ANTERO RESOURCES 2026 Q2 Earnings Call

Thank you for joining us for Antero's second quarter 2026 investor conference call. We'll spend a few minutes going through the financial and operating highlights, then we'll open it up for Q&A. I would also like to direct you to the homepage of our website at anteroresources.com, where we have provided a separate earnings call presentation that will be reviewed during today's call. Today's call may contain certain non-GAAP financial measures. Please refer to the earnings press release for important disclosures regarding such measures. Joining me on the call today are Michael Kennedy, CEO and President; Brendan Krueger, CFO; Dave Cannelongo, Senior Vice President of Liquids Marketing and Transportation; Justin Fowler, Senior Vice President of Natural Gas Marketing. I will now turn the call over to Mike.

Thank you, Dan, and good morning, everyone. I'll start on slide number three, titled Structural Margin Improvement at Antero. This structural improvement has strengthened our financial performance and importantly reduced earnings volatility. The results of this strategy can be seen in the table on the right side of the slide. While Henry Hub natural gas prices were down 16% from a year ago, the impact of increased scale, product diversity, and lower cash operating expense led to our adjusted EBITDA increasing 57% over that period. These structural and sustainable improvements in our business will reduce volatility in our future cash flow. Staying on the topic of cost reductions, let's turn to slide number four, titled Significant Reduction in Cash Costs. The cost reductions we realized during the second quarter was just the beginning of lower costs to come at Antero.

In June, we announced a cost reduction initiative that will significantly improve our margins. We are forecasting our cash costs to decline by over 25% from 2025 to year-end 2028 to $2 per Mcfe. This dramatic change in our cost structure will be achieved as our company evolves from being 100% liquids development and 100% out-of-basin product sales to a much more balanced, rich and dry gas development program, as well as having sales in-basin and out-of-basin. This shift in strategy that increases our exposure to dry gas and in-basin sales is supported by the surge in new regional demand. This higher regional demand is expected to occur at the same time that many of our firm transportation commitments come up for renewal. To be clear, much of our LNG fairway-directed firm transport is attractive and will be retained.

as we shift from the producer push era to demand pull era, we are uniquely positioned to review each flow path and choose the highest margin sales point and supply contract for our natural gas and NGLs. Next, on slide five, we provide details on our margin enhancement. The $0.70 improvement in our cash costs will be partially offset by $0.35 and lower price realizations as we sell more product in basin. This assumes strip pricing for in-basin differentials without any tightening of basis that could occur when regional demand starts to ramp up. In the chart on the right-hand side of the slide, we break out the $300 million of annual margin improvements into three categories. First, we have two financial transactions that we entered into early this decade that come to an end: the overriding royalty interest transaction and the VPP.

The overriding royalty interest transaction return threshold to the counterparty was met in the second quarter, leading to the Martica entity being dissolved on June 30th and resulting in an increase of $60 million of annualized cash flow beginning in the third quarter of 2026. The VPP will expire in July of 2027 and result in a $30 million annualized cash flow uplift. Optimization of our liquids firm transport is forecast to improve margins by another $105 million. This includes limited needs for recontracting of ethane transport, as well as the refinement of our LPG firm transport. The enhancements to our liquids margin structure are expected to be realized at the end of 2028. Third, the remaining $105 million of margin improvements through 2028 will primarily come through optimizing our natural gas firm transportation portfolio and increasing dry gas development.

The increased demand for natural gas is shifting the market from a producer push market to a demand pull market. This is expected to drive meaningful improvements in our overall natural gas netbacks. These are exciting times for Antero and the natural gas industry in Appalachia. We are encouraged by the power deals that have been publicly announced to date as they further validate the significant regional demand growth that we are expecting. We continue to be actively engaged in conversations with all of these projects. Antero approaches these negotiations from a uniquely advantaged position. We hold optionality as we already sell our volumes at premium prices along the LNG fairway and are the second largest NGL producer in the country, which provides margin uplift.

