Appalachian Basin pure-play Antero Resources Co. is betting on continued high natural gas prices, driven by a “structural shift” in the relationship between U.S. prices and storage levels, CEO Paul Rady said last week.

“The primary driver behind this shift is the supply side,” Rady told analysts during a call to discuss first quarter earnings. He cited “limited access to capital, limits on infrastructure buildout, and also supply chain constraints that limit production growth” as impediments to growing supply and filling storage capacity ahead of the 2022-2023 winter.

Other bullish pricing factors include upstream inventory exhaustion, continued liquefied natural gas (LNG) export growth and low global storage levels, Rady said. “We believe this bodes well for commodity pricing moving forward and Antero is best positioned to directly benefit from higher prices.”

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Antero holds more than 501,000 net acres in the Marcellus and Utica shale plays, where it produced 3.2 Bcfe/d during the first quarter.

Russia’s invasion of Ukraine has exacerbated each of these factors, Rady indicated. 

“As Europe looks to strengthen its energy security, it has become clear that there will be a significant call on U.S. shale gas in the coming decades,” the CEO said. “Importantly, with Antero’s 2.3 Bcf/d of firm transportation to the LNG fairways, we are uniquely positioned to supply the increase in international demand.”

Rady said Antero already is selling nearly 1 Bcf/d of gas to LNG facilities on a mix of long- and short-term contracts. As additional export capacity is built out, Antero believes its gas will fetch a higher premium to New York Mercantile Exchange (Nymex) pricing “and will become more closely linked to international prices,” Rady said. 

He explained, “We’re happy where we are right now on shorter term deals, whether it’s selling on the day or on the month.”

However, “we’re not interested in longer-term supply deals unless we receive significantly higher premiums,” Rady said, citing that “there’s too much optionality today to get locked in prematurely.”

Will Supply Growth ‘Underwhelm?’

Rady shared the microphone with Antero’s Justin Fowler, senior vice president of gas marketing and transportation.

Fowler said that Antero expects U.S. supply growth “to underwhelm” in 2022, making it difficult to hit consensus estimates of around 3.5 Tcf of gas in storage when injection season officially ends Oct. 31. “Production would need to average over 97 Bcf/d every single day, beginning from today through November,” Fowler said. “This represents a nearly 4 Bcf/d increase from current production levels.”

In addition to supply constraints and geopolitical tensions, Fowler said that, “We continue to see very strong power generation and industrial demand,” and noted that LNG exports are expected to grow as incremental capacity comes online this year. “This suggests even higher supply growth will be required to fill storage ahead of next winter,” he said. 

Fowler echoed Rady’s prediction that, as U.S. LNG export capacity grows, pricing along the main U.S. LNG supply corridors will see a higher premium to Henry Hub and track closer to global LNG benchmarks.

Highest Ever NGL Prices

Antero realized its highest quarterly natural gas liquids (NGL) price in company history and benefited from direct exposure to Nymex natural gas prices during the first quarter, Rady said. Antero reported average realized NGL prices of $61.55/bbl for C3+ production, which consists mainly of propane, isobutane, normal butane and gasoline.

Antero shipped 53% of its total C3+ production on the Mariner East 2 pipeline for export and realized a 4-cent/gallon premium to Mont Belvieu pricing at Marcus Hook, PA, management said. The remainder of output was sold at a 4-cent/gallon discount to Mont Belvieu pricing at Hopedale, OH.

Antero turned 15 horizontal wells to sales in the Marcellus during the first quarter, with an average lateral length of 12,707 feet.

Drilling and completions capital expenditure totaled $175 million for the quarter.

Antero also acquired 2,500 net acres holding about 11 incremental drilling locations at a cost of under $1 million per location. 

No New Hedges 

“Antero’s first quarter results highlight our substantial exposure to rising commodity prices,” said Rady. 

Antero sold about 75% of its natural gas during the quarter into Nymex-priced hubs, “including the LNG fairway along the Gulf Coast and the Cove Point LNG facility in the Mid-Atlantic region,” Rady said. 

He added that, “As this market grows and develops, we intend to utilize our significant firm transportation portfolio to increase our exposure.”

For the first quarter, Antero reported average realized natural gas gas prices after hedging of $3.60/Mcf, or a $1.35 discount to Nymex. 

The company recorded commodity derivative fair value losses of $1.01 billion, versus hedging losses of $177.8 million in the year-ago period.

Antero did not enter into any new natural gas, NGL or oil hedges during 1Q, management said. As of March 31, the firm has hedged 313 Bcf of natural gas for the remainder of 2022 at a weighted average index price of $2.49/MMBtu and 16 Bcf of gas in 2023 at a corresponding price of $2.37/MMbtu.  

Antero’s total production of 3.2 Bcfe/d during the quarter included 2.2 Bcf/d of natural gas and 160,000 b/d of liquids.

“As completion activity accelerates through the second quarter of 2022, production is expected to increase to a range of 3.3 to 3.4 Bcfe/d in the second half of 2022,” management said. 

Antero reported a net loss of $156 million (minus 50 cents/share), versus a loss of $15.5 million (minus 5 cents) in the same quarter a year ago.