Appalachian pure-play Antero Resources Corp. turned in a strong third quarter, leveraging its firm transportation portfolio to move gas to more favorable pricing outside the basin and grow production 25% year/year.
Reporting 3Q2016 results in a conference call with analysts Thursday, COO Glen Warren touted the competitive advantages the Denver-based exploration and production company has realized by paying for firm transportation contracts to avoid selling at the depressed price points in and around its core acreage in the Marcellus and Utica shales.
Warren said Antero realized a 5 cent premium to the New York Mercantile Exchange (NYMEX) Henry Hub price during the quarter, even as local points like Dominion South and TETCO M2 saw negative differentials of around $1.62/MMBtu.
“This is $0.77/Mcf higher than the next closest peer that has reported thus far and $1.53/Mcf above the blended TETCO/Dominion South index for the quarter, which truly highlights the value of our firm transport portfolio and the advantage we have over our peers moving virtually all of our gas away from unfavorable local Appalachian indices,” Warren said.
The additional cost of the firm transport agreements has eliminated the risk created by negative Northeast basis differentials, Warren said.
“If we were to sell our gas at local indices...we would avoid the firm transport cost. However, we would average a netback based on Sept. 30 strip pricing of NYMEX less 91 cents, or 45 cents worse than what we expect to receive through utilizing our firm transport portfolio,” Warren said. “I think it’s also important to point out that the strip pricing I’m referring to indicates a relative tightening of local basis, which has been priced in to give effect to pipeline projects that are expected to come online.
“Given the current environment today as it relates to pipeline projects, I think many would agree there is significant risk that the tightening of Dominion South and TETCO basis may not occur at the levels implied by the current strip…”
On the subject of pipelines, CEO Paul Rady said Antero is currently constrained in its Utica acreage at 600 MMcf/d on the Rockies Express Pipeline (REX), with more capacity anticipated on the completion of the proposed east-to-west Rover Pipeline Project (see Shale Daily, July 29).
“What is the next shoe to drop? The next event that we’re looking forward to is Rover coming to the Utica play. We estimate that it’s scheduled to be built to our Seneca outlet sometime between mid-2017 and the end of 2017,” Rady said. “So that’s what’s constraining us and keeping us maxed. We certainly have the alternative there at Seneca to sell into TETCO.” But with less favorable pricing compared to REX “we’ve moved the capital over to the Marcellus and are moving the resulting gas to better markets there. So just keeping [the Utica production] at 600 MMcf/d waiting for the next project.”
Net production for the quarter averaged 1,875 MMcfe/d (26% weighted to liquids), a 6% sequential increase and a 25% increase over 3Q2015 production. Total liquids production reached a record 81,460 b/d, up 9% sequentially and 56% year/year.
In its Marcellus Shale acreage, Antero completed and placed online 14 horizontal wells in 3Q2016, with average lateral lengths of 9,033 feet. The company drilled and cased 28 wells in the quarter averaging 4,000 feet of lateral per day. Well costs at the end of the quarter averaged $0.86 million/1,000 feet of lateral in the Marcellus, a 27% decrease compared with the year-ago period and a 4% sequential decrease from the second quarter. Antero said it’s running four rigs in the Marcellus, with five completion crews.
In the Utica Shale, Antero completed and placed online eight horizontal wells. The company said it drilled and cased five wells with an average of 2,700 feet of lateral per day. Well costs in the play are averaging $1.01 million/1,000 lateral feet, a 26% year/year decrease and a 3% sequential decline, management said. Antero is running one rig and one completion crew in the Utica.
As drill times decrease, Warren said Antero may not need to increase its rig count by much in order to meet its production targets.
“The efficiency gains have just been so tremendous. We were at 30 days to drill a 9,000-foot Marcellus well a year ago, and today we’re down into the 12-14 day range. I’ve seen some even better than that,” Warren said. “It’s amazing what you can do with six rigs. So we really don’t see much of an increase in the rig count next year.
“...We can get done what we need to get done with about six rigs next year, and of course, we do have the [drilled uncompleted well] inventory to complete, so that does keep the rig count down for the first part of next year, anyway.”
Antero said it reached a deal this week to sell 17,000 net acres primarily in Washington and Westmoreland counties, PA, to an undisclosed buyer for $170 million. The acreage falls outside of Antero’s core infrastructure holdings and was not part of the operator’s five-year drilling plan, management said.
The buyer in the transaction appears to be EQT Corp., which said Tuesday it plans to spend $170 million to acquire 17,000 net acres in Washington, Westmoreland and Greene counties, PA, from an undisclosed third party (see Shale Daily, Oct. 25).
Third quarter production by commodity totaled 128 Bcf of natural gas, 1.8 million bbl of C2 ethane, 5.3 million bbl of C3+ natural gas liquids (NGL) and 423,000 bbl of oil. In the year-ago period, Antero produced 110 Bcf of gas, 4.1 million bbl of C3+ NGLs and 660,000 bbl of oil, with no C2 ethane produced in the prior-year quarter.
Realized prices for the quarter, including hedges, averaged a combined $3.96/Mcfe, including $4.30/Mcf for gas, $8/bbl for ethane, $19.96/bbl for NGLs and $34.93/bbl for oil. That’s compared with year-ago realized prices averaging a combined $3.83/Mcfe, including $3.99/Mcf for gas, $16.47/bbl for NGLs and $38.18/bbl for oil.
Operating revenues for the quarter totaled $1.12 billion, down from $1.44 billion in the year-ago quarter.
Lease operating expenses for the quarter remained flat with the prior-year quarter at $0.08/Mcfe. General and administrative expenses declined from $0.26/Mcfe in 3Q2015 to $0.18/Mcfe in 3Q2016. Gathering, compression, processing and transportation costs increased over the prior-year period to $1.36/Mcfe, compared with $1.16/Mcfe in 3Q2015.
Antero reported net income for the third quarter of $238.3 million (78 cents/share), compared with net income of $533.8 million in the year-ago quarter.
Antero Midstream Partners LP, Antero’s midstream affiliate, reported average daily throughput of 1,431 MMcf/d of low-pressure gathering, 777 MMcf/d of compression, 1,351 MMcf/d of high-pressure gathering and 521 MMcf/d of condensate gathering. That’s compared with year-ago quarterly throughput volumes of 1,038 MMcf/d, 435 MMcf/d, 1,216 MMcf/d and 2,856 MMcf/d respectively.
Fresh water delivery volumes for the third quarter totaled 140,162 b/d, up from 67,049 b/d in the year-ago quarter.
Antero Midstream reported net income for the quarter of $71 million, up from net income of $43 million in 3Q2015. The partnership reported distributable cash flow of $103 million ($0.37/unit), compared with $50 million ($0.23/unit) in the year-ago period.