treatment

Amortization of deferred revenue, VPP

Other income (loss)

Total revenue

Operating expenses:

Lease operating

Gathering and compression

Transportation

Water handling

Production and ad valorem taxes

General and administrative (excluding equity-based compensation)

Equity-based compensation

Depletion, depreciation and amortization

Impairment of oil and gas properties

Impairment of property and equipment

Accretion of asset retirement obligations

Contract termination and other operating expenses

Loss (gain) on sale of assets

Contract termination and other expenses

Total operating expenses

1 unchanged sentence

Equity in earnings of unconsolidated affiliates

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Equity Method

5 unchanged sentences

Natural gas liquids sales

Commodity derivative fair value losses

Gathering, compression, water handling and treatment

Commodity derivative fair value gains

Gathering, compression and water handling

Amortization of deferred revenue, VPP

Other income (loss)

Other revenue and income

Total revenue

9 unchanged sentences

Depletion, depreciation and amortization

Impairment of oil and gas properties

Impairment of property and equipment

Accretion of asset retirement obligations

Loss (gain) on sale of assets

Contract termination and other expenses

Gain on sale of assets

Contract termination and other operating expenses

Total operating expenses

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The following table sets forth selected operating data of the exploration and production segment:

Nine Months Ended September 30,

Three Months Ended March 31,

Production data (1) (2) :

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General and administrative (excluding equity-based compensation)

* Not meaningful.

(1) Production data excludes volumes related to the VPP.

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(3) Average prices reflect the before and after effects of our settled commodity derivatives.

(4) The average realized price for the nine months ended September 30, 2021 includes $85 million of net litigation proceeds related to a favorable litigation judgment.

See Note 14—Contingencies to the unaudited condensed consolidated financial statements for further discussion on the litigation proceeds.

Excluding the effect of the litigation proceeds received, the average realized price for natural gas would have been $3.46 per Mcf for the nine months ended September 30, 2021.

Our calculation of such after effects includes gains (losses) on settlements of commodity derivatives, which do not qualify for hedge accounting because we do not designate or document them as hedges for accounting purposes.

(4) The average realized price for the three months ended March 31, 2023 includes $6 million of proceeds related to a take-or-pay contract.

Excluding the effect of these proceeds, the average realized price for ethane before and after the effects of derivatives would have been $10.76 per Bbl.

Natural gas sales .

Revenues from sales of natural gas increased from $2.2 billion for the nine months ended September 30, 2021, which included litigation proceeds of $85 million, to $4.3 billion for the nine months ended September 30, 2022, an increase of $2.1 billion, or 92 %.

See Note 14—Contingencies to the unaudited condensed consolidated financial statements for more information on the litigation proceeds.

Excluding net litigation proceeds received during the nine months ended September 30, 2021, higher commodity prices (excluding the effects of derivative settlements) during the nine months ended September 30, 2022 accounted for an approximate $2.2 billion increase in year-over-year natural gas sales revenue (calculated as the change in the year-to-year average price excluding the net proceeds from the litigation times current year production volumes).

Lower natural gas production volumes accounted for an approximate $ 68 million decrease in year-over-year natural gas sales revenue (calculated as the change in year-to-year volumes times the prior year average price excluding the net proceeds from the litigation).

See Note 14—Contingencies to the unaudited condensed consolidated financial statements for further discussion on the litigation proceeds.

Revenues from sales of NGLs increased from $1.5 billion for the nine months ended September 30, 2021 to $2.0 billion for the nine months ended September 30, 2022, an increase of $481 million, or 32 %.

Higher commodity prices (excluding the effects of derivative settlements) during the nine months ended September 30, 2022 accounted for an approximate $521 million increase in year-over-year revenues (calculated as the change in the year-to-year average price times current year production volumes).

Lower NGLs production volumes accounted for an approximate $ 40 million decrease in year-over-year NGL revenues (calculated as the change in year-to-year volumes times the prior year average price).

Revenues from sales of oil increased from $153 million for the nine months ended September 30, 2021 to $220 million for the nine months ended September 30, 2022, an increase of $67 million, or 43 %.

Higher oil prices, excluding the effects of derivative settlements, accounted for an approximate $ 88 million increase in year-over-year oil revenues (calculated as the change in the year-to-year average price times current year production volumes).

Lower oil production volumes during the nine months ended September 30, 2022 accounted for an approximate $21 million decrease in year-over-year oil revenues (calculated as the change in year-to-year volumes times the prior year average price).

