Antero 'least hedged' in its history; optimistic on drilling, inventory prices

Appalachia natural gas producer Antero Resources does not plan to hedge any of its expected 2023 gas production, with executives expressing confidence Feb. 17 that the company's firm transportation portfolio and strong inventory of undeveloped locations will allow it to reach financial goals without locking in prices.

During the company's fourth-quarter 2021 earnings call, CFO Michael Kennedy told analysts that Antero is "currently the least hedged in our company history."

Antero has hedging positions in place for around half of its expected 2022 natural gas production, Kennedy said, with no hedges in place for 2023.

The producer has no intention of putting any additional hedges in place in the foreseeable future either, CEO Paul Rady said.

"I think we've read the market right, and we've backed off natural gas hedging," Rady said. "We have the balance sheet now and a lot of opportunities to really pay down debt more quickly if we're just willing to stay on the front of the curve. We don't want to hedge into a backwardated curve."

As of Feb. 17, the S&P Global Platts Analytics' Henry Hub forward curve averaged $3.85/MMBtu, with the front months of the curve much stronger than the later months. The January 2023 contract was assessed at $5.01/MMBtu, with the February 2023 contract at $4.83/MMBtu and March 2023 at $4.39/MMBtu. The April-December 2023 contracts were all below $4/MMBtu.

Firm transportation portfolio

Antero has sufficient firm transportation contracts to sell 100% of its expected gas production out of the basin, executives said, identifying its transportation portfolio as a key support for the plan to forgo hedging.

The company's firm transportation contracts are insurance against the risk of basis blowouts, as a difficult permitting and construction landscape for new pipelines in the Northeast has increased the possibility of production exceeding takeaway capacity. Platts Analytics has estimated Appalachia takeaway capacity at around 35 Bcf/d, a production level that was almost reached in December 2021.

The ability to move gas out of basin "will continue to prove valuable with the delay in Mountain Valley Pipeline and likely limited infrastructure being built in Appalachia going forward," Kennedy said.

Two-thirds of Antero's firm transport contracts, or around 2.2 Bcf/d, bring gas to the Gulf Coast, with another 20% for routes into the Midwest demand markets, and some capacity going to Cove Point, Kennedy said.

Antero expects to average a premium to NYMEX Henry Hub in a range of 15 cents-25 cents/Mcf in 2022, according to the company's guidance for the year. The company expects NYMEX Henry Hub to average $4.50/MMBtu in 2022, with a longer-term assumption of averaging $3.60/MMBtu for 2022 through 2026.

Strong inventory

Unlike some other Appalachia gas producers that have expanded operations to other basins through M&A activity, Antero has focused entirely on the Marcellus and Utica basins, which executives said has strengthened its inventory of premium drilling locations and improved operating efficiencies.

"As opposed to larger transactions that can dilute your equity result in a large overhang and lever your balance sheet, we have preferred to pick up smaller, more tailored acreage packages within our core liquids-rich position in West Virginia," Rady said.

The company estimated that Antero holds 1,550 of approximately 4,700 undeveloped premium locations in the basin, according to the Feb. 17 presentation materials.

Antero plans to keep production relatively steady over the next year, producing between 2.2-2.25 Bcf/d of gas in 2022, in line with its fourth-quarter 2021 average of 2.23 Bcf/d.

Financial results

For the quarter ended Dec. 31, Antero had a net income of $901 million, or $2.87/share, up from $70 million, or 26 cents/share, in the corresponding quarter of 2020.

Revenues from both gas sales and NGLs in the fourth quarter were double those of the fourth quarter 2020, reflecting the higher pricing environment. Total operating expenses in the most recent quarter were slightly lower than that of the year-ago quarter.