Antero Resources Reports Third Quarter 2012 Results and Delivers Operating Update

DENVER, Nov. 8, 2012 /PRNewswire/ --

  • Net production averaged 308 MMcfed, up 57% over the prior-year quarter, pro forma for Arkoma sale
  • Consolidated EBITDAX was $95 million, up 47% over the prior-year quarter, pro forma for Arkoma sale
  • Current net production of 371 MMcfed — 314 MMcfd net from the Marcellus alone
  • 13 Antero-operated drilling rigs currently running in Marcellus and Utica Shale core areas
  • Announced start-up of Sherwood I processing plant in Marcellus – currently producing 1,300 Bbl/d of NGLs
  • Announced gas processing agreement with MarkWest in the Utica Shale play
  • Announced Piceance upstream and pipeline asset sale for $325 million plus $100 million hedge monetization
  • Increased borrowing base to $1.65 billion and lender commitments to $950 million

Antero Resources today released its third quarter 2012 results. Those financial statements are included in Antero Resources LLC's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, which has been filed with the Securities and Exchange Commission.

Recent Developments

On October 26, 2012, Antero announced that the borrowing base under its bank credit facility had been increased by $300 million to the $1.65 billion level.  Lender commitments under the facility were raised to $950 million, a $200 million increase.  The $950 million commitment can be expanded to the full $1.65 billion borrowing base upon bank approval.

On October 31, 2012, Antero and MarkWest Energy Partners, L.P. (MarkWest) jointly announced the completion of certain gas processing and pipeline infrastructure in Doddridge County, West Virginia.  The first phase of this infrastructure was completed and includes Sherwood I, which is a 200 MMcfd cryogenic gas processing plant, as well as plant inlet compression.  Antero is currently delivering 110 MMcfd of liquids rich gas to the Sherwood I plant inlet.  Antero will not recover ethane from the rich gas stream but will extract the heavier products ("C3+") until ethane takeaway is available.  Antero is an anchor shipper on Enterprise Products Partners L.P.'s Appalachia to Texas ATEX pipeline (ATEX Express) enabling Antero to ship up to 20,000 Bbl/d of ethane, with the option to expand to 40,000 Bbl/d.  The ATEX Express is expected to begin service in the first quarter of 2014.  MarkWest will initially truck Sherwood NGL products until completion of a 6-inch NGL pipeline from Sherwood to MarkWest NGL fractionation facilities in Houston, Pennsylvania.  The NGL pipeline is expected to be in service by the second quarter of 2013.  Current NGL yield from the 110 MMcfd of throughput at Sherwood I is approximately 1,300 Bbld of C3+ y-grade product.

On November 5, 2012, Antero announced that it had entered into an agreement to sell all of its natural gas properties and pipeline assets in the Piceance Basin to a private company for $325 million in cash plus the assumption of all of its Rocky Mountain firm transportation obligations.  The transaction is expected to close in December 2012, subject to the satisfaction of customary closing conditions, with an effective date of October 1, 2012.  Antero has also monetized approximately 80% of its 78 Bcf of Rockies hedges for $80 million and plans to monetize the remaining 20% in the fourth quarter of 2012 resulting in $100 million of hedge proceeds.

On November 6, 2012, Antero and MarkWest Utica EMG, L.L.C. (MarkWest Utica) jointly announced the completion of definitive agreements for MarkWest to provide processing, fractionation and marketing services in the liquids-rich corridor of the Utica Shale play.  Under the terms of the agreements, MarkWest Utica will develop natural gas processing infrastructure in Noble County, Ohio to process Antero's rich gas Utica Shale production.  MarkWest Utica will initially bring online an interim 45 MMcfd refrigeration natural gas processing plant with an expected second quarter 2013 completion date.  This interim facility will be followed by Seneca I, a 200 MMcfd cryogenic gas processing facility, which is expected to begin operations in the third quarter of 2013.  The definitive agreements also provide for the construction of an additional facility, Seneca II, a 200 MMcfd cryogenic processing facility, which may be installed as soon as the end of 2013.

On November 7, 2012, Antero announced a 33% increase in the company's 2012 capital budget to $1.6 billion, which includes $838 million for drilling and completion, $639 million for leasehold acquisitions and $123 million for the construction of gathering pipelines and facilities.  The budget was revised primarily to fund the acquisition of additional leasehold in Appalachia and the construction of gathering infrastructure which will gather rich gas in Doddridge County, West Virginia and deliver gas to MarkWest's Sherwood I gas processing plant.

In this release, Antero's results are presented two ways: (1) in accordance with GAAP, where the results of operations of the Arkoma Basin assets and the loss on the sale are presented in one line as discontinued operations and (2) in a non-GAAP manner, where the results of operations of the Arkoma Basin assets (prior to the June 29, 2012 closing) and the loss on the sale are aggregated with the Company's results from continuing operations.  Investors should be cautioned that this non-GAAP presentation is not representative of Antero's future operations, which will no longer include Arkoma Basin assets and earnings.  See "Non-GAAP Financial Measures" for reconciliation between these two presentations.

Financial Results for the Third Quarter

Production for the third quarter of 2012 increased by 17% to 28 Bcfe relative to the third quarter of 2011, including third quarter 2011 production from the Arkoma Basin assets sold in June 2012.  Excluding the Arkoma Basin assets that were sold in June 2012, net production increased 57% from the third quarter of 2011. The net production increase was primarily driven by new wells brought online in the Marcellus Shale.  Net production of 28 Bcfe for the quarter was comprised of 27 Bcf of natural gas, 203,000 barrels of NGLs and 78,000 barrels of oil.  Net daily production averaged 308 MMcfed for the third quarter, and was comprised of 289 MMcfd of natural gas (94%), 2,209 Bbl/d of NGLs (4%) and 850 Bbl/d of crude oil (2%).   

