ANTERO RESOURCES CORPORATION 2026 Q3 Earnings Call

Thank you for joining us for Antero's third quarter 2026 investor conference call. We will spend a few minutes going through the financial and operating highlights, and then we will 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 our earnings press release for important disclosures regarding such measures. Joining me on the call today are Mike Kennedy, CEO and President, Brendan Krueger, CFO, Dave Cannelongo, Senior Vice President of Marketing and Transportation, and Justin Fowler, Senior Vice President of Natural Gas. I will now turn the call over to Mike.

Thank you, Dan. Good morning, everyone. We are at a supply-demand inflection point for the natural gas market. LNG and power projects are expected to increase demand for natural gas by more than 40 BCF per day across the U.S. by 2030, including more than 15 BCF per day in our local Appalachian region. As we have seen through our marketing efforts and highlighted by the numerous transactions announced this year, demand for natural gas assets continues to increase. The scarcity of core natural gas acreage is becoming apparent, which is resulting in higher and higher values placed on quality natural gas assets. Antero is well-positioned to benefit from this inflection point, supported by more than 20 years of core drilling inventory, our integration with Antero Midstream, and being one of the few investment-grade companies.

Combined with our ongoing cost reduction initiatives, we expect these advantages to drive peer-leading free cash flow per share growth over the coming years. As depicted on slide 3, per a recent public analysis by Enverus, we have more than 1,400 core drilling locations remaining. That gives Antero a multi-decade runway of premium inventory at a time when high-quality drilling locations are becoming increasingly scarce. As demand moves ahead of supply, we believe this inventory advantage will become increasingly valuable. Now let's move to slide 4, which summarizes some of our quarterly highlights. Production increased 23% year-over-year to a company record of 4.2 BCFE per day. This was achieved while curtailing in excess of 100 million per day during the quarter.

Second, as a result of our cost reduction and margin enhancement initiative, we realized our lowest cash cost level in company history, 16% lower than the year-ago period. Third, the diversity of our production and a lower cost structure led to our unhedged EBITDAX margin increasing 27% year-over-year, despite natural gas prices declining 4%. We used this strong financial performance to repurchase 1.6 million shares during the quarter and now have reduced our share count by more than 5 million shares since the beginning of 2025. Turning to slide number 5, I will provide an update on our margin enhancement progress. Based on transactions we have executed on to date, we expect to achieve $140 million of our $300 million target by mid-2027.

The overriding royalty interest transaction we entered into in 2020 met the return hurdles, resulting in 85% of the cash flow now reverting back to Antero on July 1, 2026, or $60 million of annual free cash flow uplift. We also executed on our firm transportation optimization strategy during the third quarter, resulting in 400 MCFE per day of agreements and $20 million in annualized free cash flow. During the fourth quarter, we are launching a formal process to expand on this strategy. Based on increasing demand pull interest that we are seeing, we expect approximately 1 BCF per day of firm transportation optimization agreements, resulting in an annualized free cash flow increase of $50 million. Next, the VPP transaction will expire in the third quarter of 2027, resulting in an annualized increase in free cash flow of $30 million.

Beyond mid-2027, increased dry gas development and the expiration of liquids firm transport in 2028 puts us comfortably on track to hit our initial $300 million margin enhancement target. In addition, during the quarter, we entered into attractive natural gas term sales deals with multiple parties at the Clarington market. In addition to these sales, since announcing Antero Midstream's East Side Express Pipeline last quarter, we have seen increased interest from multiple downstream counterparties seeking access to our natural gas at interconnects on the pipeline. This project gives us widespread connectivity to numerous long-haul pipelines, providing exceptional optionality for contracting with end user demand. This project also reduces our all-in transport costs, resulting in higher margins. I will end with brief comments on the NGL macro.

