Antero Resources Corporation · NYSE:AR
Antero Resources — Antero Midstream Partners — Merger or Acquisition (November 2018)
54 slides from Antero Resources's merger presentation, Nov 6, 2018
Slide 1: Legal Disclaimer
Legal Disclaimer NO OFFER OR SOLICITATION This presentation includes a discussion of a proposed business combination transaction (the “Transaction”) between AM and AMGP. This presentation is for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to b
Slide 2: Legal Disclaimer
Legal Disclaimer This presentation includes “forward-looking statements.” Such forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond AR’s control. All statements, except for statements of historical fact, made in this presentation regarding activitie
Slide 3: The Size and Scale to Capitalize on the Resource
The Size and Scale to Capitalize on the Resource 4 Antero Resources November 2018 presentation Market Cap . ........... Enterprise Value . Corporate Debt Ratings Stand-Alone Debt/Adj. EBITDAX Net Production (2018E) ....... Liquids................................ 3P Reserves .. ........... C2+ NGLs(1
Slide 4: Rover Pipeline Uplift and Optionality
Rover Pipeline Uplift and Optionality 5 Unlocks development optionality between Marcellus and Utica and provides further Chicago & Gulf Coast exposure Rover Sherwood Lateral recently received approval to be placed into service in November Rover Pipeline Map Chicago via Rover ($/MMBtu) 2019 Chicago P
Slide 5: Special Committee Process Objectives
Special Committee Process Objectives Achieve a “Win-Win-Win” Transaction Across the Antero Family Improve the financial profile and deliver value to all three Antero equities including AR, AM and AMGP Maintain target distributions to AM unitholders including AR, with strong coverage Simplify the Str
Slide 6: Status Quo Structure vs Simplified Pro Forma Structure
Status Quo Structure Antero Simplified Pro Forma Structure Simplified Pro Forma Structure 53% 100% Incentive Distribution Rights (IDRs) Sponsors/ Management Public Public 27% 73% Sponsors/ Management Public 59% 41% 47% 27% 73% 31% Midstream simplification transaction results in one publicly traded m
Slide 7: Financially Disciplined Repurchase Program
Financially Disciplined Repurchase Program Disciplined share repurchase plan maintains financial flexibility and balance sheet strength with leverage ≤ 2.25x in 4Q 2018 and ≤ 2.0x by YE 2019 AR Standalone Net Debt / LTM EBITDAX(1) Based on 12/31/2017 strip pricing and the long-term plan announced at
Slide 8: Natural Gas Liquids Update: Leading Position
Natural Gas Liquids Update: Leading Position
Slide 9: Largest Liquids-rich Drilling Inventory in Appalachia
Largest Liquids-rich Drilling Inventory in Appalachia 10 Holds 40% of Core Undrilled Liquids-Rich Locations Based on Antero analysis of undeveloped acreage in the core of the Marcellus and Utica plays. Peers include Ascent, CHK, CNX, CVX, EQT, GPOR, HG, RRC and SWN. Largest core undeveloped liquids-
Slide 10: Leader in Leverage to NGL Prices
Leader in Leverage to NGL Prices 11 Top NGL Producers in the U.S. Source: Bloomberg consensus, SEC filings and company press releases. Note: Volumes represent consensus as of 10/31/2018. 3Q 2018 realized prices are weighted average including ethane (C2) where applicable. DVN, MRO, OXY and PXD percen
Slide 11: Rapidly Growing NGL Production
Rapidly Growing NGL Production 12 Antero NGL Production Growth by Purity Product Note: Excludes condensate. See Appendix for further assumptions around long-term targets. C2 ethane volumes in 2018 reflect adjustment for timing of Borealis contract start date from 10/1/18 to 11/1/18. Total (Bbl/d) C5
Slide 12: Appalachia: Geographic & Infrastructure NGL Advantaged
Appalachia: Geographic & Infrastructure NGL Advantaged Mid-Continent Appalachia 31 Permian Rockies Bakken/Williston Mariner East TEPPCO Cornerstone Exports to International Markets Mont Belvieu Conway Appalachia In-basin fractionation Transport marketable purity products out-of-basin Sufficient frac
