Antero Resources Corporation · NYSE:AR
Antero Resources — Antero Midstream Partners — Merger or Acquisition (October 2018)
29 slides from Antero Resources's merger presentation, Oct 9, 2018
Slide 1: Legal Disclaimer
Legal Disclaimer NO OFFER OR SOLICITATION This presentation relates to a proposed business combination transaction (the “Transaction”) 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 buy any securities or a
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: 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 4: AR Strategic Announcements
AR Strategic Announcements AMGP to acquire AM in a simplification transaction creating “New AM” AR to receive ~$300 million of cash and 158 MM shares of New AM IDRs eliminated in New AM simplified structure Cash taxes shielded at the AR level through NOLs $3.0 Billion of NOLs as of December 31, 2017
Slide 5: Midstream Simplification Transaction Overview
Midstream Simplification Transaction Overview AMGP to acquire 100% of outstanding common units of AM, including common units owned by AR Eliminates incentive distribution rights (“IDRs”) Results in aggregate consideration of $30.43 per AR-owned AM unit based on 10/8/18 AMGP closing price (1.776 AMGP
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: New AM – Same Cash Distribution Targets
New AM – Same Cash Distribution Targets New AM Long-term Dividend, Leverage, and DCF Coverage Targets DCF Coverage Target of 1.2x – 1.3x +29% YoY From an AR perspective New AM will target the same dividends & year-over-year growth rates as legacy AM distributions with stronger DCF coverage (as a res
Slide 8: Share Repurchase Program Details
Share Repurchase Program Details Share repurchase program authorized over the next 12 to 18 months Open market and private transactions depending on market conditions Flexibility in program to optimize execution and capital allocation Expected to be funded through visible, accretive sources Initiall
Slide 9: Share Repurchase Program Funding
Share Repurchase Program Funding Share Repurchase Program Funding $600MM Disciplined Share Repurchase Program $300 MM Portion of Free Cash Flow Over Next 12 to 18 Months $300 MM AR cash consideration from midstream simplification transaction Aligns interest of management and shareholders in a tax ef
Slide 10: Compounding Leverage to Improving NGL Prices
Compounding Leverage to Improving NGL Prices From 2015 - 2018 C3+ NGL prices have increased 94% while AR’s production has increased by 84% Production growth combined with pricing improvement drives compounding exposure to improving NGL prices Antero C3+ NGL Production vs Price ($/Bbl) (Bbl/d) ($/Bbl
Slide 11: Leader in Leverage to NGL Prices
Leader in Leverage to NGL Prices Top NGL Producers in the U.S. (C3+ and ethane) Source: Bloomberg consensus, SEC filings and company press releases. Note: Volumes represent consensus as of 9/20/2018. 2Q 2018 realized prices are weighted average including ethane (C2) where applicable. Percent of 2Q 2
Slide 12: Pre-Hedge Revenue Sensitivity to C3+ NGL Pricing
Pre-Hedge Revenue Sensitivity to C3+ NGL Pricing ($MM) Note: Represents 10/5/2018 strip Mont Belvieu pricing. 2H18 assumes Mariner East 2 in-service November 1 2018. 2H18 volumes implied by full year guidance and 1H18 actual results. 2019 volumes assume 20% liquids growth vs. 2018 C3+ guidance of 77
Slide 13: Antero's Ethane Exposure: All Upside
Antero’s Ethane Exposure: All Upside 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 Revenu
Slide 14: Antero's Liquids Scale at Attractive Value
Antero’s Liquids Scale at Attractive Value Antero’s liquids scale and leverage to liquids prices compares favorably to Permian operators Attractive value proposition for similar liquids scale Liquids Production vs. Revenue Liquids Growth vs. EBITDAX Multiple Based on Factset consensus estimates (pre
Slide 15: 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 16: Capital Discipline Leads to Free Cash Flow
