Good day, and welcome to Antero Resources Fourth Quarter and Year End 2018 Earnings Conference Call and Webcast. All participants will be in listen only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mr. Michael Kennedy, Vice President of Finance and Head of Investor Relations. Please go ahead.

Thank you for joining us for Antero's fourth quarter 2018 investor conference call. We'll spend a few minutes going through the financial and operational highlights and then we'll open it up for Q&A. I'd also like to direct you to the homepage of our new website at www.anteroresources.com, where we've provided a separate earnings call presentation that will be reviewed during today's call. Before we start our comments, I'd like to first remind you that during this call, Antero management will make forward-looking statements. Such statements are based on our current judgments regarding factors that will impact the future performance of Antero and they're subject to a number of risks and uncertainties, many of which are beyond Antero's control. Actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements. Today's call may also contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures including reconciliations to the most comparable GAAP financial measures. Joining me on the call today are Paul Rady, Chairman and CEO; and Glen Warren, President and CFO. I will now turn the call over to Paul.

Thanks, Mike, and thank you to everyone for listening to the call today. In my comments, I'm going to review our 2018 development activity, including the cost efficiencies we have achieved and discuss our recently announced 2019 capital budget and flexible long-term development outlook. Glen will then highlight our fourth quarter and full-year financial achievements and discuss the expected change in financial reporting to be consolidated Antero midstream from AR following the simplification. Glen will also touch on our 2018 proved reserves and provide some additional color around our long-term outlook and firm transportation portfolio. Let's begin by discussing the efficiency improvements we made during the quarter and throughout 2018. Once again Antero set new operational records during the fourth quarter. Looking at Slide number 4, entitled Drilling and Completion Efficiencies during the fourth quarter, completion stages per day in the Marcellus set another company record for a full quarter averaging 5.7 stages per day. For the full year of 2018 completion stages per day in the Marcellus averaged 5.2 stages per day, which was an increase of one full stage per day from the 2017 average of 4.2 stages per day. Looking at our 2019 budget, we are assuming 5.2 stages per day, so this is certainly an area we think we can outperform resulting in additional well cost savings. To provide some detail on these savings, an increase of one additional stage per day would result in about $200,000 of savings per well. Moving on to some of our recent operational results. During the fourth quarter returned to sales several outstanding Marcellus liquids rich pads. One particular pad was a 10 well pad with an average lateral length of 9,700 feet and an average BTU of 1230. This pad produced approximately 195 million cubic feet equivalent per day…

Thank you, Paul. In my comments today I will briefly touch on the expected change through our financial reporting following the simplification transaction, highlight our fourth quarter and full year financial results and discuss our 2018 reserves. I will also provide some additional thoughts around our 2019 guidance and moderated long-term outlook and finish with a discussion around how we are positioned to succeed in the years ahead. Let's first talk about our plans to deconsolidate AM from AR from a financial reporting perspective. Upon closing of the midstream simplification transaction, AR will no longer consolidate AM on its GAAP financial statements but will rather report its interest in AM through the equity method of accounting. We think this is a very good outcome for AR for a number of reasons. First, it will greatly improve the transparency and disclosure for AR on a standalone E&P basis. This will enable investors to more easily compare and contrast AR with its peers without having to dive into the complexities of the consolidated accounting rules. As an example as of year-end 2018 Antero's consolidated net debt-to-adjusted EBITDAX was 2.7 times, which is what shows up on financial data screening services such as Bloomberg or FactSet. On a standalone E&P basis, which is a more appropriate measure given AM’s debt is non-recourse to AR. Antero Resources standalone leverage was 2.2 times or 0.5x lower than how it is viewed from a street perspective. In our view, this transition will minimize future inconsistencies among analysts, investors and financial screening services on AR's leverage, EBITDA, capital and free cash flow to name a few, and therefore, significantly improve our transparency. It is important to point out that AR will still own approximately 31% of New AM upon closing of the simplification transaction, assuming the cash…

Thank you, Glen. Before we turn it over to the operator for questions, we'd like to make a few comments regarding a recent piece of news regarding our recent $3.15 million settlement with the EPA and the Department of Justice regarding an environmental violation. We were a little disappointed that the Department of Justice press release did not clarify that the incidents occurred just short of 9 years ago in June of 2011. We do take our company reputation seriously and are extremely proud of our stellar operating track record. I'd like to turn the call over to Al Schopp, our Chief Administrative Officer and Senior Vice President West Virginia, to provide a little bit more detail. Al?

