Operator: Greetings, and welcome to the Antero Resources Fourth Quarter 2022 Earnings Call. At this time all individuals are listen-only mode. . As a suggestion, this conference is being tape-recorded. I would now like to turn the conference over to your host, Brendan Krueger, Vice President of Finance for Antero Resources. Thank you. You might begin.
Brendan Krueger: Good early morning. Thank you for joining us for Antero’s 4th quarter 2022 financier teleconference. We’ll spend a couple of minutes going through the monetary and running highlights, and after that we’ll open it up for Q&A. I would likewise like to direct you to the homepage of our website at www.anteroresources.com, where we have actually supplied a different revenues call discussion that will be evaluated throughout today’s call. Today’s call might consist of particular non-GAAP monetary procedures. Please describe our revenues news release for essential disclosures concerning such procedures, consisting of reconciliations to the most similar GAAP monetary procedures. Joining me on the call today are Paul Rady, Chairman, CEO and President; Michael Kennedy, CFO; Dave Cannelongo, Senior Vice President of Liquids Marketing and Transportation; and Justin Fowler, Senior Vice President of Natural Gas Marketing and Transportation. I will now turn the call over to Paul.
Paul Rady: Thank you, Brendan. I’d like to start by highlighting the substantial change that Antero went through throughout 2022. Let’s start with Slide 3, which sums up the constant and repeatable outcomes that we provided throughout the year. The top of the slide highlights our ongoing concentrate on financial obligation decrease. During 2022, we lowered our overall financial obligation by around $1 billion. Since the start of our financial obligation decrease program in the 4th quarter of 2019, we have actually now lowered financial obligation by over $2.5 billion. Because of this conservative method to financial obligation decrease, we had the ability to move our capital allotment towards increasing money go back to our investors. As you can see on the bottom of the slide, we bought over 25 million shares, representing 1% of the overall shares impressive.
To broaden on Antero’s constant and repeatable business design, let’s discuss our land and acquisition method on Slide 4 entitled Organic Land Acquisitions. Over the last couple of years, we experienced a boost in both public and personal business M&A as product rates increased. Meanwhile, Antero stayed concentrated on our core acreage footprint with a specific focus on natural lease acquisitions. As opposed to bigger deals that can dilute our equity and include outright financial obligation, our method has actually been concentrated on naturally obtaining acreage within our core position in Appalachia. This has actually enabled us to dollar cost typical throughout product cycles and get acreage near our shown well results. During 2022, Antero’s natural leasing program included around 80 drilling places at an average cost of less than $1 million per place, more than offsetting our upkeep capital strategy that presumes approximately 60 to 65 wells annually.
Now let’s rely on Slide number 5 to talk about Antero’s distinguished method. The churn on top highlights our outright financial obligation decrease considering that 2019 compared to our peers. Our disciplined business method of focusing on financial obligation decrease separates Antero versus peers that have actually increased their outright financial obligation levels, mainly as an outcome of business M&A. With our financial obligation preliminary target already attained, we are well placed to keep a well balanced financial obligation decrease and return of capital program moving forward. This is necessary, particularly because of the current alternative in gas rates. The chart in the middle of the page highlights the portion of gas offered out of basin. We offer a 100% of our gas outside the Appalachian Basin, consisting of 75% into the LNG fairway, where we record premiums to NYMEX.
Photo by Ben Wicks on Unsplash
The bulk of our peers have substantial direct exposure to regional markets that trade at levels as low as $1.25 back of NYMEX. These markets are especially at threat in times of increasing storage levels where cost is the only system to require shut-ins. The chart at the bottom of the page highlights our varied item combine with almost half of our profits originating from liquids production. The uplift we got from our liquid sales, integrated with our premium priced gas, supplies much better stability and predictability in monetary and operating outcomes through the various product cycles. Now to discuss the present liquids and NGL principles, I will turn it over to our Senior Vice President of Liquids Marketing and Transportation; Dave Cannelongo, for his remarks.
David Cannelongo: Thanks, Paul. Despite current headwinds for liquids rates, general macroeconomic aspects are indicating cost enhancement and the healing of principles through this year. Main need driver will be China’s resuming, which is happening much faster than initially anticipated due to the relaxing of their COVID-Zero policy. In addition, development in PDH capability indicate more powerful U.S. exports in 2023. At the very same time, the U.S. supply projection modifications loom with current decreases in gas and oil rates, establishing a prospective bullish image leaving this year and into 2024. U.S. lp exports are anticipated to increase 10% year-over-year to 1.5 million barrels daily in 2023 revealed on Slide number 6 entitled U.S. Propane Exports Rebounding.
The extra export volume will be more than satisfied by an extra 46 VLGC providers that will be included this year. This is a current record high in VLGC fleet advancement back to 2016. Turning to Slide number 7 entitled Global LPG Exports and NGL Production. The chart on the left highlights that the minimal LPG exporter has actually been the United States. The pattern is anticipated to continue as increasing petrochemical and res/com need will require to be met U.S. exports. U.S. lp export terminals usage rates are anticipated to stay raised however appropriate as seen already in Q1 2023 to please the call on U.S. LPG. Antero’s anchor position on Mariner East will permit us to continue to play an active function in providing this international LPG swimming pool as the biggest U.S. manufacturer exporter.
