Q3 2024 Earnings Summary
- Antero Resources is achieving significant efficiency gains in drilling and completions, reducing capital expenditures while maintaining production levels. The company has reduced cycle times by 23% since 2022 and set new records in drilling and completion speeds, leading to lower well costs and the ability to maintain production with less capital expenditure. These efficiencies have resulted in a reduced capital budget for 2025, with maintenance capital of around $700 million, down from previous estimates.
- The company expects to benefit from increasing gas premiums as LNG comes online in 2025, with their marketing strategy positioning them to capture higher prices. Antero flows about 75% of its gas to the Gulf Coast and LNG corridor, expecting premiums to increase as new LNG facilities commence operations. This positions them favorably in anticipation of higher demand and prices.
- Adoption of new technologies like e-fleets offers potential cost savings, enhancing operational efficiency and reducing well costs. Early results from trials indicate potential savings of $150,000 to $200,000 per well, which the company may incorporate into future operations, contributing to lower capital requirements.
- The company is deferring completion of drilled wells due to low natural gas prices, which could lead to delayed production growth or lower future output.
- Production is expected to remain flat in 2025 despite operational efficiencies and reduced capital expenditure, which may limit near-term growth prospects.
- The company plans to allocate the first $600 million of free cash flow to debt reduction before focusing on share buybacks, potentially delaying returns to shareholders.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Production | FY 2024 | 3.375 to 3.425 Bcf/day | 3.3 to 3.4 Bcf/day | lowered |
Free Cash Flow | FY 2024 | no prior guidance | remain free cash flow neutral in a $2.25 environment | no prior guidance |
NGL yoy pricing | FY 2024 | no prior guidance | more than $4/bbl higher vs FY 2023 | no prior guidance |
Production | FY 2025 | no prior guidance | 3.3 to 3.4 Bcf/day | no prior guidance |
Maintenance capital | FY 2025 | no prior guidance | $700 million or $650 million | no prior guidance |
Free Cash Flow | FY 2025 | no prior guidance | significant upside | no prior guidance |
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CapEx and Production Guidance
Q: Should we expect flat production and is $650 million CapEx reasonable?
A: Management expects production to remain relatively flat next year, targeting 3.3 to 3.4 Bcfe/day with maintenance capital around $700 million. While $650 million is possible, it would result in production at the low end of the range. Efficiencies have allowed reductions in capital expenditures even as they maintain production levels. -
Free Cash Flow Allocation
Q: Could you elaborate on your buyback strategy?
A: After achieving investment-grade status, the first $600 million of free cash flow will be used to reduce debt, including paying down the credit facility to zero and repurchasing approximately $97 million of 2026 notes. Thereafter, the majority of free cash flow will be allocated to buybacks. -
DUC Completions and Gas Prices
Q: What conditions would cause you to complete deferred wells?
A: The company has deferred completing two DUC pads with 12 wells until gas prices improve. For these wells, with 1,200 Btu content, management requires gas prices of $2.50/MMBtu or higher to complete them , considering breakeven levels at that Btu and $40 C3+ NGLs prices. Completions can be initiated with a 60-day response time when prices are favorable. -
Hedging Strategy
Q: Do you plan to hedge gas prices for 2026?
A: Management is monitoring the forward curve and may consider hedging if gas prices reach thresholds that improve economics, especially with 2026 prices over $3.50/MMBtu. They have not committed to hedging but are keeping an eye on market conditions. -
Marketing Strategy and Gas Realizations
Q: Any updates on your gas marketing strategy?
A: The company continues to focus on flowing as much gas as possible to the Gulf Coast and LNG facilities, accounting for about 75% of their gas. The remainder goes to TCO and the Midwest. They expect premiums to increase as more LNG capacity comes online in 2025. -
Capital Efficiency Gains
Q: What impact do efficiencies have on your 2025 budget?
A: Efficiencies achieved in drilling and completions, such as lower well costs per foot, have allowed the company to lower their 2025 capital budget to maintain production levels. These efficiencies are included in the $700 million maintenance capital estimate for 2025. -
Drilling Carry Impact on CapEx
Q: What's the delta on the drilling carry benefit from 2024 to 2025?
A: The drilling carry benefit in 2024 was approximately $30 million and is not recurring in 2025. The $700 million maintenance capital estimate for 2025 assumes no drilling joint venture. -
e-Fleet Cost Savings
Q: Are you planning to lock in the e-fleet for next year?
A: After successfully testing an e-fleet, which saved over $100,000 per well , the company is completing a second trial pad. Upon completion, they will evaluate and potentially lock in the e-fleet for next year to capitalize on these cost savings. -
LPG Export Premiums
Q: How will LPG export capacity increases affect your premium in 2025?
A: The company expects the current premium from Northeast LPG exports to continue until expansion capacity comes online around mid-2025 and January 2026. They note that additional capacity may initially focus on LPG but could shift to ethane, requiring further expansions to alleviate constraints. Being in the Northeast allows them to avoid these constraints.
Research analysts covering ANTERO RESOURCES.