Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2013 |
Summary of Significant Accounting Policies | ' |
Basis of Presentation | ' |
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(a) Basis of Presentation |
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The accompanying consolidated financial statements include the accounts of Antero Resources Corporation and its subsidiary. All significant intercompany accounts and transactions have been eliminated. |
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As of the date these financial statements were filed with the Securities and Exchange Commission, the Company completed its evaluation of potential subsequent events for disclosure and no items requiring disclosure were identified. |
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Use of Estimates | ' |
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(b) Use of Estimates |
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The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in facts and circumstances or discovery of new information may result in revised estimates, and actual results could differ from those estimates. |
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The Company's consolidated financial statements are based on a number of significant estimates including estimates of gas and oil reserve quantities, which are the basis for the calculation of depreciation, depletion, amortization, present value of cash flows from reserves, and impairment of oil and gas properties. Reserve estimates by their nature are inherently imprecise. |
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Risks and Uncertainties | ' |
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(c) Risks and Uncertainties |
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Historically, the market for natural gas, NGLs, and oil has experienced significant price fluctuations. Prices for natural gas have been particularly volatile in recent years. The price fluctuations can result from variations in weather, levels of production in the region, availability of transportation capacity to other regions of the country, and various other factors. Increases or decreases in prices received could have a significant impact on the Company's future results of operations. |
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Cash and Cash Equivalents | ' |
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(d) Cash and Cash Equivalents |
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The Company considers all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments. |
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Oil and Gas Properties | ' |
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(e) Oil and Gas Properties |
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The Company accounts for its natural gas and crude oil exploration and development activities under the successful efforts method of accounting. Under the successful efforts method, costs of productive wells, development dry holes, and undeveloped leases are capitalized. Oil and gas lease acquisition costs are also capitalized. Exploration costs, including personnel and other internal costs, geological and geophysical expenses, delay rentals for gas and oil leases, and costs associated with unsuccessful lease acquisitions are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined not to have found reserves in commercial quantities. The Company reviews exploration costs related to wells-in-progress at the end of each quarter and makes a determination based on known results of drilling at that time whether the costs should continue to be capitalized pending further well testing and results or charged to expense. The sale of a partial interest in a proved property is accounted for as a cost recovery, and no gain or loss is recognized as long as this treatment does not significantly affect the units-of-production amortization rate. A gain or loss is recognized for all other sales of producing properties. |
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Unproved properties with significant acquisition costs are assessed for impairment on a property-by-property basis, and any impairment in value is charged to expense. Impairment is assessed based on remaining lease terms, drilling results, reservoir performance, commodity price outlooks, and future plans to develop acreage. Other unproved properties are assessed for impairment on an aggregate basis. Unproved properties and the related costs are transferred to proved properties when reserves are discovered on or otherwise attributed to the property. Proceeds from sales of partial interests in unproved properties are accounted for as a recovery of cost without recognizing any gain or loss until the cost has been recovered. Impairment of unproved properties for leases which have expired or are expected to expire was $11.1 million, $13.0 million, and $10.9 million for the years ended December 31, 2011, 2012, and 2013, respectively. |
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The Company reviews its proved oil and gas properties for impairment whenever events and circumstances indicate that the carrying value of the properties may not be recoverable. When determining whether impairment has occurred, the Company estimates the expected future cash flows of its oil and gas properties and compares such future cash flows to the carrying amount of the properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the Company reduces the carrying amount of the properties to their estimated fair value. The factors used to determine fair value include estimates of proved reserves, future commodity prices, cash flow from commodity hedges, future production estimates, anticipated capital expenditures, and a commensurate discount rate. There were no impairments of proved natural gas properties during the years ended December 31, 2011, 2012, and 2013. |