GAAP revenues for the third quarter of 2012 decreased by 139% compared to the third quarter of 2011 to a negative $88 million, primarily due to a $237 million unrealized loss on commodity derivatives in third quarter of 2012 compared to a $125 million unrealized gain on commodity derivatives in the prior year quarter.  Reported GAAP earnings resulted in a net loss of $128 million for the three months ended September 30, 2012, including a $237 million unrealized loss on commodity derivatives as natural gas prices increased from the prior quarter, and an $84 million deferred income tax benefit.  EBITDAX from continuing operations of $95 million for the third quarter of 2012 was 47% higher than the prior-year quarter, primarily due to increased production.  For a description of EBITDAX, and reconciliation to the nearest comparable GAAP measures, please read "Non-GAAP Financial Measures".

(The non-GAAP amounts presented below combine the Arkoma Basin operations with the Company's other operations.  See "Non-GAAP Financial Measures" for a definition of each of these non-GAAP financial measures and tables that reconcile each of these non-GAAP measures to their most directly comparable GAAP financial measure.)

Following the sale of the Arkoma in the second quarter of 2012, Non-GAAP adjusted net revenues for the third quarter 2012 increased 10% to $148 million compared to the third quarter of 2011 (including cash-settled derivatives but excluding unrealized derivative gains and losses).  For a reconciliation of adjusted net revenues to revenues from operations (GAAP), please read "Non-GAAP Financial Measures".  Liquids production (NGLs and oil) contributed 14% of adjusted net revenues before commodity hedges during the third quarter of 2012 compared to 12% in the prior year quarter.  Average natural gas prices before hedges decreased 31% from the prior-year quarter to $2.90 per Mcf and average natural gas-equivalent prices before hedges decreased 30% to $3.17 per Mcfe.  Additionally, average realized gas prices including hedges decreased by 4% to $5.10 per Mcf.  Average realized NGL prices decreased by 32% to $31.28 per barrel, while average realized oil prices including hedges increased by 2% to $78.60 per barrel.  Gas-equivalent prices, after adjusting for all realized gains on commodity derivatives, declined by 5% to $5.24 per Mcfe for the third quarter of 2012.

For the third quarter of 2012, Antero realized natural gas hedging gains of $59 million, or $2.07 per Mcfe.  However, due to the fact that expiring financial hedges are settled and realized on a monthly basis while long-term non-expiring hedges are marked to market at the end of the quarter, we realized gains on hedges that settled during the quarter while we recognized an unrealized loss on long-term hedges as natural gas prices rose during the third quarter of 2012.

Excluding the unrealized loss on commodity derivatives and deferred income tax benefit, adjusted net income, a non-GAAP measure, was $25 million for the quarter.  Cash flow from operations before changes in working capital, a non-GAAP measure, decreased 8% from the prior-year quarter to $65 million, excluding cash tax installment payments made during the quarter for alternative minimum taxes due on the gain on sale of Antero's Appalachian midstream assets divested in March 2012.  EBITDAX of $95 million for the third quarter of 2012 was 4% higher than the prior-year quarter, primarily due to increased production.   For a description of EBITDAX, adjusted net income and cash flow from operations before changes in working capital and reconciliation to the nearest comparable GAAP measures, please read "Non-GAAP Financial Measures".

Per unit cash production costs (lease operating, gathering, compression and transportation, and production tax) for the third quarter of 2012 were $1.49 per Mcfe, a 2% increase from the prior year quarter.  This increase was primarily driven by increased costs on firm transportation commitments executed to facilitate future production growth.  Per unit lease operating expenses decreased by 55% to $0.14 per Mcfe driven by a decrease in workover expense in the Piceance, the elimination of higher operating cost Arkoma production and the addition of high rate new Marcellus wells brought online during the third quarter of 2012.  Per unit depreciation, depletion and amortization expense decreased 21% from the prior year quarter to $1.45 per Mcfe, driven by low cost reserve increases.  On a per unit basis, general and administrative expense for the third quarter 2012 was $0.42 per Mcfe, a 40% increase from the third quarter of 2011, primarily driven by an increase in staffing levels commensurate with our growth in production levels and development activities and the elimination of Arkoma production due to the second quarter 2012 divestiture.

Antero Operations

Antero's current gross operated production is 461 MMcfd and estimated net production is 371 MMcfed, including 3,600 Bbl/d of NGLs and 1,000 Bbl/d of oil.  Antero has an additional estimated 40 MMcfed of net production in the Marcellus and Utica Shales that is either shut-in or constrained waiting on pipeline, compression or processing facilities.  During the third quarter of 2012, Antero completed 28 gross operated wells (27 net wells) and currently has 37 gross operated wells (36 net wells) in various stages of drilling, completion or waiting on completion.

Marcellus Shale — Antero is operating 12 drilling rigs in the Marcellus Shale play, all of which are drilling in northern West Virginia.  The Company plans to add a 13th drilling rig in December 2012 and a 14th drilling rig in January 2013.  Antero has 405 MMcfd of gross operated production in the play of which 99% is coming from 105 horizontal Marcellus Shale wells, resulting in 314 MMcfd of net production.  The 314 MMcfed net is comprised of approximately 307 MMcfd of tailgate gas, 1,100 Bbls/d of NGLs and 100 Bbls/d of light oil.  Antero has 24 horizontal wells either completing or waiting on completion and has two fully-dedicated frac crews currently working in West Virginia along with several spot crews as needed.   The 105 horizontal Marcellus wells that Antero has completed and placed online to date have an average lateral length of 6,699 feet.  In the third quarter of 2012, Antero completed 14 horizontal Marcellus Shale wells with an average 24-hour peak rate of 15.1 MMcfd and an average lateral length of approximately 7,631 feet.