Commodity derivative fair value losses.

Revenues from sales of natural gas decreased from $996 million for the three months ended March 31, 2022 to $668 million for the three months ended March 31, 2023, a decrease of $328 million, or 33%.

Lower commodity prices (excluding the effects of derivative settlements) during the three months ended March 31, 2023 accounted for an approximate $303 million decrease in year-over-year natural gas sales revenue (calculated as the change in the year-to-year average price times current year production volumes).

Lower natural gas production volumes accounted for an approximate $25 million decrease in year-over-year natural gas sales revenue (calculated as the change in year-to-year volumes times the prior year average price).

Revenues from sales of NGLs decreased from $660 million for the three months ended March 31, 2022 to $495 million for the three months ended March 31, 2023, a decrease of $165 million, or 25%.

Lower commodity prices (excluding the effects of derivative settlements) during the three months ended March 31, 2023 accounted for an approximate $214 million decrease in year-over-year revenues (calculated as the change in the year-to-year average price times current year

production volumes).

Higher NGLs production volumes accounted for an approximate $49 million increase in year-over-year NGLs revenues (calculated as the change in year-to-year volumes times the prior year average price).

Revenues from sales of oil decreased from $63 million for the three months ended March 31, 2022 to $52 million for the three months ended March 31, 2023, a decrease of $11 million, or 18%.

Lower oil prices, excluding the effects of derivative settlements, accounted for an approximate $21 million decrease in year-over-year oil revenues (calculated as the change in the year-to-year average price times current year production volumes).

Higher oil production volumes during the three months ended March 31, 2023 accounted for an approximate $10 million increase in year-over-year oil revenues (calculated as the change in year-to-year volumes times the prior year average price).

Commodity derivative fair value gains (losses).

Our commodity derivatives included variable price swap contracts, swaptions, basis swap contracts, call options and embedded put options.

Because we do not designate these derivatives as accounting hedges, they do not receive hedge accounting treatment.

Consequently, all mark-to-market gains or losses, as well as cash receipts or payments on settled derivative instruments, are recognized in our statements of operations.

For the nine months ended September 30, 2021 and 2022, our commodity hedges resulted in derivative fair value losses of $2.3 billion and $1.8 billion, respectively.

Commodity derivative fair value losses included $481 million of cash payments on commodity derivative losses as well as $5 million for payments on derivative monetizations for the nine months ended September 30, 2021 .

For the nine months ended September 30, 2022, commodity derivative fair value losses included $1.5 billion of cash payments on commodity derivative losses.

For the three months ended March 31, 2022 and 2023, our commodity hedges resulted in derivative fair value losses of $1.0 billion and fair value gains of $126 million, respectively.

For the three months ended March 31, 2022, commodity derivative fair value losses included $285 million of cash payments on commodity settled derivatives losses.

For the three months ended March 31, 2023, commodity derivative fair value gains included $14 million of cash payments on commodity derivative losses and $202 million cash payment for the early settlement of our swaption.

Commodity derivative fair value gains or losses vary based on future commodity prices and have no cash flow impact until the derivative contracts are settled or monetized prior to settlement.

We expect continued volatility in commodity prices and the related fair value of our derivative instruments in the future.

Additionally, substantially all of our production is currently unhedged for 2023 and beyond, which limits our exposure to volatility in the fair value of our derivative instruments related to commodity price changes in the future.

Amortization of deferred revenue, VPP.

Amortization of deferred revenues associated with the VPP decreased from $34 million for the nine months ended September 30, 2021 to $28 million for the nine months ended September 30, 2022, a decrease of $6 million or 17 %, primarily due to lower production volumes between periods.

Under the terms of the agreement, the production volumes are delivered at approximately $1.61 per MMBtu over the contractual term.

Amortization of deferred revenues associated with the VPP decreased from $9 million for the three months ended March 31, 2022 to $8 million for the three months ended March 31, 2023, a decrease of $1 million or 19%, primarily due to lower production volumes attributable to the VPP properties between periods.

Under the terms of the agreement, the production volumes are delivered at $1.61 per MMBtu over the contractual term.

Lease operating expense .

Lease operating expense remained relatively consistent at $72 million, or $0.08 per Mcfe, and $70 million, or $0.08 Mcfe, for the nine months ended September 30, 2021 and 2022, respectively.