Part of the fourth quarter has seen NGL prices increase 50% above the third quarter level. We expect NGL strength to continue in 2027, driven by robust global demand and low international inventories that require significant U.S. exports to return to sufficient levels. Following a recent industry transaction, Antero is now the only producer with meaningful NGL exposure going forward. We remain unhedged on our NGLs, providing considerable upside to our free cash flow. Now, to provide more detail on the current liquids and NGL fundamentals, I am going to turn it over to our Senior Vice President of Marketing and Transportation, Dave Cannelongo, for his comments.

Antero's liquids pricing increased throughout the third quarter, following the Strait of Hormuz ceasefire ending in July and global liquids pricing rising steadily thereafter. The pricing momentum seen at the end of the third quarter has continued, with Antero's C3+ spot liquids realizations now testing levels not seen since early 2022. The current geopolitical situation has had the greatest influence on the heavier end of the NGL barrel, particularly butanes and pentanes plus. These products are critical components in gasoline blending and therefore are being bolstered by the current strength in gasoline prices as well as robust export demand for butane.

As shown on slide number 6, U.S. butane exports set all-time records in May this year at 893 barrels per day and remained elevated throughout the third quarter, according to ship tracking data, as international buyers scrambled to replace a steadily increasing number of lost Middle Eastern butane cargoes. The price impact of these dynamics is seen on slide number 7. The chart on the left shows the volume percentages of Antero's C3+ NGL barrel. The chart on the right shows the revenue contribution by product and realized pricing in the third quarter. Despite Antero's propane volume making up 57% of the C3+ barrel, propane only contributed 43% of the revenue in the third quarter as butanes and pentanes plus prices were exceptionally high. However, the propane story has vastly improved since the third quarter.

We have had a significant increase in propane pricing in recent weeks as winter restocking and revised market beliefs of a more prolonged duration to the conflicts in the Middle East are requiring buyers to address the realities of the lost global supply heading into peak heating demand season. On the export side, robust domestic demand for winter seasonal gasoline blending has tempered butane exports and immediately opened up more export capacity for propane at existing terminals. Second half 2026 propane exports are up nearly a quarter of a million barrels per day compared to the same period in 2025, according to ship tracking data, which has doubled the year-over-year increase seen in the first half of 2026 when there was intense competition with butane for dock space.

The impact of these trends on U.S. propane balances is already apparent and will likely be amplified throughout the coming winter withdrawal season. As shown on slide number 8, strong export demand in September and October has returned propane inventories to historical norms in the five-year range. In sharp contrast compared to the second quarter, when stocks were well above the five-year range. As a result, the EIA has reported a withdrawal 6 of the last 7 weeks, compared to just one withdrawal in 2025 over the same period. This signals that the start of the withdrawal season is happening much earlier than typical. This is being reflected in pricing already as Mont Belvieu propane prices have rallied $0.34 per gallon since the start of October.

Going forward, prices for both propane and butanes will see tailwinds from new dock expansions coming online in the end of 2026 and into 2027. The increase in LPG export demand is well-timed, as VLGC ship deliveries in 2027 will be at an all-time high of 47, up from 38 expected deliveries in 2026, as illustrated on slide number nine. The bottlenecking of dock capacity from export expansions paired with new ship deliveries points to supportive forward netbacks and continued historical highs for propane and butane export volumes. The chart on slide nine shows the VLGC ship order book is consistent and likely to set another ship delivery record in 2029 as we finish out this decade. As mentioned in my remarks a moment ago, Antero's current spot C3+ NGL prices are at the highest levels realized since 2022.

Given the current geopolitical and supply-side realities, the bullish trends impacting NGL prices are expected to continue and likely even escalate in the coming quarters. International propane prices are now trading just below record pricing levels seen back in March of 2026 at the start of the Operation Epic Fury conflict. As dock premiums have tightened to single-digit levels, Mont Belvieu prices have risen as a result, consistent with Antero's predictions in prior earnings calls. Critically, Antero has far more exposure from increasing NGL prices than any other producer due to our high percentage of liquids production and completely unhedged portfolio. With that, I will turn it over to our Senior Vice President of Natural Gas, Justin Fowler.