In addition to the Sherwood I plant, Antero has committed to a second 200 MMcfd gas processing plant, Sherwood II, to be located on the same site as Sherwood I.  Sherwood II is expected to go in service in the second quarter of 2013.  Antero has also committed to the fabrication of a third 200 MMcfd gas processing plant, Sherwood III, which is expected to go online in the fourth quarter of 2013, giving Antero access to a total of 600 MMcfd of Marcellus gas processing capacity by the end of 2013.

MarkWest is building the Pike Fork high pressure lateral and has completed the Zinnia high pressure pipeline lateral, both of which will transport rich gas production from western Harrison and eastern Doddridge Counties to the Sherwood processing complex.  The Pike Fork lateral is expected to be completed in December 2012 and will bring approximately 40 MMcfd of rich gas to the Sherwood processing complex.  These high pressure laterals will also move rich gas gathered by Crestwood Midstream Partners, in the area of dedication, in order to be processed.

Antero is continuing to build out the 17-mile Canton low pressure pipeline lateral which will gather rich gas in northern Doddridge County and deliver the gas to the Sherwood I plant.  The southern section of the Canton low pressure lateral is in service and currently delivering rich gas to Sherwood I, with the remainder of the pipeline expected to go in service in December 2012.  MarkWest has also constructed inlet compression facilities located at the Sherwood I plant to serve the Canton low pressure lateral.  The first inlet compressor unit is online while the remaining units are awaiting hookup to the electric grid.  Antero is building the 20 mile White Oak high pressure lateral which will transport rich gas production from western Doddridge and eastern Ritchie Counties to the Sherwood processing facilities.  The White Oak lateral is expected to be in service in the fourth quarter of 2012.  White Oak compression facilities are expected to be in-service in the first quarter of 2013.

Antero has 277,000 net acres in the Marcellus Shale play of which only 15% was associated with proved reserves at mid-year 2012.  Approximately 78% of Antero's Marcellus leasehold contains processable rich gas.  The Company has increased its Marcellus Shale leasehold position by 67,000 net acres in 2012 to date.

Utica Shale Antero has assembled over 60,000 net acres of leasehold in the Utica Shale play of eastern Ohio and is currently operating one drilling rig.  Antero plans to add a second drilling rig in the second quarter of 2013.  Almost all of the acreage is located in the rich gas/condensate window of the Utica Shale play.  Antero has completed three horizontal wells in the Utica play with strong results.  All three completed wells are shut-in, waiting on pipeline and processing infrastructure.

Antero plans to put its first Utica Shale well online in December 2012 without access to processing followed by several additional wells by the second quarter of 2013 when the initial firm processing capacity becomes available.   Antero is in the process of laying both low and high pressure gathering pipeline to transport its initial Utica production.

Piceance Basin — Antero is no longer operating a drilling rig in the Piceance Basin as of late July 2012 when its drilling contract expired. The Company's gross operated production in the Piceance is currently 56 MMcfd and 57 MMcfed net including 2 MMcfed of non-operated production from 284 wells online.  The 57 MMcfed net is comprised of approximately 37 MMcfd of tailgate gas, 2,400 Bbls/d of NGLs and 900 Bbls/d of light oil.

Antero has 61,000 net acres in the Piceance.

Non-GAAP Financial Measures

The table below reconciles the Company's GAAP results from continuing operations to Non-GAAP results including operations of the Arkoma Basin assets (prior to the sale) and the loss on the sale.  Antero is including this presentation in order to more clearly illustrate its results of operations during the period:



ANTERO RESOURCES LLC

Statements of Operations and Additional Data

Based on GAAP reported earnings with additional

Details of items included in each line in Form 10-Q




Three Months Ended September 30, 2011


Three Months Ended September 30, 2012





Arkoma


Including




Arkoma


Including




As


Discontinued


Arkoma


As


Discontinued


Arkoma




Reported


Operations


Operations


Reported


Operations


Operations


(in thousands, except per unit and production data)

Operating revenues:














Natural gas sales


$

71,836


24,133


95,969


77,212



77,212


NGL sales


5,886


2,618


8,504


6,357



6,357


Oil sales


4,775


100


4,875


6,202



6,202


Realized commodity derivative gains


16,547


8,682


25,229


58,652



58,652


Unrealized commodity derivative gains (losses)


124,567


15,628


140,195


(236,536)



(236,536)


Gain (loss) on sale of assets





(115)



(115)


Total operating revenues


223,611


51,161


274,772


(88,228)



(88,228)


Operating expenses:














Lease operating expenses


6,087


1,485


7,572


3,943



3,943


Gathering, compression and transportation


15,439


7,076


22,515


32,976



32,976


Production taxes


5,473


(123)


5,350


5,397



5,397


Exploration expenses


968


137


1,105


3,251



3,251


Impairment of unproved properties


4,652


182


4,834


2,407



2,407


Depletion, depreciation and amortization


29,117


15,500


44,617


41,055



41,055


Accretion of asset retirement obligations


86


25


111


116



116


General and administrative


7,404




7,404


11,938



11,938


Total operating expenses


69,226


24,282


93,508


101,083



101,083


Operating income


154,385


26,879


181,264


(189,311)