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At December 31, 2013, the Company did not have significant capitalized costs related to exploratory wells-in-progress which were pending determination of proved reserves. The Company had no significant costs which have been deferred for longer than one year pending proved reserves at December 31, 2013. |
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The provision for depreciation, depletion, and amortization of oil and gas properties is calculated on a geological reservoir basis using the units-of-production method. Depreciation, depletion, and amortization expense for oil and gas properties was $164.0 million, $181.7 million, and $219.8 million for the years ended December 31, 2011, 2012, and 2013, respectively. |
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Gathering Pipelines, Compressor Stations, and Fresh Water Distribution Systems | ' |
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(f) Gathering Pipelines, Compressor Stations, and Fresh Water Distribution Systems |
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Gathering pipelines and compressor stations are depreciated using the straight-line method over their estimated useful life of 20 years. Fresh water distribution systems are depreciated over useful lives of from 5 to 20 years. Expenditures for installation, major additions, and improvements are capitalized, and minor replacements, maintenance, and repairs are charged to expenses as incurred. For the years ended December 31, 2011, 2012, and 2013, depreciation expense for gathering pipelines, compressor stations, and fresh water distribution systems was $5.5 million, $7.4 million, and $11.9 million, respectively. A gain or loss is recognized upon the sale or disposal of property and equipment. |
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Impairment of Long Lived Assets Other than Oil and Gas Properties | ' |
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(g) Impairment of Long-Lived Assets Other than Oil and Gas Properties |
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The Company evaluates its long-lived assets other than natural gas properties for impairment when events or changes in circumstances indicate that the related carrying amount of the assets may not be recoverable. Generally, the basis for making such assessments is undiscounted future cash flow projections for the unit being assessed. If the carrying value amounts of the assets are deemed to be not recoverable, the carrying amount is reduced to the estimated fair value, which is based on discounted future cash flows or other techniques, as appropriate. No impairments for such assets have been recorded through December 31, 2013. |
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Other Property and Equipment | ' |
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(h) Other Property and Equipment |
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Other property and equipment is depreciated using the straight-line method over estimated useful lives ranging from three to five years. For the years ended December 31, 2011, 2012, and 2013, depreciation expense for other property and equipment was $1.0 million, $1.7 million, and $2.2 million, respectively. A gain or loss is recognized upon the sale or disposal of property and equipment. |
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Deferred Financing Costs | ' |
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(i) Deferred Financing Costs |
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Deferred financing costs represent loan origination fees, initial purchasers' discounts, and other borrowing costs and are included in noncurrent other assets on the consolidated balance sheets. These costs are being amortized over the term of the related debt using the effective interest method. The Company charges interest expense for deferred financing costs remaining for debt facilities that have been retired prior to their maturity date. At December 31, 2013, the Company had $28 million of unamortized deferred financing costs included in other long-term assets. The amounts amortized and the write-off of previously deferred debt issuance costs were $3.8 million, $5.2 million, and $15.8 million for the years ended December 31, 2011, 2012, and 2013, respectively. |
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Derivative Financial Instruments | ' |
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(j) Derivative Financial Instruments |
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In order to manage its exposure to oil and gas price volatility, the Company enters into derivative transactions from time to time, including commodity swap agreements, collar agreements, and other similar agreements relating to natural gas expected to be produced. To the extent legal right of offset with a counterparty exists, the Company reports derivative assets and liabilities on a net basis. The Company has exposure to credit risk to the extent the counterparty is unable to satisfy its settlement obligation. The Company actively monitors the creditworthiness of counterparties and assesses the impact, if any, on its derivative position. |
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The Company records derivative instruments on the consolidated balance sheets as either an asset or liability measured at fair value and records changes in the fair value of derivatives in current earnings as they occur. Changes in the fair value of commodity derivatives are classified as revenues, and changes in the fair value of interest rate derivatives are classified as other income (expense). |
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Asset Retirement Obligations | ' |
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(k) Asset Retirement Obligations |