Slide 13: Antero's Ethane Exposure: All Upside
Antero’s Ethane Exposure: All Upside 14 Antero’s ethane has a natural gas pricing “floor” and purity ethane “ceiling”; increases in ethane purity prices are all upside Antero’s balanced approach to ethane sales results in 50% of contracts tied to purity ethane prices vs. natural gas value Ethane Rev
Slide 14: Antero's C3+ NGL Exposure: Highly Leveraged
1. Q418 represents strip pricing as of 9/30/2018. Volumes based on midpoint of guidance. Antero has 26 MBbl/d of propane hedged at $0.76 per gallon for the remainder of 2018 and no C3+ hedges beyond 2018. Antero’s C3+ NGL Exposure: Highly Leveraged Antero’s NGL price directly benefits from the recen
Slide 15: Pre-Hedge Revenue Sensitivity to C3+ NGL Pricing
Pre-Hedge Revenue Sensitivity to C3+ NGL Pricing ($MM) Note: Represents 9/30/2018 strip Mont Belvieu pricing. 2019 volumes assume 20% liquids growth vs. 2018 C3+ guidance of 77,500 Bbl/d. Assumes C3+ barrel weightings of: propane 57%, normal butane 16%, isobutane 10%, pentanes 17% and reflects diffe
Slide 16: Antero's NGL Pricing Uplift from Mariner East
Antero’s NGL Pricing Uplift from Mariner East 2 31 Mont Belvieu Conway Europe Netback 2019 NWE Price ($/Gal) $1.15 Pipeline, Terminal & Shipping Cost (1) $(0.24) NWE Netback $0.91 Blended Conway / MB Netback $0.77 Uplift vs. YTD 2018 Average Differential +$0.14 Asia Netback 2019 FEI Price ($/Gal) $1
Slide 17: Liquids-Rich Resource + Capital Efficiency = Free Cash Flow
Liquids-Rich Resource + Capital Efficiency = Free Cash Flow
Slide 18: Drilling and Completion Efficiencies
19 Drilling and Completion Efficiencies Average Lateral Feet per Day Drilling Days Average Lateral Length per Well Completion Stages per Day Liquids resource + capital efficiency = free cash flow cost efficiency drivers 8,206 72% Increase 28% Increase 228% Increase Note: Utica 3Q 2018 results reflec
Slide 19: Declining Well Costs → Longer Laterals the Next Step
Declining Well Costs → Longer Laterals the Next Step 20 Liquids resource + capital efficiency = free cash flow Cost Efficiency Drivers: Longer Laterals Note: Well costs reflect 2,000 pound per foot completions. See Appendix for further assumptions. Historical Well Costs 41% 43% Lower Costs Marcellus
Slide 20: Capital Discipline Leads to Free Cash Flow
Capital Discipline Leads to Free Cash Flow 21 Stand-Alone Adjusted Cash Flow Alongside D&C Capital Expenditures D&C Capital Investment Fully Funded with Cash Flow Note: Stand-alone adjusted cash flow from operations represents net cash provided by operating activities as reported in the Parent colum
Slide 21: Near Term Free Cash Flow Inflection Point
Near Term Free Cash Flow Inflection Point Free Cash Flow(1) Antero Is Approaching a Free Cash Flow Inflection Point (1) For additional information regarding Non-GAAP Measures please see the Appendix. Estimates assume strip pricing as of 12/31/2017. Capital discipline to reduce completion crews and D
Slide 22: Market Premium for Free Cash Flow Yield
23 Market Premium for Free Cash Flow Yield Industry Leading Free Cash Flow Yield in 2019 Free Cash Flow is a “Prove It” story and has been rewarded by the market 29% 4% Leading E&P for FCF Yield Note: 1H18 used as a proxy for proven free cash flow story. Cash flow yield defined as free cash flow div
Slide 23: Integrated Business Strategy Drives Peer Leading Margins
Integrated Business Strategy Drives Peer Leading Margins
Slide 24: Well Hedged at High Prices Relative to Strip
Well Hedged at High Prices Relative to Strip Integrated business strategy drives peer leading margins Productivity Drivers Average Index Hedge Price(1) Hedged Volume Current NYMEX Strip(2) Mark-to-Market Value(2) Weighted average index price based on volumes hedged assuming 6:1 gas to liquids ratio.