(189,311)


Interest expense and loss on interest rate derivatives


(20,608)



(20,608)


(22,453)



(22,453)


Income (loss) before income taxes


133,777


26,879


160,656


(211,764)



(211,764)


Income tax benefit (expense)


(49,578)



(49,578)


84,086



84,086


Income from continuing operations


84,199


26,879


111,078


(127,678)



(127,678)


Income (loss) from discontinued operations and sale of discontinued operations


26,879


(26,879)






Net income (loss) attributable to Antero members


$

111,078



111,078


(127,678)



(127,678)
















Production data:














Natural gas (Bcf)


17


6


23


27



27


NGLs (MBbl)


138


47


185


203



203


Oil (MBbl)


62


1


63


78



78


Combined (Bcfe)


18


6


24


28



28


Daily combined production (MMcfe/d)


196


68


264


308



308


Average prices before effects of hedges:














Natural gas (per Mcf)


$

4.26


$

4.04


$

4.20


$

2.90


$


$

2.90


NGLs (per Bbl)


$

42.78


$

55.75


$

45.97


$

31.28


$


$

31.28


Oil (per Bbl)


$

77.63


$

85.47


$

77.38


$

79.30


$


$

79.30


Combined (per Mcfe)


$

4.57


$

4.28


$

4.50


$

3.17


$


$

3.17


Average realized prices after effects
of hedges:














Natural gas (per Mcf)


$

5.24


$

5.49


$

5.31


$

5.10


$


$

5.10


NGLs (per Bbl)


$

42.78


$

55.75


$

45.97


$

31.28


$


$

31.28


Oil (per Bbl)


$

77.16


$

85.47


$

76.92


$

78.60


$


$

78.60


Combined (per Mcfe)


$

5.49


$

5.67


$

5.53


$

5.24


$


$

5.24


Average Costs (per Mcfe):














Lease operating costs


$

0.34


$

0.24


$

0.31


$

0.14


$


$

0.14


Gathering, compression, and transportation


$

0.86


$

1.13


$

0.93


$

1.16


$


$

1.16


Production taxes


$

0.30


$

(0.02)


$

0.22


$

0.19


$


$

0.19


Depletion, depreciation, amortization and accretion


$

1.58


$

2.47


$

1.83


$

1.45


$


$

1.45


General and administrative


$

0.41


$

0


$

0.30


$

0.42


$


$

0.42

































ANTERO RESOURCES LLC

Statements of Operations and Additional Data

Based on GAAP reported earnings with additional

Details of items included in each line in Form 10-Q




Nine Months Ended September 30, 2011


Nine Months Ended September 30, 2012






Arkoma


Including




Arkoma


Including




As


Discontinued


Arkoma


As


Discontinued


Arkoma




Reported


Operations


Operations


Reported


Operations


Operations




(in thousands, except per unit and production data)


Operating revenues:














Natural gas sales


$

168,797


74,725


243,522


184,493


31,432


215,925


NGL sales


14,224


7,841


22,065


21,602


4,913


26,515


Oil sales


9,224


1,067


10,291


19,527


357


19,884


Realized commodity derivative gains


48,282


25,505


73,787


187,561


33,681


221,242


Unrealized commodity derivative gains (losses)


151,520


9,224


160,744


(111,649)


(11,025)


(122,674)


Gain on sale of assets





291,190



291,190


Total operating revenues


392,047


118,362


510,409


592,724


59,358


652,082


Operating expenses:














Lease operating expenses


17,487


5,069


22,556


16,123


4,344


20,467


Gathering, compression and transportation


37,331


22,141


59,472


78,888


16,267


95,155


Production taxes


12,141


446


12,587


15,191


417


15,608


Exploration expenses


5,902


636


6,538


8,150


269


8,419


Impairment of unproved properties


6,828


1,106


7,934


4,572


409


4,981


Depletion, depreciation and amortization


67,865


49,400


117,265


106,733


35,900


142,633


Accretion of asset retirement obligations


242


74


316


325


56


381


General and administrative


21,972



21,972


31,584



31,584


Loss on sale of compressor station


8,700



8,700





Total operating expenses


178,468


78,872


257,340


261,566


57,662


319,228


Operating income


213,579


39,490


253,069


331,158


1,696


332,854


Interest expense and loss on interest rate derivatives


(51,362)



(51,362)


(71,046)



(71,046)


Income (loss) before income taxes


162,217


39,490


201,707


260,112


1,696


261,808


Income tax benefit (expense)


(74,941)



(74,941)


(112,610)



(112,610)


Income from continuing operations


87,276


39,490


126,766


147,502


1,696


149,198


Income (loss) from discontinued operations and 

sale of discontinued operations


39,490


(39,490)



(425,536)


(1,696)


(427,232)


Net income (loss) attributable to Antero

members


$

126,766



126,766


(278,034)



(278,034)
















Production data:














Natural gas (Bcf)


38


18


56


69


14


83


NGLs (MBbl)


315


146


461


618


123


741


Oil (MBbl)


115


13


128


235


4


239


Combined (Bcfe)


41


19


60


74


14


88


Daily combined production (MMcfe/d)


150


70


220


272


79


351


Average prices before effects of hedges:














Natural gas (per Mcf)


$

4.40


$

4.15


$

4.31


$

2.66


$

2.31


$

2.61


NGLs (per Bbl)


$

45.21


$

53.71


$

47.86


$

34.95


$

39.93


$

35.78


Oil (per Bbl)


