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Hedges, Firm Transport Lift Antero to Profit in 2015

Appalachian pure-play operator Antero Resources Corp. rode a strong hedge book and solid firm transportation (FT) portfolio to buck last year's trend of losing money and revenue, reporting a profit for both the fourth quarter and full year.

One of the basin's most active operators, Antero said during its year-end earnings call that last year's finish would better position it for 2016 and beyond. It's continued to reinforce its hedge book, selling nearly all of its forecasted 2016 and 2017 production for what it believes will be a premium to the New York Mercantile Exchange benchmark prices this year. It is guiding for a Nymex premium of up to 10 cents/Mcfe.

"We began building this hedge book more than five years ago and have systematically hedged our risk over this time period rather than trying to lock in pricing when it was too late as the futures curve rolled forward," said CFO Glenn Warren. "...Most of the firm transport portfolio was constructed over three years ago to secure the cheapest transportation, which means reversals and backhauls with the majority targeting the Gulf Coast. The firm transportation portfolio accommodates our long-term development strategy and maximizes product realization by providing access to the most favorable priced markets."

The hedges and FT portfolio, Warren said, have afforded the company protection from a reduced borrowing base and helped shore up liquidity. While it has cut this year's capital budget by 23% from 2015 levels, Antero still plans to spend $1.4 billion to complete 110 horizontal Marcellus and Utica shale wells and add acreage this year (see Shale DailyFeb. 19). It also plans to run seven rigs at a time when some operators have dropped all of theirs.

Most of this year's budget would be spent in the Marcellus Shale of West Virginia, where the company also reported successful results on its first Utica Shale well. The company completed its Rymer 4HD well in Tyler County in the fourth quarter with a 6,620 foot lateral (see Shale Daily, Jan. 14). It's been on sales for 60 days and has produced at a restricted rate of 20 MMcf/d, yielding 1.2 Bcf of natural gas over the two-month period.

"Our early results are very encouraging and appear to be consistent with other strong results announced by operators near our acreage position," CEO Paul Rady said. "Obviously economics will drive the pace and the volume of drilling, however, you can also expect development to be closely tied to takeaway and to gas price realizations...Our ability to access premium markets for the Utica dry gas is currently tied to the Rover Pipeline, which is scheduled to be in service in mid-2017."

Rady said the same of Utica activity in Ohio, adding that some of it would be limited by takeaway capacity this year.

Antero produced nearly 1.5 Bcfe/d in the fourth quarter, up 18% from the year-ago period and down 1% from 3Q2015 on periodic shut-ins that averaged 45 MMcfe/d during the period.

Full year production was 1.493 Bcfe/d, up 48% from 2014. It consisted of 81% natural gas, 17% natural gas liquids and 2% crude oil. While it was down 8% from 2014, the company's average realized natural gas price for the year, including hedges, was still $4.15/Mcf.

Higher production and greater non-cash gains on unsettled hedges helped push full-year revenue up to $4 billion, compared to $2.7 billion in 2014. Antero reported a profit of $941 million ($3.43/share) for 2015, up from $671 million ($2.56/share) in 2014.

Fourth quarter net income was $158 million (57 cents/share), down from net income of $607 million ($2.32/share) in the year-ago period. The decrease was partly related to a $61 million impairment on the company's unproved oil and gas properties and a $28 million expense it took during the quarter for terminating a 130 MMcf/d firm sales contract tied to unfavorable Dominion South pricing.

The company had $4.7 billion in debt at the end of 2015, of which $1.3 billion was outstanding under its revolving credit facilities. Including $702 million in letters of credit outstanding, that left the company with $3.5 billion of liquidity at year's end.

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