Q3 2025 Earnings Call: Contradictions Emerge in CapEx, Hedging, and Production Strategies

Guidance:

• Hedging: 2026 hedges include 24% swaps at $3.82/MMBtu and 28% wide collars ($3.22–$5.83).
• 2026 free-cash-flow breakeven of ~$1.75/Mcf (assuming year-to-date NGL prices).
• Expect increasing natural gas demand from LNG and power projects through 2026–2027; positioned to accelerate dry-gas activity if local basis tightens.
• NGLs expected to strengthen in 2026 as Permian supply growth slows and export capacity ramps.
• Maintain a maintenance-capex posture for 2026; land/leasing budget typically $75–$100M, models assume ~$100M next year.

Business Commentary:

* Operating Performance and Strategic Initiatives: - Antero Resources reported significant improvement in drilling and completion results, achieving numerous company records, including an average of 14.5 stages per day on well completion and continuous pumping hours exceeding 15 days. - The company's strategic initiatives, such as expanding its core Marcellus position and commencing dry gas development in Harrison County, were driven by increasing demand for natural gas driven by LNG exports and data center power generation.

• NGL Pricing and Market Fundamentals:
• Antero's liquids marketing segment highlighted projected slowing NGL production growth across the U.S. due to the low oil price environment, particularly in the Permian Basin, which accounts for over half of U.S. NGL supply.

• The company anticipates improving NGL fundamentals and higher prices in 2026 due to reduced supply growth, increased export capacity, and strong international demand.

• Natural Gas Market and Demand Surge:

• Antero's natural gas marketing segment noted significant demand trends, including a 14.5 Bcf/d increase in LNG export demand and a $0.80 premium at the TGP 500 pricing hub relative to Henry Hub.

• This growth is driven by increased LNG exports and new facility completions, with additional demand expected from new LNG capacity additions in the coming years.

• Capital Management and Free Cash Flow:

• The company reported almost $600 million in free cash flow in the first three quarters of 2025, with plans to allocate funds towards debt reduction, asset acquisitions, and share repurchases.
• The allocation strategy is supported by a low absolute debt position, allowing for flexibility in accretive transactions and share buybacks.

Sentiment Analysis:

Overall Tone: Positive

• Management called Q3 their "most impressive operating performance to date," reported "attractive free cash flow of over $90 million during the quarter" and YTD ~ $600M, and highlighted strategic hedges (24% swaps at $3.82, 28% collars) and bolt-on M&A to expand West Virginia position—all indicating constructive operational and financial momentum.

Q&A:

• Question from Arun Jayaram (JPMorgan): Gentlemen, I wanted to maybe start with the decision to commence D&C operations on the gas side and Harrison County. I was wanted to know if you could talk about what the catalyst was for that kind of decision, did data centers, power deals down the road, did that play into kind of the calculus about doing something you had done in 10 years or so?
  Response: Catalyst was local demand (data centers/power); existing acreage, midstream and low-cost highly productive wells made Harrison County D&C a proof-of-concept.

• Question from Arun Jayaram (JPMorgan): Given Mike is doing a little bit more kind of gas drilling the thoughts on how you're thinking about a 2026 program at Antero and obviously, historically, around this time, you've decided to do a, call it, a drilling partnership, which has defrayed some of the costs. But how are you -- what is your thinking around 2026 at this point?
  Response: Plan is to remain maintenance-capex oriented in 2026, hold production near current levels (~a low-single-digit change); drilling JV remains undecided.

• Question from John Freeman (Raymond James): Just a follow-up on a range question with the following the acquisitions and the higher production level now that you cited that you're going to have in 4Q. Just kind of how does that impact kind of the prior commentary about maintenance CapEx?
  Response: Maintenance capex rises roughly in line with production (~3% increase, ~+$20M on the cited base).

• Question from John Freeman (Raymond James): Looking at the acquisitions, the $260 million of acquisitions in the quarter, was this sort of one-off in nature or a bigger focus going forward?
  Response: These are opportunistic, accretive bolt-ons in our West Virginia Marcellus footprint; we pursue them when they make sense but can't forecast cadence.

• Question from David Deckelbaum (TD Cowen): Given some of the land spend this year and record lateral lengths, how do you see average lateral length progressing into 2026 given efficiency gains?
  Response: Average lateral length should increase roughly 1,000 feet into ~14,000 feet per well next year versus low-13,000s this year.

• Question from David Deckelbaum (TD Cowen): The acquisition this quarter looked like increase in working interest — do you view that as aberrational or a trend into next year?
  Response: Hopeful trend but hard to predict; such working-interest, royalty and acreage bolt-ons are available to our dominant position and will be evaluated for accretion.

• Question from Kevin MacCurdy (Pickering Energy Partners): The hedges you added this quarter were different — was strategy changed or opportunistic and should we expect a certain hedge level going forward?
  Response: It's both opportunistic and strategic — a helpful model is ~a quarter hedged with wide collars protecting a baseline yield and ~50% unhedged to retain upside; we'll target downside protection while keeping upside participation.