$

80.17


$

82.18


$

80.40


$

82.93


$

93.95


$

83.20


Combined (per Mcfe)


$

4.70


$

4.40


$

4.60


$

3.03


$

2.56


$

2.96


Average realized prices after effects of hedges:














Natural gas (per Mcf)


$

5.67


$

5.57


$

5.63


$

5.38


$

4.79


$

5.28


NGLs (per Bbl)


$

45.21


$

53.71


$

47.86


$

34.95


$

39.93


$

35.78


Oil (per Bbl)


$

75.36


$

82.18


$

76.07


$

80.83


$

93.95


$

81.14


Combined (per Mcfe)


$

5.88


$

5.74


$

5.85


$

5.55


$

4.90


$

5.45


Average Costs (per Mcfe):














Lease operating costs


$

0.43


$

0.27


$

0.38


$

0.22


$

0.30


$

0.23


Gathering, compression, and transportation


$

0.91


$

1.17


$

0.99


$

1.06


$

1.13


$

1.07


Production taxes


$

0.30


$

0.02


$

0.21


$

0.20


$

0.03


$

0.18


Depletion, depreciation, amortization

and accretion


$

1.64


$

2.60


$

1.97


$

1.43


$

2.51


$

1.61


General and administrative


$

0.54


$


$

0.37


$

0.42


$


$

0.36





























Adjusted net revenue as set forth in this release represents total operating revenues adjusted for certain non-cash items including unrealized derivative gains and losses and gains and losses on asset sales.  We believe that adjusted net revenue is useful to investors in evaluating operational trends of the Company and its performance relative to other oil and gas producing companies.  Adjusted net revenue is not a measure of financial performance under GAAP and should not be considered in isolation or as a substitute for total operating revenues as an indicator of financial performance.  The following table reconciles total operating revenues to total adjusted net revenues:



Three months ended

September 30,


Nine months ended

September 30,



2012


2011


2012


2011










Total revenues from continuing operations


$

(88,228)


$

223,611


$

592,724


$

392,047

Total revenues from discontinued operations





51,161



59,358



118,362

Total revenues


$

(88,228)


$

274,772


$

652,082


$

510,409

(Gain) loss on sale of assets


115



(291,190)


Unrealized commodity derivative (gains) losses


236,536


(140,195)


122,674


(160,744)

Adjusted net revenues


$

148,423


$

134,577


$

483,566


$

349,665

Adjusted net income as set forth in this release represents income from operations before deferred income taxes, adjusted for certain non-cash items from operations and discontinued operations.  We believe that adjusted net income is useful to investors in evaluating operational trends of the Company and its performance relative to other oil and gas producing companies.  Adjusted net income is not a measure of financial performance in accordance with GAAP and should not be considered in isolation or as a substitute for net income (loss) as an indicator of financial performance.  The following table reconciles income from operations to adjusted net income:



Three months ended

September 30,


Nine months ended

September 30,



2012


2011


2012


2011










Net income (loss)


$

(127,678)


$

111,078


$

(278,034)


$

126,766

Unrealized commodity derivative (gains) losses


236,536


(140,195)


122,674


(160,744)

Loss on sale of Arkoma Basin assets




427,232


(Gain) loss on sale of Marcellus gathering assets


115



(291,190)


(Gain) loss on sale of compressor station





8,700

Income tax expense (benefit)


(84,086)


49,578


112,610


74,941

Adjusted net income


$

24,887


$

20,461


$

93,292


$

49,663

Cash flow from operations before changes in working capital as presented in this release represents net cash provided by operations before changes in working capital. Cash flow from operations before changes in working capital is widely accepted by the investment community as a financial indicator of an oil and gas company's ability to generate cash to internally fund exploration and development activities and to service debt. Cash flow from operations before changes in working capital is also useful because it is widely used by professional research analysts in valuing, comparing, rating and providing investment recommendations of companies in the oil and gas exploration and production industry. In turn, many investors use this published research in making investment decisions. Cash flow from operations before changes in working capital is not a measure of financial performance under GAAP and should not be considered as an alternative to cash flows from operations, investing, or financing activities, as an indicator of cash flows, or as a measure of liquidity. The following table reconciles net cash provided by operating activities to cash flow from operations before changes in working capital as used in this release:



Three months ended

September 30,


Nine months ended

September 30,



2012


2011


2012


2011










Net cash provided by operating activities


$

64,416


$

86,543


$

225,400


$

198,446

Net change in working capital


(5,470)


(15,256)


(9,510)


(21,707)

Cash flow from operations before changes in working capital


$

58,946


$

71,287


$

215,890


$

176,739

EBITDAX is a non-GAAP financial measure that we define as net income before interest expense and other income or expense, taxes, impairments, depletion, depreciation, amortization, exploration expense, unrealized hedge gains or losses, gain or loss on sale of assets, franchise taxes and expenses related to business acquisitions.  EBITDAX, as used and defined by us, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with GAAP. EBITDAX should not be considered in isolation or as a substitute for operating income, net income or loss, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP. EBITDAX provides no information regarding a company's capital structure, borrowings, interest costs, capital expenditures, and working capital movement or tax position. EBITDAX does not represent funds available for discretionary use because those funds are required for debt service, capital expenditures, working capital, and other commitments and obligations. However, our management team believes EBITDAX is useful to an investor in evaluating our operating performance because this measure is widely used by investors in the natural gas and oil industry to measure a company's operating performance without regard to items excluded from the calculation of such term, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors; helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating structure; and is used by our management team for various purposes, including as a measure of operating performance, in presentations to our board of directors, as a basis for strategic planning and forecasting and by our lenders pursuant to a covenant under our senior secured revolving credit facility.  EBITDAX is also used as a measure of operating performance pursuant to a covenant under the indenture governing our 9.375% and 7.25% senior notes.