Lease operating expense increased from $18 million, or $0.06 per Mcfe, for the three months ended March 31, 2022 to $29 million, or $0.10 per Mcfe for the three months ended March 31, 2023, an increase of $11 million or $0.04 per Mcfe, primarily due to higher oilfield service and produced water handling costs.

Gathering, compression, processing and transportation expense.

Gathering, compression, processing and transportation expense increased from $1.9 billion for the nine months ended September 30, 2021 to $2.0 billion for nine months ended September 30, 2022, an increase of $88 million, or 5 % primarily due to an increase in processing and transportation costs.

Gathering and compression costs increased from $0.74 per Mcfe for the nine months ended September 30, 2021 to $0.76 per Mcfe for the nine months ended September 30, 2022, primarily due to increased compressor fuel costs as a result of higher commodity prices and an annual CPI-based adjustment between periods, partially offset by $36 million in incentive fee rebates earned by us during the nine months ended September 30, 2022 that were not earned during the nine months ended September 30, 2021 .

Processing costs increased from $0.67 per Mcfe for the nine months ended September 30, 2021 to $0.75 per Mcfe for the nine months ended September 30, 2022 , primarily due to increased costs for NGL processing, which includes an annual CPI-based adjustment during the first quarter of 2022, and NGL transportation.

Transportation costs increased from $0.68 per Mcfe for the nine months ended September 30, 2021 to $0.74 per Mcfe for the nine months ended September 30, 2022 primarily due to higher fuel costs as a result of higher commodity prices between periods.

Gathering, compression, processing and transportation expense increased from $590 million for the three months ended March 31, 2022 to $645 million for three months ended March 31, 2023, an increase of $55 million, or 9%.

This fluctuation primarily resulted from the following:

● Gathering and compression costs on a per unit basis remained relatively consistent at $0.71 and $0.72 per Mcfe for the three months ended March 31, 2022 and 2023, respectively.

● Processing costs on a per unit basis increased from $0.67 per Mcfe for the three months ended March 31, 2022 to $0.81 per Mcfe for the three months ended March 31, 2023, primarily due to increased costs for NGLs processing and transportation, which include annual CPI-based and commodity based adjustments, as well as higher terminal fees and ethane transportation.

● Transportation costs on a per unit basis decreased from $0.70 per Mcfe for the three months ended March 31, 2022 to $0.66 per Mcfe for the three months ended March 31, 2023 primarily due to lower fuel costs as a result of lower commodity prices between periods.

Production and ad valorem tax expense.

Production and ad valorem taxes increased from $131 million for the nine months ended September 30, 2021 to $228 million for the nine months ended September 30, 2022, an increase of $97 million, or 74 %, primarily due to higher commodity prices between periods partially offset by $5 million for the litigation judgment in 2021.

Production and ad valorem taxes as a percentage of natural gas revenues remained relatively consistent at 6% and 5% for the nine months ended September 30, 2021 and 2022, respectively.

Production and ad valorem taxes decreased from $53 million for the three months ended March 31, 2022 to $49 million for the three months ended March 31, 2023, a decrease of $4 million, or 7%, primarily due to lower commodity prices between periods, partially offset by higher production volumes between periods.

Production and ad valorem taxes as a percentage of natural gas revenues increased from 5.3% for the three months ended March 31, 2022 to 7.4% for the three months ended March 31, 2023 primarily as a result of higher ad valorem taxes, which 2023 ad valorem taxes are based on commodity prices during 2022.

General and administrative expense .

General and administrative expense (excluding equity-based compensation expense) increased from $94 million for the nine months ended September 30, 2021 to $100 million for the nine months ended September 30, 2022, an increase of $6 million, or 7%, primarily due to higher salary and wage expense, professional service fees, office operating costs and software license costs between periods.

We had 506 and 554 employees as of September 30, 2021 and 2022 , respectively.

This higher general and administrative expense excluding equity-based compensation together with lower production volumes between periods resulted in per unit costs of $0.10 per Mcfe for the nine months ended September 30, 2021 and $0.11 per Mcfe for the nine months ended September 30, 2022.

General and administrative expense (excluding equity-based compensation expense) increased from $31 million for the three months ended March 31, 2022 to $44 million for the three months ended March 31, 2023, an increase of $13 million, or 43%, primarily due to higher salary and wage expense, professional service fees, office operating costs and software license costs between periods.

We had 521 and 599 employees as of three months ended March 31, 2022 and 2023, respectively.

