Q1 2024 Summary
Published Feb 18, 2025, 5:22 PM UTC- Strategic Firm Transportation to LNG Corridor: Antero sells 75% of its natural gas at Henry Hub-linked prices in the LNG corridor, significantly more than peers who sell less than 15% into this premium market. This positions Antero to benefit from the start-up of the Plaquemines LNG terminal and the expected higher premiums in the Gulf Coast market.
- Increased Exposure to International NGL Markets: Antero has shifted to selling more of its liquids internationally, resulting in higher realized prices. The company has increased its guidance for full-year 2024 C3+ differentials to a premium to Mont Belvieu pricing due to this strategy.
- Organic Expansion of Premium Inventory: Antero added 19 new drilling locations in the first quarter at a cost of $26 million, which is highly economic compared to M&A valuations. This organic growth strategy enhances their 20-year inventory position and avoids expensive acquisitions.
- Antero's economic viability heavily depends on liquids pricing, especially NGLs, which constituted 55% of their first quarter revenue. If liquids prices decline, their economics could deteriorate significantly, potentially leading to deferred capital projects and reduced production growth.
- Limited capacity and increasing competition in transporting gas through certain pipelines, such as the TGP 500 leg, could pose challenges. With finite gas capacity and new liquefaction facilities adding competition, Antero may face volatility and pricing pressures in getting their gas to market.
- Potential concerns around propane pricing and rising inventories due to fully utilized docks could negatively impact Antero's NGL pricing. A decoupling of Mont Belvieu prices and increasing domestic storage levels may lead to lower propane prices, affecting their revenues.
-
Capital Allocation and Share Buybacks
Q: When will you resume share buybacks given the stronger balance sheet?
A: After paying down our credit facility and near-term maturities totaling $500 million, we'll return to our 50-50 strategy of debt reduction and share buybacks. Based on today's commodity prices, this could occur in the first half of next year. -
M&A Strategy
Q: How does Antero fit within the M&A landscape? Is organic growth the right strategy?
A: We believe in an organic strategy, adding 19 locations in Q1 for $26 million, which is highly economic compared to market prices in M&A deals. We're consolidating operations in the liquids-rich Marcellus, building our 20-year inventory organically to add value. -
Impact of LNG Facilities on Gas Pricing
Q: How will the Plaquemines LNG startup affect feed gas demand and pricing?
A: With the Evangeline Pass project starting July 1, we expect increased demand on the TGP 500 line. As liquefaction trains ramp up, basis premiums over Henry Hub could reach $0.60 to $0.70, reflecting in forward markets. -
LNG Contracts and Data Center Demand
Q: Will rising data center demand lead you to lock in long-term U.S. contracts?
A: No, we prefer to maintain optionality and sell gas into the Gulf Coast market, where premiums are increasing. The TGP 500 line premium grew from $0.03 last year to $0.40 and is expected to rise further as competition for our gas grows. -
Realized Prices and International Exposure
Q: Did any one-time items boost your C3+ realized prices above benchmarks?
A: There were no one-time items. Our higher NGL realizations result from shifting to internationally linked contracts, benefiting from better international pricing. This led us to raise guidance by $1, and we expect this premium to continue. -
Hedging and Domestic Exposure
Q: Why did you add propane hedges showing caution through December?
A: We hedged 10,000 barrels per day (~15% of our propane production) to mitigate domestic exposure. With concerns about propane pricing and potential inventory builds, we wanted to be conservative in case prices fell like last year to $0.65 per gallon. -
Plans Amid Weak Spot Prices
Q: Would you consider delaying wells due to weak spot gas prices?
A: Liquids pricing dominates our economics, with 55% of Q1 revenue from liquids. We might defer one pad scheduled for Q3 if current prices persist, placing us at the low end of capital guidance, but our high liquids content supports continued drilling. -
Emissions Reductions and Certified Gas
Q: Will all your production be certified under Project Canary? Can you reduce emissions further?
A: We aim to certify all production, currently at 2 Bcf/d (~50% of our field). We're nearing minimal emissions, having eliminated 85% of pneumatic devices and updated valve controls. By 2025, we expect to offset remaining emissions through initiatives like our cook stove project in Ghana. -
Storage Levels and Summer Outlook
Q: How do current storage levels and PADD 3 production affect your summer outlook?
A: Storage levels are between the 5-year average and top of the range, above average but below last year. Propane production forecasts vary, so we're cautious, influencing our decision to hedge domestic propane exposure this year. -
Drilling Longer Laterals
Q: Are shorter laterals more economic than longer ones?
A: While shorter laterals reach peak rates sooner, longer laterals of 16,000 to 20,000 feet offer better long-term economics by spreading costs over more footage. Despite taking longer to peak, these larger wells are worth the wait. -
Plaquemines LNG and Gas Scarcity
Q: How will gas scarcity with Plaquemines LNG's ramp-up be addressed? Is additional capacity possible?
A: Additional volumes might be drawn based on spreads and premiums. As new liquefaction capacity of 3.4 to 3.8 Bcf/d comes online, increased competition and price volatility are expected due to finite gas supply in the area. -
Technological Improvements: Zipper Fracs
Q: How has the adoption of zipper fracs evolved this year?
A: We've improved efficiency in using zipper fracs, now switching wells by flipping switches and valves, reducing downtime previously at least an hour, making operations more efficient. -
Martica Payments Timeline
Q: When do you expect Martica payment thresholds to be met?
A: Martica no longer participates in our wells as of March 31, 2023. The PDP base will revert to us upon hitting certain return rates, forecasted to begin in 2026.