The chart on the right reveals that while the remainder of the world NGL supply development will be fairly flat, the U.S. is anticipated to increase production year-over-year by 6% in 2023 and 5% in 2024. However, supply development projection might be in flux, particularly thinking about the current lower associated gas rates. Domestic financial consider China indicate anticipated healings in the property and pet-chem markets that need to drive need from reduced levels seen throughout the enactment of their COVID-Zero policies. PDH build-out and increasing usage are anticipated to be viewed as early as completion of Q1 2023. Steadily decreasing LPG refinery yields in China will likewise have purchasers significantly seeking to imports for their barrels. Turning to the next slide.
Planned PDH build-out in China and other crucial markets is set to include around 700,000 barrels daily of increased feedstock need solely for lp. Notably, the need ramp will be initially seen in 2023 compared to the fairly sluggish need uptick that was seen in PDH capability through 2022 as a few of these centers began to come online and others were postponed into this year. I’ll end my remarks with the acknowledgment that 2022 had some unforeseen headwinds beginning in the spring with prolonged pandemic-related lockdowns, inflation and its cooling result on the international financial stability and development. We keep that long-lasting patterns reveal need for LPG increasing throughout the years and beyond, while potential customers of sustainable supply development appear impractical, provided obstacles from underinvestment in hydrocarbons and diminishing poor U.S. shale stock.
With that, I will turn it over to Mike.
Michael Kennedy: Thanks, Dave. I’ll start on Slide number 9 entitled Absolute Debt and Leverage Reduction. Following the effective financial obligation decrease program over the last numerous years, Antero is now in the greatest monetary position in business history, by overall financial obligation listed below $1.2 billion and utilize down to simply 0.4 times. Assuming today’s strip rates, we still anticipate to create over $500 countless totally free capital, and our utilize stays easily under one time at year-end 2023. This compares to our peers where utilize change materially as an outcome of greater outright financial obligation levels. In positioning with our lower financial obligation method, we constantly try to find methods to enhance our business and improve our margins. During the very first quarter of 2023, we carried out an early settlement of our 2024 NYMEX gas alternatives for around $200 million.
These hedges were put in location numerous years back and covered around 20% of our 2024 gas production at $2.77 per year. In addition, we likewise ended an agreement associated to an unutilized company transport dedication to regional Appalachian markets for $24 million. Termination of this agreement was finished as a reduced worth to dedications through 2025 and lowers net marketing expense by around $13 million every year. Provide some extra color on the gas macro views and our believed procedure around the hedge settlement, let’s rely on Slide number 10 entitled Free Cash Flow Breakeven. This slide supplies a take a look at the gas peer group and the needed NYMEX Henry Hub cost for each of the peers to accomplish an unhedged totally free capital breakeven position in 2023.
In today’s Shale 3.0 world, our company believe there is no financier hunger or excess capital available for business to run with a capital deficit. As highlighted on this page, as an outcome of greater upkeep capital expenses, minimal liquids profits uplift and broadening basis differentials on gas, we approximate that the majority of Haynesville business are unable to create totally free capital in today’s rates environment. Why is this essential? With Appalachia pipelines near optimum capability and Permian-associated gas being determined by oil rates, the Haynesville is now the minimal gas producing area. The other significant takeaway from this slide is that Antero’s totally free capital breakeven cost for gas is at the most affordable end of the peer group.
The drivers behind this low breakeven cost are the substantial contribution of liquids to our profits base, as displayed in the chart on the leading left and the premium gas rates we get as evidenced by the chart on the bottom left. Further dive into the macro story on gas, let’s turn to Slide number 11, titled Expected Decline in Activity from The Haynesville. The chart on the top of the slide illustrates the relationship between natural gas prices and the basin’s drilling activity. Since 2011, every time NYMEX Henry Hub prices fell below $3, rig counts and activity in the Haynesville noticeably declined. While we have kept the line at $3 on this chart, it is fair to say, in today’s inflationary environment, the old $3 level is likely now closer to $3.50 to $4.
The chart on the bottom left highlights the change in rig count each time natural gas dropped below $3. On average, rigs declined 60% or 42 rigs through the last three cycles. But the Haynesville now, as the marginal supplier of natural gas and activity expected to fall significantly in the months ahead, is important to review the decline profile of the Haynesville. As displayed on the chart on the lower right-hand side of this page, the estimated annual base decline rates of the Haynesville are materially higher than that of Appalachia. With this being the first downward cost cycle in which the Haynesville is the marginal supplier, this would suggest a more rapid supply response following an expected decline in rigs. In closing, the successful execution of Antero’s differentiated business strategy positions us to excel across many commodity price cycles.
Increasing NGL demand through the reopening of China provides a positive backdrop to NGL and propane prices as we move through the year. While it is difficult to predict natural gas prices moving forward, we do expect moderated activity to lead to substantial volatility in rates as gas need grows materially in 2024 and beyond with the 2nd wave of LNG export centers coming online. With a peer-leading balance sheet and item diversity, we are well placed to provide on our upkeep capital strategy while continuing to pay for financial obligation and return capital to investors. With that, I will now turn the call over to the operator for concerns.
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