This means that local power projects must compete with the broader energy markets on returns to attract our volumes. This compares with many of our peers who lack the firm transportation portfolio or liquids production and are looking for projects for nearly 100% of their production. These attributes allow us to be highly selective in which projects we ultimately partner with. The projects that we elect to participate in will have to be accretive on a risk-adjusted basis, which includes pricing, timing, and certainty. To touch on the current liquids and NGL fundamentals, I'm going to turn it over to our Senior Vice President of Liquids Marketing and Transportation, Dave Conalongo, for his comments.

Thanks, Mike. I would like to begin by highlighting the strong realized C3+ pricing Antero achieved during the second quarter of this year. Antero's realized C3+ price was $44.26 per barrel, up $6.41 per barrel compared to the second quarter of last year, and our highest quarterly realized price since 2022. Liquids prices continue to be influenced by geopolitical events as uncertainty remains over the flow of products through the Strait of Hormuz and other critical transit routes. U.S. liquid supply has been called on by international buyers looking to replace Middle East cargoes. As shown on slide number six, U.S. propane exports averaged 2.03 million barrels a day during the second quarter of 2026, an increase of 170,000 barrels a day compared to the same period last year.

Additionally, propane exports hit a new weekly high of 2.63 million barrels a day this May, with another weekly export number also above 2.6 million barrels a day reached in July, according to the EIA. These new highs surpass the previous record by 300,000 barrels a day and demonstrate that the U.S. can reach previously unseen export levels, driven in part by recently added terminal capacity. Additionally, exports of normal butane reached a new monthly record of 815,000 barrels a day in April, the most recent month of EIA data, surpassing the previous record of 661,000 barrels a day set in March. The record levels achieved for both LPG products since the start of Epicure illustrate that propane and butane are fiercely competing for terminal space to backfill lost Middle East supply across demand markets worldwide.

Going forward, additional LPG terminal expansions through 2027 will add another 1 million barrels a day capacity, allowing exports to continue to grow over the coming years. On the demand side, key global consumers such as China have been buying more LPG from the U.S. as the Middle East supply remains curtailed and uncertain. China's LPG imports from the U.S. declined last year following the initial imposition of the additional U.S. tariffs, but have rebounded recently due to disruption in Middle East supplies. U.S. LPG market share in China has risen from a low of 10% in June of 2025 to an average of 51% during the second quarter of this year, according to third-party shipping data, levels not seen since before Liberation Day. Additionally, we are beginning to see a recovery in Chinese petrochemical demand for LPG.

As shown on slide number seven, titled "China PDH Demand on the Rise," China PDH demand has increased 40% from April to July. August demand is forecast to increase further, returning to all-time high levels not seen since before the disruptions in the Middle East. This higher demand should support more U.S. imports into China in the near term. Next, let's turn to slide number eight to discuss shipping dynamics. VLGC freight rates have been elevated since Epicure due to the global resupplying of ships after the closure of the Strait of Hormuz, creating some headwinds for U.S. LPG exports. However, the order book for new VLGCs is robust and will provide relief to shipping costs in the coming quarters. We anticipate 84 vessels will be added to the fleet in the second half of 2026 and all of 2027.

From now through 2029, the size of the fleet will increase by 31%, or 138 ships. Given the imminent export expansions and new build terminals coming online, greater ship availability will facilitate more cargoes leaving the U.S. and continue to support Mont Belvieu prices. As the nation's second-largest NGL producer and the largest producer exporter, while also remaining unhedged on NGLs, Antero is poised to benefit from rising global demand for U.S. energy and higher Mont Belvieu pricing. With that, I'll now turn it over to our Senior Vice President of Gas Marketing, Justin Fowler, for his comments.

Thanks, Dave. I'll start on slide number nine that highlights the strong fundamental outlook for natural gas that we see through 2030. The two charts on this slide illustrate total U.S. demand growth. Based on data center and power projects that have been announced to date, natural gas demand is forecasted to increase 19 Bcf. LNG and Mexico export growth adds another 23 Bcf per day of natural gas demand growth by 2030. In combination, this represents 37% of total demand growth for natural gas by the end of the decade. While associated gas from the Permian will fill a portion of this demand growth through announced egress expansions, higher prices will be required to incentivize growth from non-traditional gas basins and tier 2 acreage with higher breakevens to ultimately meet this demand. Let's look at regional demand in our Appalachian Basin, which is highlighted on slide number 10.