• Question from Kevin MacCurdy (Pickering Energy Partners): Ethane volumes significantly outperformed on price and volume this quarter. Was that just due to sales timing? Or is there any sustainability to that?
  Response: Primarily timing and customer take-or-pay dynamics plus improved Gulf Coast spreads — taking advantage of available capacity; sustainability depends on customer activity and spreads.

• Question from Phillip Jungwirth (BMO Capital Markets): On the dry gas acreage in Harrison County, how much uplift do you expect versus historical type curves from wells drilled previously?
  Response: Expect roughly a ~50% improvement in EUR/deliverability versus historical wells in that area given modern completion and spacing.

• Question from Phillip Jungwirth (BMO Capital Markets): Expand on the data center cooling opportunity and how Antero/Antero Midstream would participate?
  Response: Antero is well positioned—~$600M invested in water systems and vertically integrated upstream–midstream capability—engaging in discussions but taking a patient, margin-focused approach to commercial structures.

• Question from Douglas George Blyth Leggate (Wolfe Research): What's your decision point for growth in the basin — do you need to see basis improve or local demand increase before stepping into dry gas growth?
  Response: Decision depends on proof-of-concept results, local demand and basis economics; with our dominant WV position and midstream, we'll grow into local demand or hedge basis if needed.

• Question from Douglas George Blyth Leggate (Wolfe Research): On potential asset sales (Ohio) — any color where you are in that process?
  Response: We're conducting a market check and are encouraged by interest given the contiguous, midstream-backed asset; process is ongoing.

• Question from Oswald Cheung (Barclays): For the data center proof-of-concept, what are customers trying to de-risk — speed of delivery, capacity, etc., and could the pad catalyze power/data center conversations?
  Response: Proof-of-concept de-risks EUR/deliverability and the ability to flow gas into local facilities; demonstrating that capability strengthens commercial discussions with data centers and power projects.

• Question from Oswald Cheung (Barclays): On the land budget — will it be higher for longer given core expansion and attractiveness of organic leasing vs private deals?
  Response: Base organic leasing targets $50–$75M, typical annual range $75–$100M; models assume ~$100M for next year but could rise if attractive opportunities continue.

• Question from Jacob Roberts (TPH): Any change to the timing of cash taxes versus prior guidance (2028)?
  Response: No change — still expect no material cash taxes through 2027, with cash taxes potentially starting in 2028.

• Question from Jacob Roberts (TPH): Is the 6-well pad and completion design ready for manufacturing or will it be iterative?
  Response: Ready to go — using standard, proven designs (spacing, water volumes, stages) applied to dry gas for the first time in ~12 years.

• Question from Nitin Kumar (Mizuho Securities): As you've put a floor on free cash flow yield via hedges, is a dividend under consideration or will returns be via buybacks/transactions?
  Response: Plan is countercyclical capital returns—primarily share repurchases and accretive transactions funded by hedged baseline cash flow rather than initiating a dividend.

• Question from Nitin Kumar (Mizuho Securities): If you sold Ohio assets at desired price, how would proceeds be used?
  Response: Proceeds would likely pay down prepayable debt (~$700M), fund buybacks and/or fund accretive transactions depending on valuation outcomes.

• Question from Leo Mariani (Roth MKM): On growing net volumes without growing gross — are you targeting minerals, WI, working interest bolt-ons ahead of the drill bit?
  Response: Yes — focus on small bolt-ons (working interest/royalty/acreage) to grow net production and free-cash-flow accretion while processing capacity limits gross growth.

• Question from Leo Mariani (Roth MKM): Given operational records this quarter (stages, cycle times), is there more improvement left or are you bumping into limits?
  Response: Some incremental improvement possible, but current 14.5 stages/day is already very high and a realistic upper-quartile operating average would be ~15 stages/day.

• Question from Kaleinoheaokealaula Akamine (Bank of America): What gives you confidence the Marcellus core is expanding into eastern/southern areas?
  Response: Recent internal well performance and peer success in adjacent counties support expanding core boundaries east/south of original footprint.

• Question from Kaleinoheaokealaula Akamine (Bank of America): Do you have visibility on new firm-transport opportunities to push more gas to the Gulf and any direct-to-consumer opportunities?
  Response: Evaluating mid-path pipeline projects and direct supply discussions with end-users; end-user demand pull is growing but new pipeline capacity is costly and likely later in the decade—patience is required.

• Question from Neil Mehta (Goldman Sachs): As you step into the CEO role, what are the next strategic frontiers to the end of the decade?
  Response: Enhance West Virginia position via bolt-ons, opportunistic dry-gas development, and disciplined hedging to enable countercyclical transactions and repurchases.