There are significant limitations to using EBITDAX as a measure of performance, including the inability to analyze the effect of certain recurring and non-recurring items that materially affect our net income or loss, the lack of comparability of results of operations of different companies and the different methods of calculating EBITDAX reported by different companies. The following table represents a reconciliation of our net income to EBITDAX for the three and nine months ended September 30, 2011 and 2012:



Three months ended

September 30,


Nine months ended

September 30,



2012


2011


2012


2011

Net income (loss)


$

(127,678)


$

84,199


$

147,502


$

87,276

Unrealized loss (gain) on commodity derivative contracts


236,536


(124,567)


111,649


(151,520)

Interest expense and other


22,453


20,608


71,046


51,362

Provision (benefit) for income taxes


(84,086)


49,578


112,610


74,941

Depreciation, depletion, amortization and accretion


41,171


29,203


107,058


68,107

Impairment of unproved properties


2,407


4,652


4,572


6,828

Exploration expense


3,251


968


8,150


5,902

(Gain) loss on sale of gathering systems


115



(291,190)


(Gain) loss on sale of compressor station





8,700

Other


996


185


2,992


708

EBITDAX from continuing operations


$

95,165


$

64,826


$

274,389


$

152,304














EBITDAX from discontinued operations





27,095



49,355



81,482














EBITDAX


$

95,165


$

91,921


$

323,744


$

233,786

The cash prices realized for oil, NGLs and natural gas production including the amounts realized on cash settled derivatives are a critical component in the Company's performance tracked by investors and professional research analysts in valuing, comparing, rating and providing investment recommendations and forecasts of companies in the oil and gas exploration and production industry. In turn, many investors use this published research in making investment decisions. Due to the GAAP disclosures of various hedging and derivative transactions, such information is now reported in various lines of the income statement.

Antero Resources is an independent oil and natural gas company engaged in the acquisition, development and production of unconventional oil and liquids-rich natural gas properties primarily located in the Appalachian Basin in West Virginia, Ohio and Pennsylvania, and in the Piceance Basin in Colorado. Our website is located at www.anteroresources.com.

This release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond Antero's control. All statements, other than historical facts included in this release, are forward-looking statements. All forward-looking statements speak only as of the date of this release. Although Antero believes that the plans, intentions and expectations reflected in or suggested by the forward-looking statements are reasonable, there is no assurance that these plans, intentions or expectations will be achieved. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the exploration for and development, production, gathering and sale of natural gas and oil. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating natural gas and oil reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, and the other risks described under the heading "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2011.



ANTERO RESOURCES LLC

Condensed Consolidated Balance Sheets

December 31, 2011 and September 30, 2012

(Unaudited)

(In thousands)








2011


2012

Assets





Current assets:





Cash and cash equivalents


$

3,343


16,555

Accounts receivable — net of allowance for doubtful accounts of $182 and $174 in 2011 and 2012, respectively


25,117


39,487

Notes receivable - short-term portion


7,000


6,222

Accrued revenue


35,986


18,609

Derivative instruments


248,550


172,123

Other


13,646


13,860

Total current assets


333,642


266,856

Property and equipment:





Natural gas properties, at cost (successful efforts method):





Unproved properties


834,255


1,134,725

Producing properties


2,497,306


2,196,746

Gathering systems and facilities


142,241


133,411

Other property and equipment


8,314


11,100



3,482,116


3,475,982

Less accumulated depletion, depreciation, and amortization


(601,702)


(391,227)

Property and equipment, net


2,880,414


3,084,755

Derivative instruments


541,423


386,957

Notes receivable - long-term portion


5,111


2,667

Other assets, net


28,210


25,034

Total assets


$

3,788,800


3,766,269






Liabilities and Equity





Current liabilities:





Accounts payable


$

107,027


176,888

Accrued liabilities


35,011


42,867

Revenue distributions payable


34,768


34,748

Advances from joint interest owners


2,944


113

Current income tax liability



15,000

Deferred income tax liability


75,308


62,739

Total current liabilities


255,058


332,355






Long-term liabilities:





Long-term debt


1,317,330


1,399,091

Deferred income tax liability


245,327


341,506

Other long-term liabilities


12,279


12,545

Total liabilities


1,829,994


2,085,497






Equity:





Members' equity


1,460,947


1,460,947

Accumulated earnings


497,859


219,825

Total equity


1,958,806


1,680,772

Total liabilities and equity


$

3,788,800


3,766,269



ANTERO RESOURCES LLC

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Nine Months Ended September 30, 2011 and 2012

(Unaudited)

(In thousands)




2011


2012

Revenue:





Natural gas sales


$

168,797


184,493

Natural gas liquids sales


14,224


21,602

Oil sales


9,224


19,527

Realized and unrealized gain on commodity derivative instruments (including unrealized gains (losses) of $151,520 and $(111,649) in 2011 and 2012, respectively)


199,802


75,912

Gain on sale of gathering system



291,190

Total revenue


392,047


592,724

Operating expenses:





Lease operating expenses


17,487


16,123

Gathering, compression and transportation


37,331


78,888

Production taxes


12,141


15,191

Exploration expenses


5,902


8,150

Impairment of unproved properties


6,828


4,572

Depletion, depreciation and amortization


67,865


106,733

Accretion of asset retirement obligations


242


325

General and administrative


21,972


31,584

Loss on sale of assets


8,700


Total operating expenses


178,468


261,566

Operating income


213,579


331,158

Other expense:





Interest expense


(51,268)


(71,046)

Realized and unrealized losses on interest derivative instruments, net (including unrealized gains of $4,212 in 2011)


(94)


Total other expense


(51,362)


(71,046)

Income from continuing operations before income taxes and discontinued operations


162,217


260,112






Income tax expense


(74,941)


(112,610)






Income from continuing operations


87,276


147,502






Discontinued operations:





Income (loss) from results of operations and sale of discontinued operations


39,490


(425,536)






Net income (loss) and comprehensive income (loss) attributable to Antero equity owners


$

126,766


(278,034)



ANTERO RESOURCES LLC

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended September 30, 2011 and 2012

(Unaudited)

(In thousands)





2011


2012

Revenue:





Natural gas sales


$

71,836


77,212

Natural gas liquids sales


5,886


6,357

Oil sales


4,775


6,202

Realized and unrealized gain (loss) on commodity derivative instruments (including unrealized gains (losses) of $124,567 and $(236,536) in 2011 and 2012, respectively)


141,114


(177,884)

Loss on sale of gathering system



(115)

Total revenue


223,611


(88,228)

Operating expenses:





Lease operating expenses


6,087


3,943

Gathering, compression and transportation


15,439


32,976

Production taxes


5,473


5,397

Exploration expenses


968


3,251

Impairment of unproved properties


4,652


2,407

Depletion, depreciation and amortization


29,117


41,055

Accretion of asset retirement obligations


86


116

General and administrative


7,404


11,938

Total operating expenses


69,226


101,083

Operating income (loss)


154,385


(189,311)






Interest expense


(20,608)


(22,453)






Income (loss) from continuing operations before income taxes and discontinued operations


133,777


(211,764)






Income tax (expense) benefit


(49,578)


84,086






Income (loss) from continuing operations


84,199


(127,678)






Discontinued operations:





Income from results of operations and sale of discontinued operations


26,879







Net income (loss) and comprehensive income (loss) attributable to Antero equity owners


$

111,078


(127,678)



ANTERO RESOURCES LLC

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2011 and 2012

Unaudited

(In thousands)




2011


2012

Cash flows from operating activities:





Net income (loss)


$

126,766


(278,034)

Adjustment to reconcile net income to net cash provided by operating activities:





Depletion, depreciation, amortization, and accretion


68,107


107,058

Impairment of unproved properties


6,828


4,572

Unrealized gains (losses) on derivative instruments, net


(151,520)


111,649

Loss on sale of discontinued operations



427,232

Loss (gain) on sale of assets


8,700


(291,190)

Depletion, depreciation, accretion, amortization and impairment of unproved properties - discontinued operations


50,580


36,365

Unrealized losses on derivative instruments, net - discontinued operations


(9,224)


11,025

Deferred taxes


74,941


83,610

Other


1,561


3,603

Changes in current assets and liabilities:





Accounts receivable


3,736


(16,811)

Accrued revenue


(11,840)


17,378

Other current assets


957


(3,112)

Accounts payable


(4,505)


(9,812)

Accrued liabilities


21,292


7,281

Revenue distributions payable


10,420


2,369

Advances from joint interest owners


1,647


(2,783)

Current income taxes payable



15,000

Net cash provided by operating activities


198,446


225,400

Cash flows from investing activities:





Additions to proved properties


(105,405)


(4,451)

Additions to unproved properties


(145,200)


(428,574)

Drilling costs


(383,958)


(619,344)

Additions to gathering systems and facilities


(63,110)


(58,748)

Additions to other property and equipment


(2,083)


(2,786)

Proceeds from asset sales


15,379


816,167

Changes in other assets


(3,105)


2,556

Net cash used in investing activities


(687,482)


(295,180)

Cash flows from financing activities:





Issuance of senior notes


400,000


Borrowings on bank credit facility, net


120,000


82,000

Payments of deferred financing costs


(6,800)


Distribution to members


(28,858)


Other


(114)


992

Net cash provided by financing activities


484,228


82,992

Net increase (decrease) in cash and cash equivalents


(4,808)


13,212

Cash and cash equivalents, beginning of period


8,988


3,343

Cash and cash equivalents, end of period


$

4,180


16,555

Supplemental disclosure of cash flow information:





Cash paid during the period for interest


$

(39,930)


(61,930)

Supplemental disclosure of noncash investing activities:





Increase in accounts payable for additions to properties, gathering systems and facilities


$

6,235


73,430



OPERATING DATA


The following table sets forth selected operating data for the three months ended September 30, 2011 compared to the three months ended September 30, 2012:




Three Months Ended

September 30,


Amount of

Increase


Percent



2011


2012


(Decrease)


Change



(in thousands, except per unit and production data)

Operating revenues:









Natural gas sales


$

71,836


77,212


5,376


7%

NGL sales


5,886


6,357


471


8%

Oil sales


4,775


6,202


1,427


30%

Realized commodity derivative gains


16,547


58,652


42,105


254%

Unrealized commodity derivative gains (losses)


124,567


(236,536)


(361,103)


*

Loss on sale of assets




(115)


(115)


*

Total operating revenues


223,611


(88,228)


(311,839)


*

Operating expenses:









Lease operating expense


6,087


3,943


(2,144)


(35)%

Gathering, compression and transportation


15,439


32,976


17,537


114%

Production taxes


5,473


5,397


(76)