Capital Discipline Leads to Free Cash Flow Stand-Alone Adjusted Cash Flow Alongside D&C Capital Expenditures D&C Capital Investment Fully Funded with Cash Flow Note: For additional information regarding Non-GAAP Measures please see the Appendix. Estimates assume strip pricing as of 12/31/2017. (1) D
Slide 17: 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 in 2019 Disciplined share repurchase program targets leverage at or below 2.25x in 4Q 2018 and at or below 2.0x in 2019 Capa
Slide 18: Antero Profile Should Drive Multiple Expansion
Antero Profile Should Drive Multiple Expansion Source: Bloomberg & Antero Estimates as of 9/30/18. Adjusted EBITDAX and Adjusted Operating Cash Flow are non-GAAP measures. AR EV/EBITDAX multiple also reflects an enterprise value that excludes AR ownership of AM, and EBITDAX excludes AM distributions
Slide 19: Simplification Transaction Benefits Summary
Summary Simplification Transaction Benefits AR will remain the largest shareholder of Antero Midstream with a ~31% pro forma ownership Maintains Antero’s integrated strategy and long-term outlook Continued visibility into infrastructure buildout and full midstream value chain participation Unique mi
Slide 20: Simplification Transaction Benefits
saction Benefits aberniero Midstream simplification transaction attributes: AR receives cash and a premium for its AM ownership - _ Receivesa minimum of $300 million of cash which serves as a catalyst to fund a portion of AR’s share repurchase program - “Selling” midstream units to AMGP at a premium
Slide 21: Best in Class Midstream Vehicle
Best in Class Midstream Vehicle Simplification “checks all the boxes” for midstream investors Attribute 1099 Tax Form No IDRs Self-funding Model Reasonable Leverage Visible Growth Capital Efficiency Strong DCF Coverage Sufficient Liquidity Elected Board Tax Shield C-corp for tax and governance purpo
Slide 22: Series B Profits Elimination
Series B Profits Elimination Prior to Simplification: The Series B profits interests were created in December 2016 through an agreement between Antero’s co-founders and private equity sponsors, who jointly owned 100% of IDR LLC prior to the AMGP IPO Series B units are entitled to receive up to 6% of
Slide 23: Antero Non-GAAP Measures
24 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 24: Antero Non-GAAP Measures
25 Antero Non-GAAP Measures Consolidated Adjusted Operating Cash Flow, Stand-Alone Adjusted Operating Cash Flow and Free Cash Flow The GAAP financial measure nearest to Consolidated Adjusted Operating Cash Flow is cash flow from operating activities as reported in Antero’s consolidated financial sta
Slide 25: Appendix II Disclosures & Reconciliations: Antero Definitions
26 Appendix II 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
Slide 26: Antero Midstream Non-GAAP Measures
Antero Midstream Non-GAAP Measures 27 Non-GAAP Financial Measures and Definitions Antero Midstream views Adjusted EBITDA as an important indicator of the Partnership’s performance. Antero Midstream defines Adjusted EBITDA as Net Income before interest expense, depreciation expense, impairment expens
Slide 27: Adjusted EBITDA and DCF Reconciliation
Adjusted EBITDA and DCF Reconciliation 28 Adjusted EBITDA and DCF Reconciliation ($ in thousands) Three months ended June 30, 2017 2018 Net income $ 87,175 $ 109,466 Interest expense 9,015 14,628 Impairment of property and equipment expense — 4,614 Depreciation expense 30,512 36,433 Accretion of con
Slide 28: Antero Midstream Non-GAAP Measures
Antero Midstream Non-GAAP Measures 29 Twelve Months Ended June 30, 2018 Net income $ 362,620 Interest expense 45,631 Impairment of property and equipment expense 28,045 Depreciation expense 130,379 Accretion of contingent acquisition consideration 14,180 Accretion of asset retirement obligations 68
Slide 29: GAAP Measures
GAAP Measures ] A 9's consolidated total debt to consolidated net debt ("Net Debt") as used in this presentation » Antero Midstream Non The following table reconcil {in thousands): Sune 30,2018, Bank credit facility s 770,000 5.375% AM senior notes due 2024 650,000 Consolidated total debt s 1,420,00
Antero Midstream Partners — Merger or Acquisition (October 2018) on 6ix