• Question from Neil Mehta (Goldman Sachs): On NGLs — will 2026 recovery be supply- or demand-driven and how do you view Permian NGL growth forecasts?
  Response: Recovery driven by both improving demand (exports/petchem) and slowing Permian supply growth; management is optimistic for stronger Mont Belvieu/NGL prices in 2026 as export capacity and demand normalize.

• Question from Paul Diamond (Citi): In a bull scenario with large free cash flow, how much cash would you build versus buybacks/debt paydown/transactions?
  Response: Likely a mix (~1/3 repay debt, ~1/3 buybacks, ~1/3 transactions) — build cash only when other accretive opportunities and buybacks are saturated.

• Question from Paul Diamond (Citi): On production management/curtailments — would Antero curtail or choke and how is that factored into guidance?
  Response: They may manage production economically (curtail when basin prices make it rational); such actions are factored into guidance but not typically publicized.

Contradiction Point 1

Capital Expenditure (CapEx) Strategy

It involves changes in the company's strategy regarding capital expenditures, which directly impacts financial planning and operational efficiency.

How do you plan your 2026 drilling program given historical drilling partnerships? - Arun Jayaram (JPMorgan)

2025Q3: The plan is to maintain capital spending at maintenance level, including a possible drilling JV, dependent on market conditions. - Michael Kennedy(CEO)

Can you discuss further potential for reducing 2026 maintenance capital expenditures? - John Christopher Freeman

2025Q2: We expect to continue to be able to reduce our maintenance capex. We definitively will, but it's just a matter of how much. And we've been very successful with that over the years. We expect to have another 3% reduction in 2026. - Michael Kennedy(CEO)

Contradiction Point 2

Hedging Strategy

It involves changes in the company's hedging strategy, which impacts financial risk management and revenue forecasting.

Why did you change your hedging strategy? - Kevin MacCurdy (Pickering Energy Partners)

2025Q3: The strategy is aimed at locking in a baseline free cash flow yield while exposing to upside potential, maintaining a prudent hedge ratio with significant exposure to rising gas prices. - Michael Kennedy(CEO)

What are the implications of the new Gulf Coast LPG export capacity on Mont Belvieu pricing and marketing efforts? How do you balance debt reduction and share buybacks moving forward? - Arun Jayaram (JPMorgan)

2025Q2: We'll certainly be looking for opportunities opportunistically to hedge some of our discretionary volumes that are not fully covered. But remember, our hedge book does tend to be a bit more conservative. So it's -- we're getting a bit more exposure to the market as we go forward. - Michael Kennedy(CEO)

Contradiction Point 3

Production and Cash Flow Management

It involves the company's approach to production management and cash flow, which are essential for financial performance and investor confidence.

Are you considering production curtailments? - Paul Diamond (Citi)

2025Q3: Such strategies are already integrated into guidance, driven by economics rather than explicit direction. - Michael Kennedy(CEO)

Do you see global gas oversupply as a potential headwind? - Neil Mehta (Goldman Sachs)

2025Q1: We have already started working on a tug of war to reduce production in the Permian Basin. - Michael Kennedy(CEO)

Contradiction Point 4

Drilling Partnership Strategy

This contradiction involves the strategic approach to drilling partnerships, which could impact capital allocation, operational efficiency, and financial performance.

How are you planning your 2026 drilling program considering historical drilling partnerships? - Arun Jayaram(JPMorgan)

2025Q3: The plan is to maintain capital spending at maintenance level, including a possible drilling JV, dependent on market conditions. - Michael Kennedy(CEO)

In the 10-K, you announced forming a drilling partnership with an unnamed operator. Can you provide details on this partnership and its strategic benefits from an AR perspective? - Arun Jayaram(JPMorgan)

2024Q4: Yes, we've had a drilling JV of some sort in place since 2021. The benefits include a disproportionate carry, and it allows efficiencies around operating a 2-rig consistent program. The terms for the second half of 2024 were better than in the past. It's just an upfront carry instead of a back-ended one. - Michael Kennedy(CFO)

Contradiction Point 5

Curtailment Strategy

This contradiction involves the company's approach to production management, which could impact cash flow and financial performance.

As lateral lengths increase, how will this progress into '26? - David Deckelbaum(TD Cowen)

2025Q3: We've got a full FT portfolio. We're a first mover, and it goes to all the various regions at very attractive rates on the best pipe. We're happy where we're at just filling our current firm transport portfolio. - Michael Kennedy(CFO)

Given increased utility demand and new LNG facility startups, how will Appalachia Basin and Antero address the need for increased natural gas volumes? - Arun Jayaram(JPMorgan)

2024Q4: Mike: For us, at least the maintenance capital is where we're comfortable at all of our firm transport under this plan is filled. We're not really selling any local gas, and that's been our strategy since day 1. So for us, the ability to grow to meet that it's not really even possible unless it's in the local base and right next to our field. - Michael Kennedy(CFO)