Thank you, Paul. This is Al Schopp. I would just concur with Paul in that we were a little disappointed in the characterization and the people who really did not take the time to understand the story. Back in spring of 2011, we had hired third-party consultants to do our delineations, which is the prudent thing to do. Midstream had hired some and Upstream had hired some. It ended up at one of our sites that had the pressure pad being built and well pad being built, and there was a disagreement about what the interpretation of ephemeral and intermittent streams and some wetlands would be back in that time. There was a lot going on in the industry at that time. You probably recollect seeing some others, XPO, Chesapeake and alike, had also gone through this characterization problem. The EPA did come out and they clarified how they would like those to be interpreted and had cited about 9 of our sites for what they called "fill into stream to wetland", which is basically dirt when you're building the construction pad or the compressor pad. And so, at that time, we then took what the EPA wanted as interpretations and we voluntarily went back through to 2009, to the very first pad we had ever built, and we used this more stringent set of criteria to reevaluate every site that Antero had ever built. Now, from June 30, 2011, when we met with EPA and volunteered to go backwards, we changed our entire process, our entire delineation consultant program to make sure we had one EPA approved consultant and that they certainly understood the requirements of the EPA for ephemeral intermittent streams and associated wetlands. And from that time forward, the only environmental issues we've really had in that…

Thank you, Al. And now we'll turn the call over to the operator for questions.

[Operator Instructions]. Our first question comes from Subash Chandra with Guggenheim Partners. Please, go ahead.

Maybe for Paul. The marketing expense, just curious how I assume you mitigate a good amount of that unused FTE capacity cost by either subletting capacity or purchasing gas. I'm just curious as you look into 2019, does anything change those dynamics, such as converging basis dips in the Basin, or slower growth objectives from third parties?

Yes, that's a good question, Subash. So, in our little further back past when there were pretty strong spreads, we were able to buy third-party gas of as much as 0.5 Bcf a day and move it through our pipe and collect the spread. So, we were offsetting a good many tens of million dollars of demand charges. At the moment, there's approximately 2.5 Bcf of available capacity really between the Mountaineer Xpress pipe and NEXUS, and so the basis differentials have narrowed. We do see as we and our peers grow that the pipe will begin to fill again and if so, we do expect to see basis differentials and spreads improve. In the meantime, we are taking on certain third parties and moving gas around just to optimize our transportation. So, right now, narrow spreads but the pipes will fill over the medium term.

And just to be clear on the numbers that we put out there, the net marketing numbers on a per NGL basis, those include no mitigation whatsoever. So, there's no assumption that we buy/sell gas or sublet capacity, Subash. So, that's kind of the worst-case scenario and I think we will probably find some ways to mitigate that.

Okay. Got it. I assumed it did. I can go offline on this because when I sort of looked at the 10k you talk about a billion of annual FTE charges, I think there might be some NGLs in there and then I sort of divide by gross production in a year. It works out to about $1 or so, but the math could be off. So, I thought that there was a fair number that was reflected in your guide. But if it isn't, that's even more positive.

Yes, Subash, this is Mike. Your math is off. Simply give me a call and I'll help you out.

Will do.

Yes, that total number is going to be something a little over $200 million in gross dollars this year for a firm that we do not utilize it. So, it's as simple as that. It's very straightforward.

Got you. Okay, that's the whole number. Got it. And then, Paul, you mentioned the larger pads and spud to sales improving. Could you sort of give us a frame of reference as to what it has been, what do you think this could do?

Yes, I think for the very largest pads if you do the drilling one by one, completing one by one, the drill out of the plugs one by one for a 10 or 12 well pad you can really stretch things out 200-300 days before you put it online. And so, with what we call concurrent operations and bigger pads, we can do all three things at once. So, we can drill on one part of the pad and then move the rig over and drill another line of wells while we move the frack spread in. It's conceivable, although we haven't done it yet at least I can't think an example, where we have two frack spreads on the same pad, one working one line of wells, one working the other. We can also do drill outs. We have done this where we have completion drill outs where we're drilling out plugs on different lines of wells at the same time. How much can we shorten the cycle time? I think we can shorten, let's say at the extreme, of something calculated to 300 days before it can be 180 days now of cycle time. So, on these big pads, which definitely deliver a tremendous amount of production, it does take time to do it. So, with larger pads and I guess I would say also definitely there is a correlation between more stages per day and the larger the pad just because there is so much logistic staging as we deliver sand to the mixers.

Our next question comes from Sean Sneeden with Guggenheim. Please, go ahead.

You guys highlight the benefit of Marcus Hook and there is quite a bit of uplift there. Can you help us just kind of understand the marketing dynamics of some of that? Should we be thinking that a lot of those volumes are going to Europe? Sometimes the spreads between Europe and Asia kind of jump around. How should be kind of thing about that over the long-term?

So, we're in our first year of marketing out of Marcus Hook. So, you've got to divide it up a couple of different ways. Two different marketing companies that buy at the dock. So, roughly I think you could say one-third of our product will go to Northwest Europe, another third will go to the Far East, and then the third portion will be LPF in the Atlantic Basin, so that goes to the east coast of South America, west coast of Africa. So, we have it divided up. Certainly, there is freedom as the marketing companies take the shiploads off the dock that they can divert based on indices. But that's it. Third, third, third conceptually. The marketing companies do the logistics and obviously go to the best netbacks.