Slide 25: Firm Transportation & Hedge Book
26 Integrated business strategy drives peer leading margins Firm Transportation & Hedge Book A Paired Trade – Hedges Support Firm Commitments Hedge Gains More than Offset Marketing Expense – Hedges Support FT Commitments Firm Transportation Portfolio Allows Antero to achieve: Effectively Hedge NYMEX
Slide 26: Midstream Driving Value for AR Since Inception
Midstream Driving Value for AR Since Inception 27 Takeaway assurance and reliable project execution Antero Midstream (NYSE: AM) provides a customized midstream solution for AR (AR owns 53% of AM) Owning and controlling the midstream infrastructure is crucial to consistent long-term development Retur
Slide 27: The Leader in All-In Realized Pricing in Appalachia
Source: Public data from company 10-Ks and 10-Qs. Peers include CNX, COG, EQT, RRC and SWN. All-in realized natural gas equivalent pricing includes liquids and hedge realizations for the period. Hedge realizations is the stippled top portion of each bar. The Leader in All-In Realized Pricing in Appa
Slide 28: Consistent Leader in EBITDAX Margin
EBITDAX Margin ($/Mcfe) 29 Consistent Leader in EBITDAX Margin On a Stand-Alone EBITDAX Margin Basis, Antero has Consistently Outperformed its Appalachian Peers Through Up and Down Commodity Cycles Source: SEC filings and company press releases. AR 2017 margins exclude $0.10/Mcfe negative impact fro
Slide 29: Antero Midstream At A Glance – Status Quo
Antero Midstream At A Glance – Status Quo 30 Market Cap ....... Enterprise Value ......... . LTM Adjusted EBITDA(1) .. % Gathering/Compression % Water .. .. .. .. .. Net Debt/LTM EBITDA .... Corporate Debt Rating . $5.6B $7.1B $665 MM 65% 35% 2.3x Ba2 / BB+ /BBB- Note: Equity market data as of 10/31
Slide 30: Long-Term Distribution and Coverage Targets
Long-Term Distribution and Coverage Targets 31 Distribution Guidance (Mid-point) Long-Term Distribution Targets and DCF Coverage Unchanged capital investment philosophy with disciplined financial policies result in ability to target peer-leading distribution growth through 2022 Distribution Target (
Slide 31: Northeast Value Chain Opportunity
Northeast Value Chain Opportunity 32 ~$1.9B Organic Project Backlog ~$800MM JV Project Backlog FRESH WATER Delivery(1) Treatment(1) WASTE WATER Services(1) PRODUCED WATER WELL PAD LOW PRESSURE GATHERING HIGH PRESSURE GATHERING COMPRESSION GAS PROCESSING (50% INTEREST) REGIONAL GATHERING PIPELINE (15
Slide 32: Antero Profile Should Drive Multiple Expansion
33 Antero Profile Should Drive Multiple Expansion Approaching an Elite Group of E&Ps With Scale, Double Digit Growth, Low Leverage & Free Cash Flow Generation Source: Bloomberg & Antero Estimates as of 10/31/18. Adjusted EBITDAX and Adjusted Operating Cash Flow are non-GAAP measures. AR EV/EBITDAX m
Slide 33: Antero Resources Summary
Most Integrated Natural Gas & NGL Business in the U.S. 34 World Class E&P Operator in Appalachia Contiguous Core Acreage Position Allows for Long Lateral Drilling and Significant Capital Efficiencies Largest NGL Producer in the U.S. Leads to Peer Leading Cash Flow Margins Optimized 5-Year Plan Resul
Slide 34: Most Integrated Natural Gas & NGL Business in the U.S.