General and administrative expense on a per unit basis (excluding equity-based compensation) increased from $0.11 per Mcfe for the three months ended March 31, 2022 to $0.15 per Mcfe for the three months ended March 31, 2023 as a result of our higher overall general and administrative costs, partially offset by increased production volumes between periods.

Equity-based compensation expense .

Noncash equity-based compensation expense increased from $15 million for the nine months ended September 30, 2021 to $23 million for the nine months ended September 30, 2022, an increase of $8 million, or 53%, primarily due to an increase in the annual equity awards granted during the second quarter of 2022 as compared to prior years, which were temporarily and significantly reduced during 2020 and supplemented by our cash awards program .

Our equity awards vest over three or four year service periods, and our equity incentive program returned to normal levels during 2021.

Noncash equity-based compensation expense increased from $5 million for the three months ended March 31, 2022 to $13 million for the three months ended March 31, 2023, an increase of $8 million, primarily due to an increase in the annual equity awards granted during the fourth quarter of 2022 and first quarter of 2023 as compared to prior years, which were temporarily and significantly reduced during 2020 and supplemented by our cash awards program.

Our equity awards vest over three or four year service periods, and our equity incentive program began returning to normal levels in 2021.

See Note 9—Equity Based Compensation and Cash Awards to the unaudited condensed consolidated financial statements for more information on equity-based compensation awards.

Depletion, depreciation, and amortization expense .

DD&A expense decreased from $564 million, or $0.63 per Mcfe, for the nine months ended September 30, 2021 to $511 million, or $0.59 per Mcfe, for the nine months ended September 30, 2022, a decrease of $53 million, or $0.04 per Mcfe, primarily as a result of increased proved reserve volumes due to higher commodity prices as well as lower production volumes between periods.

Depletion, depreciation and amortization expense (“DD&A expense”) .

DD&A expense remained relatively consistent at $168 million, or $0.60 per Mcfe, and $168 million, or $0.57 per Mcfe, for the three months ended March 31, 2022 and 2023, respectively.

This decrease in DD&A expense per Mcfe between periods was primarily due to higher reserve volumes during the three months ended March 31, 2023.

Impairment of oil and gas properties .

Impairment of oil and gas properties increased from $ 70 million for the nine months ended September 30, 2021 to $ 80 million for the nine months ended September 30, 2022 , an increase of $ 10 million, or 15 %, primarily related to higher impairments of expiring leases between periods.

Impairment of oil and gas properties decreased from $22 million for the three months ended March 31, 2022 to $16 million for the three months ended March 31, 2023, a decrease of $6 million, or 31%, primarily related to lower impairments of expiring leases between periods.

During both periods, we recognized impairments primarily related to expiring leases as well as design and initial costs related to pads we no longer plan to place into service.

Contract termination expense .

Contract termination expense increased from $4 million for the nine months ended September 30, 2021 to $20 million for the nine months ended September 30, 2022, an increase of $16 million primarily due to a $12 million payment for the cancellation of the Smithburg 2 gas processing plant during the three months ended September 30, 2022.

Marketing Segment

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We have entered into long-term firm transportation agreements for a significant portion of our current and expected future production in order to secure guaranteed capacity to favorable markets.

Net marketing expense increased from $65 million, or $0.07 per Mcfe, for the nine months ended September 30, 2021 to $80 million, or $0.09 per Mcfe, for the nine months ended September 30, 2022, primarily due to higher marketing losses, partially offset by lower firm transportation commitments between periods.

Net marketing expense (calculated as marketing revenues less marketing expense) decreased from $30 million, or $0.10 per Mcfe, for the three months ended March 31, 2022 to $23 million, or $0.08 per Mcfe, for the three months ended March 31, 2023, primarily due to lower firm transportation commitments between periods.

Marketing revenue.

Marketing revenue decreased from $563 million for the nine months ended September 30, 2021 to $335 million for the nine months ended September 30, 2022, a decrease of $228 million, or 40 %, primarily due to lower marketing volumes between periods, partially offset by increased commodity prices between periods.

Lower natural gas marketing volumes accounted for a $694 million decrease in year-over-year marketing revenues (calculated as the change in year-to-year volumes times the prior year average price), and higher natural gas prices accounted for an approximate $438 million increase in year-over-year marketing revenues (calculated as the change in the year-to-year average price times current year marketing volumes).