Got it. That's helpful. Can you remind me how you guys think about and what kind of impact there is on some of the longer-term guidance for your assumptions around once you get the full scale out of Marcus Hook what that means for in Basin realizations there?

Well, that's a good question. It remains to be seen. As we've said, our current net sales price within the sales pool, if we keep the liquids at home, we know one price that it has been historically. When we export out of the dock there is a good uptick that equates to somewhere between $4-$8 a barrel of NGL. So, we know there's a price improvement, but we'll have to see empirically as we drain the Basin, as we make the liquids more scarce, the liquids that get left behind. Because it's roughly half of our liquids will be to Marcus Hook and half will stay within the Basin and take advantage of tighter differentials. We'll just see, but we don't have a track record yet as to all the exporting out of Marcus Hook; what that will do to the net sales price within the Basin. But it should improve it, obviously.

Right. Yes. Just remind us, you haven't definitely assumed any benefit in some of your longer-term guidance. Is that how we should think about it for what remains in Basin?

That's exactly right. So, we've made assumptions on what gets exported, but we've not made any assumptions on improvement on what gets left behind.

Got it. That's very helpful. Thanks for all the time, guys.

Yes. Just to follow up on that, we think the Basin is producing about 400,000 barrels a day of C3-plus NGLs. So, when you pull upwards of 100,000 maybe 145,000 barrels a day on the initial ME2 line out of the Basin, that should have a positive impact. That will just improve over time as ME2 gets fully up and running, gets to its full capacity and more is able to be drawn to the water shift.

Our next question comes from Holly Stewart with Scotia Howard and Weil. Please, go ahead.

Maybe, Glen, just following up on that last ME2 comment. How much are you flowing today and when do you expect to reach your full capacity on ME2?

I believe we're in the 40,000 barrel a day plus today and probably approaching 50,000 barrels on some days. So, we're close to our firm transport capacity on ME2 now.

Is there availability for you to do more?

Could be in the short-term, I think. It's possible depending on how quickly other shippers step up and use their capacity. As we talked about a number of times, we think by year end that Energy Transfer will have this fully opened, the 20 inches all the way. Then the capacity steps up from 145,000 barrels a day to 275,000 barrels a day hopefully by year end this year, maybe sooner.

And we think that, Holly, we'd have certain tranches that we can exercise our overflow rights. So, we could move more should we decide to.

Great. That's good color. Maybe just kind of looking at this slide 4, you highlight a lot of company records versus where you ended up in 4Q. Just thinking about what's implied in the guidance right now, even on the completion stages per day, your record is almost twice what you did in 4Q. So, can you just maybe talk through a few of those items and what's implied in the guidance currently and just kind of bridging that gap for us?

Yes, Holly. Thanks. In the guidance, we're assuming 5.5 stages a day, I believe. Right?

5.2.

5.2. Excuse me, 5.25 a day in the guidance. So, we feel good about being able to beat that. I think if you can add another stage a day, that saves about $200 thousand per well. So, if we can get that 5.25 to 6.25 throughout the year then that would save another $200 thousand per well.

Got it. That's a good color. Finally, just sort of a little higher level, Paul, on the last. I see presentations are taking a bit more of a bullish stance on gas. I'm kind of curious how you're balancing this versus the out year hedge book.

Well, the out year hedge book we're certainly looking at beyond 2020. We still have some volumes hedged there. We, like so many others, watch pretty closely rig count in the different basins. We're watching production by the different basins. We've seen things level off a little bit over the last few months. Is that just winter conditions? But as our natural gas piece that Glen and the finance department put out there, there is a big decline on the nation's reserve base, and it has to be replaced of course. It also has to meet the new demand to go from the mid 80s to the low 90s Bcf a day. And that's going to take drilling. So, many of the blaze, about half of the blaze, will be dragged along by liquids, maybe if Scoop Stack, Permian, and NGL producers such as ourselves. But it's really the dry gas plays that are vulnerable and can they make up the other half in the difference in not only overcoming the decline but meeting the growth. So, we pride ourselves in understanding a lot of different plays and how much inventory might remain and the quality of what people are drilling. Usually quality declines as people drill up their inventory. So, with that, we're watching production itself plus the build up in each of the different basins and we're feeling that there is a reason that prices will need to rise to encourage more drilling and more production. So, with that, we're watching the possibility of hedging in the outer years but looking for just which way to do it and the opportunities that we see out there.

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Michael Kennedy for any closing remarks.

Thank you for joining us on our call today. If there are any further questions, please feel free to reach out to us. Thanks again.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.