MaAntero (Aantero World Class E&P ALeading Northeast Operator in Appalachia Infrastructure Platform Contiguous Core Acreage Position Allows for Long Lateral Drilling and Significant Capital Efficiencies Largest NGL Producer in the U.S. Leads to Peer Leading Cash Flow Margins Optimized 5-Year Plan Re
Slide 35: Updated 2018 Guidance
Appendix 2018 guidance Updated 2018 Guidance Stand-Alone Consolidated Net Daily Production (Bcfe/d) ~2.7 Net Liquids Production (BBl/d) ~130,000 Natural Gas Realized Price Differential to Nymex $0.05 to $0.10 Premium C3+ NGL Realized Price (% of Nymex WTI) 57.5% – 62.5% Cash Production Expense ($/Mc
Slide 36: 5-Year Assumptions
Appendix 5-Year Assumptions Antero Guidance and Long-Term Target Assumptions Stand-Alone Consolidated Net Daily Production (MMcfe/d) 20% CAGR through 2020 and 15% Growth in each of 2021 and 2022 Natural Gas Realized Price Differential to Nymex $0.05 to $0.10 Premium (2018) $0.00 to $0.10 Premium (20
Slide 37: 5-Year Assumptions (Cont.)
38 Appendix 5-Year Assumptions Antero Guidance and Long-Term Target Assumptions (Cont.) Stand-Alone E&P Consolidated Adjusted Operating Cash Flow(1) $10.4B (Cumulative 2018 – 2022) N/A Annual D&C Capital Expenditures ($MM) $1,500 – $1,600 (2018 – 2020) $1,700 – $2,000 (2021 – 2022) $1,300 – $1,400 (
Slide 38: Project Assumptions
39 Appendix project assumptions Antero Long-Term Target Project Assumptions In-Service Date Rover Phase 2 4Q 2018 Mariner East 2 4Q 2018 WB Xpress West 4Q 2018 WB Xpress East 4Q 2018 Mountaineer Xpress / Gulf Xpress 1Q 2019 Note: Based on publicly available information.
Slide 39: Compelling Full Cycle Well Economics
Compelling Full Cycle Well Economics 40 Single Well Economics Bridge to Corporate Level Returns Fully Burdened Corporate Level Well Economics are Outstanding Note: See company presentation on Antero Resources investor relations website for further detail behind full cycle and half cycle single well
Slide 40: 9/30/2018 Debt Maturity Profile
9/30/2018 Debt Maturity Profile Liquidity & Debt Term Structure AR Credit Facility AM Credit Facility AR Senior Notes AM Senior Notes New credit facilities for AR and AM have allowed Antero to extend its average debt maturity out to 2022 41 Appendix consolidated liquidity and balance sheet No maturi
Slide 41: Deleveraging is Driving Ratings Momentum
Deleveraging is Driving Ratings Momentum 42 Appendix Trending towards investment grade Corporate Credit Ratings History Corporate Credit Rating (Moody’s / S&P / Fitch) Ba3 / BB- B1 / B+ B2 / B B3 / B- Ba2 / BB Ba1 / BB+ Caa1 / CCC+ / CCC Baa3 / BBB- 2010 Investment Grade Rating: BBB- Fitch Jan. 2018
Slide 42: Operating Evolution Continues
Operating Evolution Continues 43 Based on Marcellus 11,000 foot lateral and 2,000 pounds per foot AFE. Assumes nine wells per pad. Drilling Efficiency (25%) 42% Decline in well costs since 2014 54% Permanent cost efficiencies 46% Vendor-related cost reductions Efficiencies Expected to Offset Service
Slide 43: Well Cost Reduction Drives Lower F&D Cost
44 Appendix Cost Efficiency Drivers: Well cost Reduction Dramatically Lower F&D Cost F&D Cost per Mcfe(1)(2) Ethane rejection assumed. F&D cost is defined as current D&C cost per 1,000’ lateral divided by net EUR per 1,000’ lateral assuming 85% NRI in Marcellus and 81% NRI in Utica. Please see “Ante
Slide 44: Core of the Core Development Programs
Core of the Core Development Programs 45 Appendix Understanding the Resource EUR Regime BTU Range 2018 Well Completions 2019 Well Completions Half Cycle Well Economics (Strip Price) Total Undrilled Locations Average Lateral Length Marcellus Highly-Rich Gas Condensate 1275-1350 14 30 200% 447 12,500’