Higher oil marketing volumes accounted for a $12 million increase in year-over-year marketing revenues (calculated as the change in year-to-year volumes times the prior year average price), and higher oil prices accounted for an approximate $18 million increase in year-over-year marketing revenues (calculated as the change in the year-to-year average price times current year marketing volumes).

Lower ethane marketing volumes accounted for a $18 million decrease in year-over-year marketing revenues (calculated as the change in year-to-year volumes times the prior year average price), and higher ethane prices accounted for an approximate $22 million increase in year-over-year marketing revenues (calculated as the change in the year-to-year average price times current year marketing volumes).

Marketing revenue decreased from $69 million for the three months ended March 31, 2022 to $59 million for the three months ended March 31, 2023, a decrease of $10 million, or 15%, primarily due to decreased commodity prices and ethane marketing volumes between periods, partially offset by higher natural gas and oil marketing volumes.

Higher oil marketing volumes accounted for a $8 million increase in year-over-year marketing revenues (calculated as the change in year-to-year volumes times the prior year average price), and lower oil prices accounted for an approximate $5 million decrease in year-over-year marketing revenues (calculated as the change in the year-to-year average price times current year marketing volumes).

Natural gas marketing revenue remained relatively consistent between periods with higher marketing volumes during the three months ended March 31, 2023 being fully offset by lower commodity prices during the same period.

Marketing expense.

Marketing expense decreased from $628 million for the nine months ended September 30, 2021 to $415 million for the nine months ended September 30, 2022, a decrease of $213 million, or 34 %.

Marketing expense decreased from $99 million for the three months ended March 31, 2022 to $81 million for the three months ended March 31, 2023, a decrease of $18 million, or 18%.

Marketing expense includes the cost of third-party purchased natural gas, NGLs and oil as well as firm transportation costs, including costs related to current excess firm capacity.

The cost of third-party natural gas decreased approximately $188 million, which was partially offset by increased oil and

NGL purchases of approximately $28 million and $8 million, respectively, between periods.

The total costs decreased primarily due to lower marketing volumes between periods, partially offset by increased commodity prices.

Firm transportation costs were $169 million for the nine months ended September 30, 2021 and $109 million for the nine months ended September 30, 2022, a decrease of $60 million due to the reduction in firm transportation commitments and third-party marketed volumes between periods.

The cost of third-party purchases decreased $6 million primarily due to lower commodity prices between periods, partially offset by higher natural gas and oil marketing volumes.

Firm transportation costs were $32 million for the three months ended March 31, 2022 and $20 million for the three months ended March 31, 2023, a decrease of $12 million due to the reduction in firm transportation commitments and higher third-party marketed volumes between periods.

Contract termination expense .

Our marketing segment did not incur any contract termination expense for the three months ended March 31, 2022.

Contract termination expense attributable to our marketing segment for the three months ended

March 31, 2023, is due to a $24 million payment for the early termination of our firm transportation commitment of 200,000 MMBtu per day on the Equitrans pipeline.

Antero Midstream Segment

Antero Midstream revenue.

Revenue from the Antero Midstream segment decreased from $ 682 million for the nine months ended September 30, 2021 to $678 million for the nine months ended September 30, 2022, a decrease of $4 million, primarily due to a decrease in low pressure revenues due to higher fee rebates earned by us, partially offset by increased throughput, fresh water delivery volumes and other fluid handling volumes between periods as well as higher low pressure, compression, high pressure and water handling fees as a result of an annual CPI-based adjustments.

Revenue from the Antero Midstream segment increased from $218 million for the three months ended March 31, 2022 to $259 million for the three months ended March 31, 2023, an increase of $41 million, primarily due to increased throughput, fresh water delivery volumes and other fluid handling volumes between periods as well as higher low pressure, compression, high pressure and water handling fees primarily as a result of an annual CPI-based adjustments.

Antero Midstream operating expense.

Total operating expense related to the Antero Midstream segment increased from $ 255 million for the nine months ended September 30, 2021 to $283 million for the nine months ended September 30, 2022 , an increase of $28 million, primarily due to increased direct operating costs and depreciation expense during the nine months ended September 30, 2022.

Direct operating costs increased between periods primarily as a result of higher throughput volumes, two new compressor stations and resuming fresh water deliveries to us in the Utica Shale.

The increase in depreciation expense is primarily a result of a phased early retirement of an underutilized compressor station, which allows Antero Midstream to relocate and reuse the compressor units and equipment to (i) expand an existing compressor station and (ii) contribute to a new compressor station.