(1)%

Exploration expenses


968


3,251


2,283


236%

Impairment of unproved properties


4,652


2,407


(2,245)


(48)%

Depletion, depreciation and amortization


29,117


41,055


11,938


41%

Accretion of asset retirement obligations


86


116


30


35%

General and administrative


7,404


11,938


4,534


61%

Total operating expenses


69,226


101,083


31,857


44%

Operating income (loss)


154,385


(189,311)


(343,696)


*

Interest expense


(20,608)


(22,453)


(1,845)


9%

Income (loss) before income taxes


133,777


(211,764)


(345,541)


*

Income tax benefit (expense)


(49,578)


84,086


133,664


*

Income (loss) from continuing operations


84,199


(127,678)


(211,877)


*

Income from discontinued operations and sale of discontinued operations


26,879



(26,879)


(100)%

Net income (loss) attributable to Antero members


$

111,078


(127,678)


(238,756)


*










EBITDAX


$

91,921


95,165


3,244


4%










Production data:









Natural gas (Bcf)


17


27


10


57%

NGLs (MBbl)


138


203


65


48%

Oil (MBbl)


62


78


16


28%

Combined (Bcfe)


18


28


10


57%

Daily combined production (MMcfe/d)


196


308


112


57%

Average prices before effects of hedges:









Natural gas (per Mcf)


$

4.26


$

2.90


$

(1.36)


(32)%

NGLs (per Bbl)


$

42.78


$

31.28


$

(11.50)


(27)%

Oil (per Bbl)


$

77.63


$

79.30


$

1.67


2%

Combined (per Mcfe)


$

4.57


$

3.17


$

(1.40)


(31)%

Average realized prices after effects of hedges:









Natural gas (per Mcf)


$

5.24


$

5.10


$

(0.14)


(3)%

NGLs (per Bbl)


$

42.78


$

31.28


$

(11.50)


(27)%

Oil (per Bbl)


$

77.16


$

78.60


$

1.40


2%

Combined (per Mcfe)


$

5.49


$

5.24


$

(0.25)


(5)%

Average Costs (per Mcfe):









Lease operating costs


$

0.34


$

0.14


$

(0.20)


(59)%

Gathering, compression and transportation


$

0.86


$

1.16


$

0.30


35%

Production taxes


$

0.30


$

0.19


$

(0.11)


(37)%

Depletion, depreciation, amortization and accretion


$

1.61


$

1.45


$

(0.16)


(10)%

General and administrative


$

0.41


$

0.42


$

0.01


2%



OPERATING DATA


The following table sets forth selected operating data for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2012:




Nine months Ended

September 30,


Amount of

Increase


Percent



2011


2012


(Decrease)


Change



(in thousands, except per unit and production data)

Operating revenues:









Natural gas sales


$

168,797


184,493


15,696


9%

NGL sales


14,224


21,602


7,378


52%

Oil sales


9,224


19,527


10,303


112%

Realized commodity derivative gains


48,282


187,561


139,279


288%

Unrealized commodity derivative gains (losses)


151,520


(111,649)


(263,169)


(174)%

Gain on sale of assets



291,190


291,190


*

Total operating revenues


392,047


592,724


200,677


51%

Operating expenses:









Lease operating expense


17,487


16,123


(1,364)


(8)%

Gathering, compression and transportation


37,331


78,888


41,557


111%

Production taxes


12,141


15,191


3,050


25%

Exploration expenses


5,902


8,150


2,248


38%

Impairment of unproved properties


6,828


4,572


(2,256)


(33)%

Depletion, depreciation and amortization


67,865


106,733


38,868


57%

Accretion of asset retirement obligations


242


325


83


34%

General and administrative


21,972


31,584


9,612


44%

Loss on sale of compressor station


8,700



(8,700)


(100)%

Total operating expenses


178,468


261,566


83,098


47%

Operating income


213,579


331,158


117,579


55%

Interest expense and loss on interest rate derivatives


(51,362)


(71,046)


(19,684)


38%

Income before income taxes


162,217


260,112


97,895


60%

Income tax expense


(74,941)


(112,610)


(37,669)


50%

Income from continuing operations


87,226


147,502


60,226


69%

Income (loss) from discontinued operations and sale of discontinued operations


39,940


(425,536)


(464,422)


*

Net income (loss) attributable to Antero members


$

126,766


(278,034)


(404,800)


*










EBITDAX


$

233,786


323,744


89,958


38%










Production data:









Natural gas (Bcf)


38


69


31


81%

NGLs (MBbl)


315


618


303


96%

Oil (MBbl)


115


235


120


104%

Combined (Bcfe)


41


74


33


82%

Daily combined production (MMcfe/d)


150


272


122


82%

Average prices before effects of hedges:









Natural gas (per Mcf)


$

4.40


$

2.66


$

(1.74)


(40)%

NGLs (per Bbl)


$

45.21


$

34.95


$

(10.26)


(23)%

Oil (per Bbl)


$

80.17


$

82.93


$

2.76


3%

Combined (per Mcfe)


$

4.70


$

3.03


$

(1.67)


(36)%

Average realized prices after effects of hedges:









Natural gas (per Mcf)


$

5.67


$

5.38


$

(0.29)


(5)%

NGls (per Bbl)


$

45.21


$

34.95


$

(10.26)


(23)%

Oil (per Bbl)


$

75.36


$

80.83


$

5.47


7%

Combined (per Mcfe)


$

5.88


$

5.55


$

(0.33)


(6)%

Average Costs (per Mcfe):









Lease operating costs


$

0.43


$