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    Antero Resources Corp (AR)

    Q2 2024 Summary

    Updated Jan 28, 2025, 7:16 PM UTC
    Initial Price$29.49April 1, 2024
    Final Price$32.13July 1, 2024
    Price Change$2.64
    % Change+8.95%

    What went well

    • Antero Resources is achieving significant operational efficiencies, including drilling longer laterals up to 20,000 feet, which maintain productivity per foot similar to shorter laterals, resulting in cost savings and improved capital efficiency.
    • The company has implemented innovative technologies, such as an internally developed automated manifold system across all operations, increasing completion efficiencies to 12 stages per day, leading to reduced costs and enhanced operational performance.
    • Recent operational efficiencies are not yet fully incorporated into long-term projections, suggesting potential for further reductions in maintenance capital requirements and improved free cash flow in the future.

    What went wrong

    • Lower commodity prices and natural gas prices have been trending lower since last quarter, causing the company to push back its expected timing for shareholder returns, such as share buybacks, from 2024 to sometime in 2025. This is dependent on commodity prices improving.
    • Production is expected to drift lower throughout the rest of the year, leading to a reduced annual production guidance of 3.375 Bcf to 3.425 Bcf per day, down from the average of 3.425 Bcf per day in the first half.
    • The company has deferred bringing a pad online until the end of the year or early next year, depending on natural gas prices, indicating potential delays in production and sensitivity to commodity price fluctuations.

    Q&A Summary

    1. Shareholder Returns Timing
      Q: How does the macro impact shareholder returns timing?
      A: Michael Kennedy explained that the first $500-600 million of free cash flow will go towards debt paydown to zero out their credit facility and 2026 notes. After that, 50% of free cash flow will be allocated to shareholder returns, likely through share buybacks, with the remainder for further debt reduction. Due to lower commodity prices, this is now expected to occur sometime in 2025, rather than 2024.

    2. Production Guidance and Efficiencies
      Q: Do capital efficiency gains lower the $700 million D&C budget?
      A: Michael Kennedy stated that future projections assume 10.7 completion stages per day, but they've averaged close to 12 in the first half. The ability to maintain around $700 million in maintenance capital, and trend lower, was based on declining rates coming down over time. If efficiencies continue, they could lower costs further, not just due to declines but also operational efficiencies.

    3. Gas Price Exposure and Premiums
      Q: How will premiums to Henry Hub change in 2025-2026?
      A: Michael Kennedy expects that exposure to the LNG corridor will trend in their favor, with premiums over Henry Hub increasing by about $0.10 per year. For 2024, they anticipate a $0.00 to $0.10 premium; in 2025, $0.10 to $0.20; and in 2026, $0.20 to $0.30. This should lower their breakevens almost one-for-one.

    4. Deferred Pad Completion Timing
      Q: Is the timing for the deferred pad set in stone?
      A: Michael Kennedy said the timing is still to be determined based on natural gas prices. They deferred it to turn in line at the end of the year or early next to get into winter pricing but may defer further depending on prices.

    5. Longer Laterals and Cost Savings
      Q: What are the cost savings on 20,000 ft laterals vs two 10,000 ft laterals?
      A: Michael Kennedy didn't have exact numbers but mentioned that the longer laterals cost in the low $900 per foot. They haven't drilled 10,000-foot wells in quite some time. Paul Rady added that they invest land capital to extend laterals when opportunities arise.

    6. Completion Efficiency Gains
      Q: What technologies are driving the completion efficiency gains?
      A: Paul Rady explained they have modernized the manifold system, allowing them to switch between laterals on a pad quickly without manual intervention, averaging 12 stages per day. This process is used on 100% of their wells. Michael Kennedy added they are testing e-fleets, which may reduce downtime further if they perform well.

    7. Ethane Volumes and Pricing
      Q: How is ethane being priced and what's the uplift?
      A: David Cannelongo stated they are migrating towards gas-linked pricing, with about 2/3 gas-linked and 1/3 Mont Belvieu in 2024. In 2025-2026, Mont Belvieu-linked pricing trends down to about 20%, with the balance tied to gas uplift. Michael Kennedy maintained ethane production guidance at 76,000 to 80,000 barrels per day.

    8. Land Spending and Acreage Prices
      Q: Are ground floor deals becoming more favorable?
      A: Michael Kennedy confirmed that acreage is comparable and becoming more favorable due to lower commodity prices, which generally lead to lower acreage values.

    9. PJM Auction and Gas Demand
      Q: What are the implications of PJM auction results for natural gas demand?
      A: Justin B. Fowler expects natural gas demand additions of about 1 Bcf per day towards the end of the decade, totaling around 5 Bcf per day by 2030. The higher pricing in PJM supports increased gas-fired power generation due to data center growth and other projects.

    10. Production Guidance Basis
      Q: Is updated production guidance based on 12 stages per day?
      A: Michael Kennedy clarified that the updated production guidance incorporates outperformance in the first half but does not assume 12 stages per day in the second half. The annual guidance was adjusted to 3.375 to 3.425 Bcf per day due to strong first-half results.

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