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The Company is obligated to dispose of certain long-lived assets upon their abandonment. The Company's asset retirement obligations (ARO) relate primarily to its obligation to plug and abandon oil and gas wells at the end of their life. The ARO is recorded at its estimated fair value, measured by reference to the expected future cash outflows required to satisfy the retirement obligation discounted at the Company's credit-adjusted, risk-free interest rate. Revisions to estimated ARO can result from changes in retirement cost estimates, revisions to estimated inflation and interest rates, and changes in the estimated timing of abandonment. The fair value of the liability is added to the carrying amount of the associated asset, and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for an amount other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement. |
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The Company delivers natural gas through its gathering assets and delivers water through its water distribution assets and may become obligated by regulatory or other requirements to remove certain facilities or perform other remediation upon retirement of gathering pipelines and compressor stations. However, the Company cannot reasonably predict when production from existing reserves of the fields in which we operate will cease. In the absence of such information, we are not able to make a reasonable estimate of when future dismantlement and removal dates will occur and therefore have not recorded asset retirement obligations related to gathering assets. |
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Environmental Liabilities | ' |
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(l) Environmental Liabilities |
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Environmental expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenue generation are expensed as incurred. Liabilities are accrued when environmental assessments and/or clean up is probable, and the costs can be reasonably estimated. These liabilities are adjusted as additional information becomes available or circumstances change. As of December 31, 2012 and 2013, the Company has not accrued a material amount for any environmental liabilities nor has it been fined or cited for any environmental violations that could have a material adverse effect on future capital expenditures or operating results of the Company. |
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Natural Gas, NGL and Oil Revenues | ' |
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(m) Natural Gas, NGL and Oil Revenues |
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Sales of natural gas, NGLs, and crude oil are recognized when the products are delivered to the purchaser and title transfers to the purchaser. Payment is generally received one month after the sale has occurred. Variances between estimated sales and actual amounts received are recorded in the month payment is received and are not material. The Company recognizes natural gas revenues based on its entitlement share of natural gas that is produced based on its working interests in the properties. The Company records a revenue distribution payable to the extent it receives more than its proportionate share natural gas revenues. At December 31, 2012 and 2013, the Company had no significant imbalance positions. |
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Concentrations of Credit Risk | ' |
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(n) Concentrations of Credit Risk |
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The Company's revenues are derived principally from uncollateralized sales to purchasers in the oil and gas industry. The concentration of credit risk in a single industry affects the Company's overall exposure to credit risk because purchasers may be similarly affected by changes in economic and other conditions. The Company has not experienced significant credit losses on its receivables. |
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The Company's sales to major customers (purchases in excess of 10% of total sales) for the years ended December 31, 2011, 2012, and 2013 are as follows (including sales in discontinued operations): |
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| | 2011 | | 2012 | | 2013 | |
Company A | | | 28 | % | | 23 | % | | 30 | % |
Company B | | | 17 | | | 13 | | | 14 | |
Company C | | | 12 | | | 10 | | | 8 | |
All others | | | 43 | | | 54 | | | 48 | |
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| | | 100 | % | | 100 | % | | 100 | % |
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Although a substantial portion of production is purchased by these major customers, we do not believe the loss of any one or several customers would have a material adverse effect on our business, as other customers or markets would be accessible to us. |
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The Company is also exposed to credit risk on its commodity derivative portfolio. Any default by the counterparties to these derivative contracts when they become due would have a material adverse effect on our financial condition and results of operations. The fair value of our commodity derivative contracts of approximately $860 million at December 31, 2013 includes the following values by bank counterparty: BNP Paribas—$197 million; Credit Suisse—$190 million; Barclays—$147 million; Wells Fargo—$140 million; JP Morgan—$134 million; Citigroup—$34 million; Deutsche Bank—$15 million; and Toronto Dominion Bank—$3 million. The estimated fair value of our commodity derivative assets has been risk adjusted using a discount rate based upon the respective published credit default swap rates at December 31, 2013 for each of the European and American banks. We believe that all of these institutions currently are acceptable credit risks. |
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The Company, at times, may have cash in banks in excess of federally insured amounts. |