There are certain costs associated with the underutilized compressor station that cannot be relocated or reused that will be depreciated over the remaining period of use.

Total operating expense related to the Antero Midstream segment increased from $89 million for the three months ended March 31, 2022 to $111 million for the three months ended March 31, 2023, an increase of $22 million, primarily due to increased direct operating costs and depreciation expense during the three months ended March 31, 2023, partially offset by lower general and administrative costs between periods Direct operating costs increased between periods primarily as a result of 12 compressors that were acquired during the fourth quarter of 2022 and higher water trucking expense between periods.

There are certain costs associated with the underutilized compressor station that cannot be relocated or reused that will be depreciated over the first half of 2023.

Antero Midstream also had incremental depreciation expense related to asset acquisitions completed during the fourth quarter of 2022 and gathering, compression and water handling assets placed in service between periods.

Items Not Allocated to Segments

Interest expense.

Interest expense decreased from $138 million for the nine months ended September 30, 2021 to $100 million for the nine months ended September 30, 2022, a decrease of $38 million or 27%, primarily due to the reduction in debt as a result of the repurchase of certain of our unsecured senior notes between periods.

Interest expense decreased from $38 million for the three months ended March 31, 2022 to $26 million for the three months ended March 31, 2023, a decrease of $12 million or 32%, primarily due to the reduction in debt as a result of the repurchase of certain of our unsecured senior notes between periods, partially offset by higher Credit Facility borrowings and benchmark interest rates during the three months ended March 31, 2023.

Loss on early extinguishment of debt.

During the nine months ended September 30, 2021, we equitized $206 million aggregate principal amount of our 2026 Convertible Notes in privately negotiated exchange transactions and as a result, we recognized a loss of $61 million, which represents the difference between the fair value of the liability component of the 2026 Convertible Notes and the carrying value of such notes.

Additionally, during the nine months ended September 30, 2021, we redeemed the remaining balance of $661 million of our 5.125% senior notes due 2022 (“2022 Notes”) at the principal amount thereof, plus accrued and unpaid interest and the remaining balance of $574 million of our 2023 Notes at the principal amount thereof, plus accrued and unpaid interest, and recognized a $5 million loss on early extinguishment of debt.

D uring the nine months ended September 30, 2022, we (i) redeemed the remaining $585 million aggregate principal amount of our 2025 Notes at a redemption price of 101.25% of the principal amount thereof, plus accrued and unpaid interest, and (ii) repurchased $221 million of our 2026 Notes and $168 million of our 2029 Notes of the principal amounts thereof, plus accrued and unpaid interest, which resulted in a loss on early debt extinguishment of $45 million.

See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information.

Loss on convertible note inducement and equitization.

Loss on convertible note inducement and equitization represents the consideration paid in excess of the original terms of the 2026 Convertible Notes.

During the nine months ended September 30, 2021, we recognized a loss of $51 million for the equitization of $ 206 million in aggregate principal amount of our 2026 Convertible Notes .

During the nine months ended September 30, 2022, we recognized a $0.2 million loss for the inducement of $5 million in aggregate principal amount of the 2026 Convertible Notes.

During the three months ended March 31, 2022, we redeemed the remaining $585 million aggregate principal amount of our 2025 Notes at a redemption price of 101.25% of par, plus accrued and unpaid interest, which resulted in a loss on early debt extinguishment of $11 million.

There were no debt redemptions or repurchases during the three months ended March 31, 2023.

See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information.

Income tax benefit (expense) .

For the nine months ended September 30, 2021, we had an income tax benefit of $338 million, with an effective tax rate of 23 %, due to a loss before income taxes of $1.4 billion.

For the nine months ended September 30, 2022, we had income tax expense of $308 million, with an effective tax rate of 20 %, due to income before income taxes of $1.5 billion.

The decrease in the effective tax rate between periods was primarily due to an income tax benefit for the equity-based awards that vested during the nine months ended September 30, 2022 and the impact of tax law changes in Pennsylvania enacted in 2022.

For the three months ended March 31, 2022, we had an income tax benefit of $53 million, with an effective tax rate of 23%, due to a loss before income taxes of $230 million.

For the three months ended March 31, 2023, we had income tax expense of $62 million, with an effective tax rate of 19%, due to income before income taxes of $323 million.

The decrease in the effective tax rate between periods was primarily due the impact of changes in state apportionment and a reduction to Pennsylvania’s corporate income tax rate enacted in the third quarter of 2022.

