Antero 3Q – Production Up, Profits Way Up, No Mergers
Antero Resources, which is 100% focused on the Marcellus/Utica with over 500,000 net acres under lease (and the largest M-U driller in West Virginia), issued its third quarter 2023 update last week. The company reports net production averaged 3.5 billion cubic feet equivalent per day (Bcfe/d) during 3Q23, an increase of 9% year-over-year. Of that production, liquids (NGLs) averaged 202 thousand barrels per day (MBbl/d), an increase of 18% from the year-ago period. Natural gas production averaged 2.3 Bcf/d, up 4% from the same period last year. The company made $560 million in 3Q23 versus a profit of $18 million in 3Q22 — a huge lift from last year.
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New shale permits issued for Oct 2 – 8 in the Marcellus/Utica were the same exact number as those issued the previous week. But wow, was there a shift in where they were issued! There were 23 new permits issued last week. Last week’s permit tally included a pathetic 4 new permits in Pennsylvania, 1 new permit in Ohio, and a whopping 18 new permits in West Virginia (after WV issued 13 the week prior). Antero was the top recipient, receiving 11 permits across two counties in WV: Doddridge and Wetzel. HG Energy received 7 permits in Lewis County, WV.
According to an analysis by S&P Global Commodity Insights, large U.S. shale gas drillers (namely Marcellus/Utica drillers) have hedged (pre-sold at a specific price) an average of 50% of anticipated shale gas production for the second half of 2023. The average price of the hedges is $3.35/Mcf, far above the average NYMEX Henry Hub price that has been bumping along between $2.25 and $2.75. CNX Resources is the top hedger, hedging 80% of its production in 2H23 at $3.04/Mcf.
An important decision was recently issued in a federal court case (in Ohio) that has the potential to affect landowners and drillers with shale leases throughout the Marcellus/Utica. At least, we believe it has broader implications. The case is known as Grissoms et al. v. Antero Resources Corporation. The case revolves around the issue of a “market enhancement” royalty clause (MEC), which is common in many shale leases throughout the M-U. An MEC lease typically prohibits the deduction of any post-production costs incurred in transforming raw gas into a marketable product. The question is, when is the gas marketable? At the wellhead or later on, after it has been cleaned up? The judge in the Grissoms case ruled in favor of the landowner and said the gas is NOT “marketable” in its raw form at the wellhead.
Investors in shale oil and gas companies suffered for years with little or no returns for the money they invested. Five of eight large Marcellus/Utica drillers saw their share prices decrease by an astonishing 85% or more from 2008 to 2019 (see 
Antero Resources and Antero Midstream have donated a massive $4 million to West Virginia University’s Benjamin M. Statler College of Engineering and Mineral Resources to help train the next generation of petroleum and natural gas engineers. Antero’s gift is the largest philanthropic donation to the school to date. It will support undergraduate and graduate students in the petroleum and natural gas engineering program.
For individuals, discretionary income is what’s left after you pay your taxes and fixed costs like housing, food, and clothing. For shale drillers, the equivalent to discretionary income is cash flow from operating activities (CFOA), which is the net income a company generates adjusted for non-cash expenses like depreciation and stock-based compensation, and for changes in working capital. Drillers can use their extra cash to grow production by spending more for drilling new wells (capital expenditures or capex). Or drillers can send some of the extra cash back to investors via share buybacks and dividends. How did Marcellus/Utica drillers spend their CFOA during the first quarter of 2023?
It’s possible to track which institutional investors (big investors like BlackRock) are buying or selling shares in various companies by reviewing Securities and Exchange Commission (SEC) Form 13F filings. S&P Global Market Intelligence performed a 13F review of which companies bought, and which sold (and how much) shares of stocks for shale gas drillers during the first quarter of 2023. The topmost active shale gas driller having its stock purchased by institutional investors was Comstock Resources, which drills exclusively in the Haynesville Shale. The reason Comstock came out on top, postulates S&P, is because the Haynesville is located close to the Gulf Coast and LNG export plants. However, it was the rest of the list that interested us.