Slide 45: Antero Assumptions: Single Well Economics
Antero Assumptions: Single Well Economics 46 Appendix single well economics SWE Cost Type Description of Cost Half Cycle Full Cycle Well Costs Drilling and completion costs Assumes well costs for a 12,000’ lateral, 2,000 lbs of proppant per lateral foot and both fresh and flowback water Utica Conden
Slide 46: Antero Definitions
47 Appendix disclosures & reconciliations Antero Definitions Consolidated Adjusted EBITDAX: Represents net income or loss from continuing operations, including noncontrolling interests, before interest expense, interest income, derivative fair value gains or losses (excluding net cash receipts or pa
Slide 47: Antero Non-GAAP Measures
48 Antero Non-GAAP Measures Consolidated Adjusted EBITDAX, Stand-Alone Adjusted EBITDAX, Consolidated Adjusted Operating Cash Flow, Stand-Alone Adjusted Operating Cash Flow and Free Cash Flow are financial measures that are not calculated in accordance with U.S. generally accepted accounting princip
Slide 48: Antero Non-GAAP Measures
Appendix disclosures & reconciliations Antero Non-GAAP Measures Antero has not included a reconciliation of Consolidated Adjusted EBITDAX or Stand-Alone Adjusted EBITDAX to their nearest GAAP financial measures for 2018 because it cannot do so without unreasonable effort and any attempt to do so wou
Slide 49: Antero Resources Adjusted EBITDAX Reconciliation
Antero Resources Adjusted EBITDAX Reconciliation Appendix disclosures & reconciliations AR Stand-Alone and Consolidated Adjusted EBITDAX Reconciliation 50 Stand-Alone Consolidated Three months ended September 30, Three months ended September 30, (in thousands) 2017 2018 2017 2018 Net (loss) attribut
Slide 50: Antero Resources Adjusted EBITDAX Margin Reconciliation
Antero Resources Adjusted EBITDAX Margin Reconciliation Appendix disclosures & reconciliations AR Stand-Alone and Consolidated Adjusted EBITDAX Margin Reconciliation Stand-Alone Consolidated Three months ended September 30, Three months ended September 30, 2017 2018 2017 2018 Adjusted EBITDAX margin
Slide 51: Stand-alone Adjusted EBITDAX Per Mcfe
Antero Resources Stand-alone Adjusted EBITDAX Per Mcfe Appendix disclosures & reconciliations 2013 2014 2015 2016 2017 1Q2018 2Q2018 3Q2018 ($/Mcfe) Natural Gas, Oil, Ethane and NGL sales $ 4.31 $ 4.74 $ 2.53 $ 2.60 $ 3.35 $ 3.56 $ 3.35 $ 3.70 Realized commodity derivative gains (losses) $ 0.86 $ 0.
Slide 52: Standalone LTM Adjusted EBITDAX Reconciliation
Antero Resources Standalone Adjusted EBITDAX Reconciliation Standalone LTM Adjusted EBITDAX Reconciliation Appendix disclosures & reconciliations 53 Stand-Alone Twelve months ended September 30, (in thousands) 2018 Net income attributable to Antero Resources Corporation $ 210,898 Commodity derivativ
Slide 53: Standalone LTM Adjusted EBITDAX Reconciliation
Antero Resources Standalone Adjusted EBITDAX Reconciliation Standalone LTM Adjusted EBITDAX Reconciliation Appendix disclosures & reconciliations 54 Stand-Alone Twelve months ended September 30, (in thousands) 2018 Net income attributable to Antero Resources Corporation $ 210,898 Commodity derivativ
Slide 54: Standalone LTM Adjusted EBITDAX Reconciliation
Standalone LTM Adjusted EBITDAX Recon jation DAX Reconciliation ahitrsero Stand-Alone ‘Twelve months ended September. (in thousands) 2018 Net income attributable fo Antero Resources Corporation 5 210.898 ‘Commodity derivative fair value gains (834617) Gains on settled commodity derivatives 344.917 M
Antero Midstream Partners — Merger or Acquisition (November 2018) on 6ix