Capital Resources and Liquidity

Sources and Uses of Cash

Our primary sources of liquidity have been through net cash provided by operating activities, borrowings under our senior secured revolving credit facility (the “Credit Facility”), issuances of debt and equity securities and additional contributions from our asset sales program, including our drilling partnership .

Our primary sources of liquidity have been through net cash provided by operating activities, borrowings under our Credit Facility, issuances of debt and equity securities and additional contributions from our asset sales program, including our drilling partnership .

Our primary use of cash has been for the exploration, development and acquisition of oil and natural gas properties.

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Our future success in growing our proved reserves and production will be highly dependent on net cash provided by operating activities and the capital resources available to us.

Based on strip prices as of September 30, 2022, we believe that net cash provided by operating activities, distributions from our unconsolidated affiliate and available borrowings under the Credit Facility will be sufficient to meet our cash requirements, including normal operating needs, debt service obligations, capital expenditures and commitments and contingencies for at least the next 12 months.

Based on strip prices as of March 31, 2023, we believe that net cash provided by operating activities and available borrowings under the Credit Facility will be sufficient to meet our cash requirements, including normal operating needs, debt service obligations, capital expenditures and commitments and contingencies for at least the next 12 months.

The following table summarizes our cash flows (in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by (used in) financing activities

Net increase in cash and cash equivalents

Operating activities.

Net cash provided by operating activities was $1.2 billion and $2.6 billion for the nine months ended September 30, 2021 and 2022, respectively.

Net cash provided by operating activities increased primarily due to increases in commodity prices both before and after the effects of settled commodity derivatives, partially offset by decreased production and increased (i) net marketing expense and (ii) production and ad valorem taxes between periods.

Our net operating cash flows are sensitive to many variables, the most significant of which is the volatility of natural gas, NGL and oil prices, as well as volatility in the cash flows attributable to settlement of our commodity derivatives.

Net cash provided by operating activities was $566 million and $344 million for the three months ended March 31, 2022 and 2023, respectively.

Net cash provided by operating activities decreased primarily due to lower commodity prices, a $202 million payment for early settlement of our swaption agreement and increased gathering compression, processing and transportation expenses, lease operating expenses, general and administrative expenses (excluding equity-based compensation expense) and contract termination expense, partially offset by increased production and decreased net marketing expense and production and ad valorem taxes between periods.

Our net operating cash flows are sensitive to many variables, the most significant of which is the volatility of natural gas, NGLs and oil prices, as well as volatility in the cash flows attributable to settlement of our commodity derivatives.

Prices for natural gas, NGLs and oil are primarily determined by prevailing market conditions.

Regional and worldwide economic activity, weather, infrastructure capacity to reach markets, storage capacity and other variables influence the market conditions for these products.

For example, the impact of the COVID-19 outbreak reduced global demand for natural gas, NGLs and oil.

These factors are beyond our control and are difficult to predict.

Investing activities.

Net cash used in investing activities increased from $505 million for the nine months ended September 30, 2021 to $718 million for the nine months ended September 30, 2022, primarily due to an increase in capital expenditures of $210 million between periods.

Net cash used in investing activities increased from $215 million for the three months ended March 31, 2022 to $351 million for the three months ended March 31, 2023, primarily due to an increase in capital expenditures of $135 million between periods.

The increase in capital expenditures between periods is primarily due to increased completions activity, higher fresh water delivery and drilling costs and increased land purchases between periods.

Financing activities .

Net cash flows used in financing activities increased from $679 million for the nine months ended September 30, 2021 to $1.9 billion for the nine months ended September 30, 2022.

During the nine months ended September 30, 2021, we issued $500 million aggregate principal amount of 2026 Notes, $700 million aggregate principal amount of 2029 Notes and $600 million aggregate principal amount of 5.375% senior notes due March 1, 2030 (net of $23 million of aggregate debt issuance costs), of which proceeds were used to (i) redeem $661 million aggregate principal amount of our 2022 Notes, which were fully retired, (ii) redeem $574 million of our 2023 Notes, which were fully retired and (iii) partially repay borrowings on the Credit Facility.

Also, during the nine months ended September 30, 2021, we completed two equitization transactions and used the proceeds and approximately $89 million of borrowings under the Credit Facility to repurchase $206 million aggregate principal amount of the 2026 Convertible Notes in privately negotiated transactions .