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Income Taxes | ' |
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o) Income Taxes |
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The Company recognizes deferred tax assets and liabilities for temporary differences resulting from net operating loss carryforwards for income tax purposes and the differences between the financial statement and tax basis of assets and liabilities. The effect of changes in the tax laws or tax rates is recognized in income in the period such changes are enacted. Deferred tax assets are reduced by a valuation allowance, when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. |
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Unrecognized tax benefits represent potential future tax obligations for uncertain tax positions taken on previously filed tax returns that may not ultimately be sustained. The Company recognizes interest expense related to unrecognized tax benefits in interest expense and fines and penalties as income tax expense. |
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Fair Value Measures | ' |
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(p) Fair Value Measures |
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FASB ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance also relates to all nonfinancial assets and liabilities that are not recognized or disclosed on a recurring basis (e.g., those measured at fair value in a business combination, the initial recognition of asset retirement obligations, and impairments of proved oil and gas properties, and other long-lived assets). The fair value is the price that the Company estimates would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is used to prioritize input to valuation techniques used to estimate fair value. An asset or liability subject to the fair value requirements is categorized within the hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The highest priority (Level 1) is given to unadjusted quoted market prices in active markets for identical assets or liabilities, and the lowest priority (Level 3) is given to unobservable inputs. Level 2 inputs are data, other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Instruments which are valued using Level 2 inputs include nonexchange traded derivatives such as over-the-counter commodity price swaps, basis swaps, and interest rate swaps. Valuation models used to measure fair value of these instruments consider various Level 2 inputs including (i) quoted forward prices for commodities, (ii) time value, (iii) quoted forward interest rates, (iv) current market prices and contractual prices for the underlying instruments, (v) risk of nonperformance by the Company and the counterparty, and (vi) other relevant economic measures. To the extent a legal right of offset with a counterparty exists, the derivative assets and liabilities are reported on a net basis. |
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Industry Segment and Geographic Information | ' |
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(q) Industry Segment and Geographic Information |
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We have evaluated how the Company is organized and managed and have identified the following operating segments: (1) the exploration and production of oil, natural gas, and natural gas liquids, and (2) midstream operations consisting of natural gas gathering, compression, and fresh water distribution operations for the distribution of fresh water used in well completions. Prior to 2013, the Company did not have any reportable segments and considered its gathering, compression, and fresh water distribution operations to be ancillary to its exploration and production activities. In connection with the proposed initial public offering of Antero Midstream, the Company intends to contribute its midstream assets to Antero Midstream. Antero Midstream is expected to enter into agreements with the Company for the dedication of substantially all of the Company's current and future acreage for natural gas gathering and compression services and for fresh water sourcing and delivery related to all of the Company's current and future drilling. The Company intends to convert Antero Midstream into a limited partnership in connection with a public offering of Antero Midstream as a master limited partnership. As a result of these transactions, management has begun to evaluate these gathering and compression and fresh water distribution services separately from exploration and production activities and these operations therefore became reportable segments as of December 31, 2013. Prior to 2013 and the planned master limited partnership, gathering and compression and fresh water distribution services were not material. |
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All of our assets are located in the United States and all of our revenues are attributable to customers located in the United States. |
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Reclassifications | ' |
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(r) Reclassifications |
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Certain reclassifications have been made to prior periods' financial information related to water distribution assets to conform to the 2013 presentation. |
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Earnings (loss) per share | ' |
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(s) Earnings (loss) per share. |
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Earnings (loss) per common share and earnings (loss) per common share—assuming dilution for each of the three years ended December 31, 2013 was calculated as if the shares issued in the Corporate Reorganization and IPO described in Note 1 were outstanding for the entire period. The effect of dilutive options and restricted stock awards in 2013 is less than $0.01 per share. |
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