Additionally, during the nine months ended September 30, 2021, we received a $51 million payment from Martica and distributed $65 million to the noncontrolling interest in Martica .

During the nine months ended September 30, 2022, we (i) redeemed $585 million aggregate principal amount of our 2025 Notes and repurchased $221 million of our 2026 Notes and $168 million of our 2029 Notes (ii) repurchased approximately 19 million shares of our common stock at a total cost of approximately $675 million, (iii) distributed $114 million to the noncontrolling interest in Martica and (iv) paid $65

million in employee withholding taxes for vested equity-based awards.

Additionally, we borrowed $9 million, net, on our Credit Facility during the nine months ended September 30, 2022.

Net cash flows used in financing activities for the three months ended March 31, 2022 were $351 million, as compared to $7 million in net cash flows provided by financing activities for the three months ended March 31, 2023.

During the three months ended March 31, 2022, we (i) redeemed $585 million aggregate principal amount of our 2025 Notes at 101.25% of the principal amount thereof, (ii) repurchased 4 million shares of our common stock at a total cost of $100 million, (iii) distributed $36 million to the noncontrolling interests in Martica and (iv) paid $10 million in employee withholding taxes for vested equity-based awards.

Additionally, we borrowed $388 million, net, on our Credit Facility during the three months ended March 31, 2022.

During the three months ended March 31, 2023, we borrowed $145 million, net, on our Credit Facility, partially offset by the repurchase of 3 million shares of our common stock at a total cost of $75 million, distributions to the noncontrolling interests in Martica of $51 million and payments for employee withholding taxes for vested equity-based awards of $11 million.

2023 Capital Budget and Capital Spending

On October 26, 2022, we announced a revised net capital budget for 2022 of $900 million to $950 million.

Our revised budget includes:

a range of $775 million to $800 million for drilling and completion and a range of $125 million to $150 million for leasehold expenditures.

On February 15, 2023, we announced a net capital budget for 2023 of $1.025 billion to $1.075 billion.

Our budget includes:

a range of $875 million to $925 million for drilling and completion and $150 million for leasehold expenditures.

We do not budget for acquisitions.

During 2022, we plan to complete 72 wells in the Appalachian Basin, compared to our initial budget of 60 to 65 net horizontal wells.

During 2023, we plan to complete 60 to 65 net horizontal wells in the Appalachian Basin.

We periodically review our capital expenditures and adjust our budget and its allocation based on liquidity, drilling results, leasehold acquisition opportunities and commodity prices.

For the three months ended September 30, 2022, our total consolidated capital expenditures were approximately $275 million, including drilling and completion costs of $227 million, leasehold acquisitions of $46 million, and other capital expenditures of $2 million.

For the nine months ended September 30, 2022, our total consolidated capital expenditures were approximately $749 million, including drilling and completion costs of $619 million, leasehold acquisitions of $118 million, and other capital expenditures of $12 million.

For the three months ended March 31, 2023, our total consolidated capital expenditures were $342 million, including drilling and completion costs of $267 million, leasehold acquisitions of $72 million, and other capital expenditures of $3 million.

Debt Agreements

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Under GAAP for successful efforts accounting, if the carrying amount exceeds the estimated undiscounted future net cash flows (measured using future prices), we estimate the fair value of our proved properties and record an impairment charge for any excess of the carrying amount of the properties over the estimated fair value of the properties.

Based on future prices as of September 30, 2022, the estimated undiscounted future net cash flows exceeded the carrying amount and no further evaluation was required.

We have not recorded any impairment expenses associated with our proved properties during the three and nine months ended September 30, 2021 and 2022.

Based on future prices as of March 31, 2023, the estimated undiscounted future net cash flows exceeded the carrying amount and no further evaluation was required.

We have not recorded any impairment expenses associated with our proved properties during the three months ended March 31, 2022 and 2023.

Estimated undiscounted future net cash flows are sensitive to commodity price swings and a decline in prices could result in the carrying amount exceeding the estimated undiscounted future net cash flows at the end of a future reporting period, which would require us to further evaluate if an impairment charge would be necessary.

If future prices decline from September 30, 2022, the fair value of our properties may be below their carrying amounts and an impairment charge may be necessary.

If future prices decline from March 31, 2023, the fair value of our properties may be below their carrying amounts and an impairment charge may be necessary.

We are unable, however, to predict future commodity prices with any reasonable certainty.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis