Antero Resources Corp

NYSE:AR

Earnings Call Analysis

Antero Resources Optimizes Operations and Sees Growth

Antero Resources has made remarkable operational improvements in 2023, with cycle times shortening by 65% compared to 2019, and completion stages per day increasing by 35% year-over-year. These efficiencies have led to a 9% total production growth, with liquids growing by 18% and natural gas by 4% compared to the previous year. Antero now expects annual production to increase by 225 million cubic feet equivalent per day, about 7% growth from the 2022 exit rate. The company has also successfully positioned 75% of its natural gas sales into the lucrative LNG corridor with preferable Tier 1 Gulf Coast pricing, setting the stage for substantial free cash flow and competitive advantages in 2024 amid rising LNG demand and increased pricing premiums.

Recovering Natural Gas Production Sets the Stage

In a backdrop where U.S. natural gas production declined by up to 10%, it took nearly two years to return to 2019's production levels. The impending curb in production growth due to a sharp decline in rigs and completion crews in 2024 is expected to help balance the U.S. natural gas market. This dynamic positions the company advantageously, with approximately 75% of its natural gas sales tied to the burgeoning LNG demand along the Gulf Coast.

Capital Efficiency and Production Growth

The company has shown a 9% year-over-year production growth in the third quarter of 2023, outpacing its peers who saw declines under a maintenance capital program. This growth puts them as a frontrunner in capital efficiency within the Appalachian region. Looking ahead, there is an expectation for natural gas storage levels to align with the five-year average by 2024, which should support prices and position Antero's sale points to command even higher premiums to NYMEX, leading to robust free cash flow prospects for 2024 and beyond.

Navigating Premiums and Market Dynamics

Antero is strategically set to capitalize in 2024, as some of their term contracts roll off in the first quarter, providing the flexibility to capture higher values in the market. The company predicts a backwardation in freight costs, transitioning to a $0.12 per gallon lower U.S. to Asia rate by midsummer of 2024 compared to current levels, and expects propane price movements to normalize into the five-year range.

Upcoming Strategy and Fiscal Discipline

Without anticipating any deflation, Antero intends to maintain the efficiencies and performance gains, moving into 2024 with a budget decided by early next year. The company usually targets $75 million to $100 million a year in a traditional year and has guided for a roughly flat lease operating expense (LOE) with a moderate uptick possibly reaching a dime.

Leveraging Infrastructure and Operational Efficiency

Antero plans to continue leveraging its extensive infrastructure and efficient operations to drill impactful wells. With most of their capital events behind them as of the fourth quarter, they anticipate selling more into the Gulf Coast at premium prices to Henry Hub in the winter. The company's partnership in a drilling joint venture and the ongoing improvements in operational efficiencies, including drilling and completion designs, are on track to further advance the company's leading performance into the third quarter of 2024.

Future Outlook and Capital Allocation

With an existing inventory of over 1,000 premium dry gas locations, Antero has the optionality to increase gas production if needed, especially with regards to future LNG build-out. Currently, Antero is keen on maintaining its levels through maintenance capital while enjoying higher commodity prices, free cash flow, and focusing on debt reduction and shareholder returns.

Fiscal Management and the Road to Zero Debt

Antero Resources is primarily focused on enhancing its free cash flow profile. It prioritizes its standalone growth and efficiency over the benefits passed on to Antero Midstream. With a clear goal of maximizing free cash flow, the company is committed to paying down debt and increasing shareholder returns. Antero has set an ambitious goal to bring debt to zero, focusing first on bank debt before other debt liabilities, and aiming to strike a balance that benefits shareholders in the long term.

Earnings Call Transcript 2023-Q3

[Operator]

Greetings, and welcome to Antero Resources Q3 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brendan Krueger, Chief Financial Officer of Antero Midstream and Vice President of Finance.

[Brendan Krueger, executive]

Thank you. Good morning, everyone. Thank you for joining us for Antero's Third Quarter 2023 Investor Conference Call. We'll spend a few minutes going through the financial and operating highlights, and then we'll open it up for Q&A. I would also like to direct you to the homepage of our website at www.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, including reconciliations to the most comparable GAAP financial measures.

Joining me on the call today are Paul Rady, Chairman, CEO and President; Michael Kennedy, CFO; and Dave Cannelongo, Senior Vice President of Liquids Marketing and Transportation; and Justin Fowler, Senior Vice President of Natural Gas Marketing. I will now turn the call over to Paul.

[Paul Rady, executive]

Thank you, Brendan. I'll start my comments on Slide #3 titled Drilling and Completion Efficiencies. After a record-breaking first half of 2023 operationally, we continued to build on this momentum during the third quarter. As an example, our completion pumping hours per day increased to over 17 hours per day, up nearly 50% from a year ago. In June, we set a company record pumping on average for over 22 hours a day. This increase in pumping hours per day contributes to higher completion stages per day.

Year-to-date completion stages per day have averaged 11 stages a day, a 35% improvement compared to the 2022 average and is a nearly 90% increase from our 2019 levels. The net impact of all of our operational improvements has led to significantly shorter cycle times as shown on the bottom of the page. These cycle times reflect the total number of days it takes on average from first studying the pad and to turning that entire pad to sales.

Since 2019, our cycle times have decreased by an impressive 65% and averaged just 160 days through the first 3 quarters of 2023. In June, we had the fastest cycle times in our company history at 129 days. Shorter cycle times means higher capital efficiency. Highlighting this point, we completed roughly 80% of our 2023 expected completion stages during the first 9 months of 2023.

Now let's turn to Slide #4. Faster cycle times and improving well performance has led to 2 production guidance increases in 2023. This gain in capital efficiencies is highlighted by our 9% total production growth in the third quarter compared to the year ago period. Our production growth was driven by an 18% liquids growth while natural gas volumes increased 4% year-over-year. Looking at this on an annual basis, we now expect production this year to increase by 225 million cubic feet equivalent per day or 7% from the exit rate in 2022 to the exit rate in 2023.

Importantly, these capital efficiency gains also reduced our maintenance capital budget. We continue to expect materially lower D&C capital in 2024 driven by operational efficiency gains alone. Lastly, I'd like to discuss our multi-decade inventory position. Turning to Slide #5, titled AR has the lowest -- the largest low-cost inventory. This chart compares inventory positions across our natural gas peer group based on data from a recent third-party report.

Antero has the most sub $2.75 per Mcfe drilling inventory at 22 years. It's important to note that this inventory comparison is after our peers spent a combined $17 billion on acquisitions over the last 2 years. In contrast, we remain focused on our organic leasing efforts where we've invested some $340 million over that same time to acquire targeted drilling locations within our development footprint.

On average, we've been able to add locations for approximately $1 million per location through this program. That is less than half of the over $2 million average cost per location for the peer acquisitions.

Touching on the recent flurry of M&A headlines. In our opinion, drivers for M&A usually relate to either one, limited core inventory; two, a lack of pipeline capacity to move your production out of basin or thee, for balance sheet repair.

With a peer-leading low-cost inventory position, the largest firm transportation portfolio in the E&P sector and low absolute debt and leverage, Antero can stay focused on improving operations which we believe drives ultimate shareholder value. Now 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 Cannelongo for his comments. Dave?

[David Cannelongo, executive]

Thanks, Paul. In the second half of 2023, we have seen an uptick in crude pricing as the macroeconomic concerns in the first half of the year have eased and new geopolitical concerns in the Middle East have increased the risk premium in the market. The most recent conflict has added volatility to global energy prices, particularly crude with market fears of war spreading further in the Middle East.

Turning to propane. While absolute propane inventories are high and prices as a percent of WTI lower than usual, fundamentals are painting a better picture in recent weeks. The U.S. recently set a new weekly record high for propane exports and printed 2 consecutive weeks above 2 million barrels per day. Overall, propane export demand has been consistently strong and has averaged 1.6 million barrels per day year-to-date. Shown on Slide 6, about 250,000 barrels per day or 19% above the 2022 full year average.

As we move into 2024, exports are expected to further increase causing potential tightness in U.S. Gulf Coast DUC capacity. As a reminder, Antero exports over 50% of our C3+ production, skewed heavily towards propane in particular, directly out of the Marcus Hook terminal in Pennsylvania, and therefore, Antero's export volumes are not impacted by constraints at the Gulf Coast export DUCs. In fact, with tight capacity in the Gulf Coast and strong international pricing, Antero will be able to take advantage of its capacity out of Marcus Hook to capture these wide arbitrage opportunities.

The growing call on propane exports has kept propane days of supply in line with historical levels. As seen on Slide 7, while total propane inventories sit just above the top of the 5-year range. Propane days of supply is currently just 1 day above the 5-year average. Adding to the strong exports, seasonal demand will also start to increase in the fourth quarter as the market heads into the winter heating season. Strong heating demand this winter could quickly deplete the surplus that the mild 2022 to 2023 winter added to inventories last withdrawal season.

Now let's turn to Slide 8 titled China PDH Buildout Continues. A major driver of strong propane exports this year has been growing demand from China, which has seen stronger year-over-year petrochemical demand despite some macroeconomic headwinds there. This year through August, 120,000 barrels a day of propane dehydrogenation or PDH capacity has been added in China.

Industry estimates show that another 340,000 barrels a day of capacity is expected to come online between now and the end of 2024. Even with just 1/4 of PDH capacity additions online that are expected over 2023 and 2024, the ramp in imports to China from the U.S. year-over-year has been substantial.

For January through August this year, the amount of U.S. propane cargoes delivered to China increased by 44% year-over-year compared with a 19% increase year-over-year from the Middle East. This demonstrates that U.S. exports continue to make up the marginal increase required by Chinese propane demand.

Meanwhile, on the U.S. supply side, rig counts continue to drop, now down 21% year-to-date as seen on Slide 9. This represents a drop of 163 rigs across both oil and gas directed rigs. Permian Basin rig counts are down 40 year-to-date and have accelerated decreases in recent weeks, falling to just above 300 total rigs, losing 20 rigs between the end of September and start of October.

Additionally, key NGL-producing basins such as the Eagle Ford and SCOOP/STACK have seen their rig counts declined 35% and 45% year-to-date. Overall, we believe that with supportive fundamentals domestically and positive demand signals from China, there are signs of improvement for NGLs heading into 2024 and in particular, for producers like Antero with direct access to international markets.

With that, I'll turn it over to our Senior Vice President of Natural Gas Marketing, Justin Fowler, to discuss the natural gas market.

[Justin B. Fowler, executive]

Thanks, Dave. I will start on Slide #10 titled Dramatic Reduction in Activity Will Limit Production Growth. Starting with the rig count chart at the top of the slide, we have seen the Appalachia plus Haynesville rig count declined by approximately 50 drilling rigs since the beginning of this year. This compares to the similar rig decline that we experienced back in 2019.

As shown on the natural gas production chart at the bottom of the slide, it took over 6 months to materialize. However, U.S. natural gas production ultimately declined by as much as 10%. Further, it took almost 2 years to get back to the 2019 highs. Today, we are just about 6 months out from when rigs began to drop in a meaningful and sustained way. An important distinction this time around, however, is that over 70% of the rig declines this cycle have come from the higher decline in Haynesville Basin. A sharp contrast to 2019 when the majority of rig drops came from the lower decline in Appalachian Basin.

In summary, we believe the sharp decline in rigs and completion crews will curb production growth in 2024, helping to balance the U.S. natural gas market. As a reminder, we sell substantially all of our natural gas out of basin, including approximately 75% to the LNG corridor, as shown on Slide #11, titled Firm transportation to the LNG Fairway.

Our firm transportation portfolio provides us with direct exposure to growing LNG demand along the Gulf Coast and importantly, into Tier 1 pricing points along the Gulf Coast. Next, I'll turn to Slide #12, titled Not All Firm Transportation to the Gulf Coast is Equal. This slide illustrates the significant benefit in selling your gas at Tier 1 Gulf Coast pricing. Based on the current strip, Tier 1 prices reflect increasing premiums to NYMEX in 2024 and 2025, including the TGP 500 line, where premiums have increased to $0.29 above NYMEX in 2026.

Meanwhile, some peers claim they can move their gas to the Gulf Coast, but they're actually stuck in Tier 3, selling their gas at $0.24 back of NYMEX in both 2024 and 2025. The yellow stars on the map depict Antero sales points, which were strategically negotiated to bring our volumes directly to the LNG doorstep. As depicted in the pie chart on the top left of the slide, Antero sells 90% of its gas at Tier 1 pricing. This compares to the average of our peers, which sell 67% of their Gulf Coast directed volume into Tier 2 and 3 pricing.

Looking ahead over the next 2 years as LNG export capacity increases by nearly 6 Bcf, we expect Antero sales points to be priced at even higher premiums to NYMEX as these LNG facilities compete for supply, a key competitive advantage between Antero versus our peers. With that, I will turn it over to Mike Kennedy, Antero's CFO.

[Michael Kennedy, executive]

Thanks, Justin. First, I'd like to add some additional comments on how we view the outlook for natural gas. Slide #13 examines the historical relationship between storage levels and natural gas prices. This chart illustrates the high correlation that storage and pricing have to each other. As you would expect, when storage levels are below or above the 5-year average, natural gas prices are low. And when storage levels are below the 5-year average, prices trend higher.

Since 2020, which is essentially when the industry moved the maintenance production when storage levels are flat with the 5-year level, natural gas prices averaged $4 per Mcf. Looking at 2023, storage levels rose to as high as 25% above the 5-year average, resulting in negative sentiment and low gas prices.

However, during the second half of 2023, record levels of power burn drove down the storage surplus, which sits at just 5% today. With production expected to moderate in the coming months and LNG exports hitting record highs, we anticipate storage levels will balance with the 5-year average in 2024, thus providing support to natural gas prices.

Expanding on this point, if you have today's exact storage level at this same time next year, your surplus would go from almost 200 Bcf over the 5-year average today to a surplus of just 50 Bcf to next year's 5-year average. Next, I'd like to go a little deeper on the capital efficiency improvements that Paul touched on in his comments.

The scatter plot on Slide #14 illustrates the year-over-year change in production on the y-axis and the year-over-year change in drilling and completion capital on the X axis, for the Appalachia and EMPs. While targeting a maintenance capital program, Antero's third quarter 2023 production actually grew 9% year-over-year.

Conversely, while our peer group attempted to target a maintenance capital program, their volumes actually declined year-over-year. When you compare the production growth to the drilling and completion capital invested to deliver that growth, we have been far and away the most capital-efficient operator in Appalachia. As a rule of thumb internally, we view each $100 million change of capital to result in approximately $100 million a day change in production, both up and down.

Exit rate 2022 to exit rate 2023, we expect production growth of $225 million per day, which implies that our capital efficiency gains and well performance have reduced true maintenance capital by roughly $225 million, all else equal. This implies a true maintenance capital budget to hold 2022 volumes of 3.2 Bcfe a day of approximately $650 million to $700 million.

Looking ahead to 2024, our improved capital efficiency and well performance provides us with significant flexibility during our upcoming budgeting process to either hold our current third and fourth quarter volumes flat at capital approximately 10% lower than our 2023 capital or to hold our previously communicated maintenance volumes of 3.35 to 3.4 Bcfe a day at an even lower capital level.

Either way, this lower capital outlook, combined with the higher natural gas strip is expected to lead to substantial free cash flow in 2024 and beyond. With that, I will now turn the call over to the operator for questions.

[Operator]

[Operator Instructions] Our first question today comes from Bert Donnes of Truist.

[Bertrand Donnes, analyst]

On the difference between the 10% lower capital program versus the meaningfully lower capital, you just addressed some of the questions. But what spurred the change in the messaging? Is it just the efficiencies you're seeing? Is there some sort of investor feedback? Or are you looking at the strip and that changed your mind? Or was this always the plan you just laid it out a little bit simpler for us the first time.

[Michael Kennedy, executive]

No, the change is our production is well ahead of expectations. We didn't anticipate to be $225 million a day over exit rate to exit rate. We've now raised our guidance twice throughout the year. And we expect gross wellhead volumes in Q4 to be higher than Q3 as well. And so just the well performance, the capital efficiency, all those assumptions underlying those have improved.

And so we have to figure out in this upcoming budget process, the assumptions that we use, how we risk those. We typically have some risk, and that's why we always hit our numbers and go from there and see which levels we want to hit. We can dial in pretty much any production we want at any capital at the required capital levels.

So when you change those assumptions, it changes the capital. So 10% would be holding kind of the current run rate. We'd be 10% lower, but if we held the previously communicated guidance for maintenance capital, it would be well below that 10%.

[Bertrand Donnes, analyst]

That's great. And then my follow-up is kind of related, but say the strip plays out, maybe we actually get a few cold winters. LNG demand doesn't get pushed out. You see an attractive growth environment.

Does Antero's kind of stable operations plan change? Or do you maybe stair step just up to a higher level and maybe hedge some of that risk away. I was feeling some of your peers are probably try to respond to a bull and bear environment. But do you stay stable or with your new efficient program, maybe you could respond to the strip?

[Michael Kennedy, executive]

No, we stay say. We're trying to achieve maintenance capital. It's just -- as we said, it just continues to improve. So ultimately, we'll get to a level where the maintenance capital assumptions we have equate to actuals, and so we'll stay at that maintenance capital program and then pay down the remainder of our debt and return capital to shareholders.

[Operator]

The next question comes from Umang Choudhary of Goldman Sachs.

[Umang Choudhary, analyst]

I appreciate all the details on the propane macro. I wanted to circle back on your thoughts around upside and both downside risk to propane prices heading into next year. Like you said, you are positive on propane demand for 2024 with the build-out of PDH facility.

But I wanted to understand if you see any downside risk there and also on the supply side, given healthy oil prices, do you see any risk of supply exceeding EI expectations of around 50,000 barrels per day for the next year?

[David Cannelongo, executive]

Yes. On the propane side, I would say the biggest risk that we kind of highlighted in our comments on what could happen in the Gulf Coast with Mont Belvieu pricing, if you see those DUCs really hit full utilization. We even saw here in the third quarter, 3 of the big 4 facilities had extended planned or unplanned maintenance or I guess, third quarter into fourth quarter that has driven some lower propane export numbers despite the records that we've reported.

So I think we would have seen higher overall export numbers here in recent months and lower inventories than where we stand today, had that not happened. But it points to the fact that those facilities are becoming increasingly higher utilized. And that's really a big differentiator for Antero. If you go back to, I think it was back in 2019, the first kind of full year we had Mariner East online.

We had very high utilizations in the U.S. Gulf Coast and the arbs were wide, they were $0.15, $0.20 to $0.25 a gallon, and you saw us capture that. And so that's ultimately something that we could see play out this year -- or sorry, for 2024, where you could have weaker Mont Belvieu pricing like you've seen here in the third quarter, but strong arbs in Antero. As we move into 2024, we do capture some of that value today. We have some contracts that are term deals that roll off before the end of the first quarter.

And so beyond that in 2024, we're fully on contract and able to capture that value. And so I think you'll see that reflected in our NGL realizations if that plays out [indiscernible] looking right now on the propane side. I think the other tailwind is just on the freight cost, you've seen freight costs stay elevated this year. We hit record levels a month or so ago and that's been driven by some delays getting through the Panama Canal, well-publicized low water levels that they have down there.

And so that's again something temporary. And if you look at the futures curves for LPG freight costs, they're backwardated, U.S. to Asia is about $0.12 per gallon lower by mid-summer of 2024 versus now, and it's a pretty steady decline in those expected costs. So that will also allow prices in the U.S. to rise as well as that freight cost declines.

On the oil side, nothing I think that we can provide specific to that. Obviously, there's a lot of moving parts with geopolitical risks and OPEC. I do think we're seeing, particularly on the NGL side, the supply response as we've seen the rig count decline. You saw some very steep increases in U.S. propane inventories back in the spring, even though exports were strong.

And as we move through the back half of the year with similar levels on exports, you've seen those propane increases wane, would come back into the 5-year range. So I think that, to me, points to what we talked about with the rig counts where things are responding on the supply side here domestically as well, and we'll have to see if that plays out on the oil side in 2024.

[Umang Choudhary, analyst]

Very helpful. I guess the next question which I had is I just wanted to follow up on the operational momentum, which has been really strong here recently. Would love your initial thoughts on 2024 production and capital spending outlook. And also if you can touch a little bit on deflation and what you're expecting there too, which can probably add some upside to 10% reduction number which you were talking about from a capital spending perspective.

[Michael Kennedy, executive]

Yes. We're not baking in any deflation. My comments earlier were just addressing the operational efficiencies, capital program efficiencies and well performance that we've experienced this year. And assuming those type of efficiencies and performance will allow us to kind of dial in which capital we want depending on whether we want to keep today's production flat or what we communicated earlier, the kind of the annual average from last time of 3.35 to 3.4.

So that's what we're in the process of doing this quarter. So we'll go through our typical process and then come out with those -- generally, we come out with the budget with the February release with the year-end release. So we'll just work through that and continue to watch the market, but we're not assuming any deflationary aspects in that capital budget. That would just be upside.

[Operator]

The next question is from Arun Jayaram of JPMorgan.

[Arun Jayaram, analyst]

Yes, Mike, I wanted to get your thoughts on, so you said 10% lower CapEx next year and that would be to keep the current production outlook, what you're doing today, relatively flat. And then if you drill down to 3.35 to 3.4, it would be more than 10%. I just wonder if you can clarify those comments.

[Michael Kennedy, executive]

Yes. Okay.

[Arun Jayaram, analyst]

Got it. Got it. And then just -- I know it's hard to estimate land spend because you're opportunistic on that front. But if you're recommending kind of a placeholder for land spend in 2024, any just broad thoughts on that?

[Michael Kennedy, executive]

Yes. It was in the last comments, we always target in a traditional year unlike 2022 when we had a pretty big effort to increase that land position with the amount of free cash flow we had. But we typically always target $75 million to $100 million a year. That's our traditional and kind of customary commodity price environments.

So that's why you would assume this third quarter ratcheted down to $27 million, will be down in the fourth quarter from there, too. So that run rate is around -- we're at like $100 million. But generally, it's $75 million to $100 million capital budget for land.

[Arun Jayaram, analyst]

Great. And just my follow-up, Mike, is how do you think we should think about production costs next year, obviously, fuel costs, maybe some of the savings are transitory, but you got CPI inflators, the AM escalator, but just give us a broad strokes around thinking about kind of production costs as we move into 2024?

[Michael Kennedy, executive]

Yes, it's really commodity price dependent. I mean we pretty much have flat, although we -- next year, we do have an uptick of about $0.05 on production ad valorem taxes because that's just commodity price, gas prices up $0.75. So that's how you kind of get to that. And then similar on the GP&T up a nickel as well, just on the fuel cost. So assuming we have these increased kind of $3.50 type of commodity price next year, which is the strip, we're up about a dime.

[Arun Jayaram, analyst]

A dime? What about the AM escalator?

[Michael Kennedy, executive]

That's baked into that dime.

[Arun Jayaram, analyst]

That's baked into dime. Okay.

[Operator]

The next question is from Roger Read of Wells Fargo.

[Roger Read, analyst]

I guess a couple of things I'd like to just dig into a little bit. As you think about the improvement you've shown in capital efficiencies without getting too granular on the outlook, what is your expectation on how much further you can go with that?

[Michael Kennedy, executive]

Well, that's a good question. What improved from this year is, we are assuming coming into the year that we'd average about 8.7 stages per day in completions and then about 6 to 7 days per 10,000 in drilling, and we've improved 2 stages per day or more than that at 11 stages and completions and about a day improvement on the drilling.

This time last year, I would have said that we wouldn't have been able to achieve those improvements. So we'll probably assume those same levels I just mentioned going into next year, but we're always looking for continuous improvement.

Paul mentioned the record completion of the 17 hours per day on the completion. It would be great to improve upon that, if you did, you can maybe get some out of the completion stages per day, but those are still probably industry-leading levels. So I wouldn't assume any improvement from there, but we're always trying to achieve it.

[Roger Read, analyst]

No, that's fair. It's certainly been a nice driver within the industry overall, but I'm glad to see you all at the top of the pack. The only other question I've got really is, is there anything we should think about as we look into, let's just say, the next 6 months or so, that you would expect changes on realizations across your portfolio, meaning whether it's the gas side or the NGL side? Or we should just basically look at kind of where we've been and think that's the right way to look at things?

[Michael Kennedy, executive]

No, we were wide in Q3 because of the maintenance on Cove Point, Tennessee pipe. So we sold about 15% to TCO, and that was wide in the third quarter. It's always weak in the third and fourth quarters during the shoulder months going in the winter. That has improved quite a bit in Q4.

Those maintenance capital events have subsided. So we'll sell a lot more in the Gulf Coast. And then when you look at the Gulf Coast going into the winter, those are actually at premium prices to Henry Hub, like Justin mentioned on his slide that interesting slide around the Tier 1 levels and goes right into the LNG corridor where there's a lot of demand for the gas.

We also have quite a bit going to Chicago during the winter, which may be up to $0.50 ahead of Henry Hub right now, and we're bringing 7 wells on in the Utica just in time to enjoy the Chicago gas prices filling our ex capacity. So I see realizations improving quite a bit in the fourth quarter and heading into 2024.

[Operator]

The next question is from David Deckelbaum of Cowen.

[David Deckelbaum, analyst]

Mike, you threw out some exciting numbers, I think, for the next year. The $650 million, I guess, true maintenance versus maybe an $800 million to stay at that 3.5% level or so. Can you just talk about the variables that are influencing that decision? And I guess, as I think about it, is there a breakeven price? Is it $4 gas that would incentivize you to stay at a higher level.

Are you being influenced by perhaps like some of the revolver balance that you have right now and wanting to accelerate max free cash in the beginning of the year. I guess, what would be the primary factors that you consider between those 2 variables?

[Michael Kennedy, executive]

Yes, the $650 million to $700 million was what it would have been required to hold that 3.2 Bcfe a day flat. Total 3.35 to 3.4 would have been $100 million or so higher. As I mentioned, the rule of thumb is every $100 million a day of capital is $100 million a day of production.

So higher than that to hold the 3.35, 3.4, but well below that 10%. It's kind of how we think about it. It's going to be somewhat commodity price dependent, David. We're obviously heavily influenced by generating free cash flow and paying down all our debt and returning capital to shareholders.

So that's ultimately the #1 filter we use. We also want to be extremely capital efficient. So we do have kind of a 2.5 rigs signed up for next year. So that's kind of the main case. And then we kind of have a floating -- we have one completion crew and then a floating completion crew. So that's kind of how we manage capital.

So we have the flexibility to do whichever program we choose or a variation in between. And that's something we'll have to consider as we go through this budgeting process and watch commodity prices over the next couple of months.

[David Deckelbaum, analyst]

It doesn't sound like as you think about like a multiyear progression, are you inherently more operationally efficient with sort of that 3-rig and 2-crew program?

[Michael Kennedy, executive]

Yes. We're much more efficient to that. And when you think about that, we have the drilling JV. So we really only have 85% of that. And this year is really a 3-rig program and a 1.5 completion crew. Next year, you're kind of looking at a 2.5 rig and a 1.5 completion crew, again, only having 85%, and we can step that down the following year when the drilling JV end.

So we've just become remarkably efficient just with our contiguous acreage position, having all the infrastructure in place, having all the transport, having all the processing and then working on our operational efficiencies and having this much success. We've just continue to become more and more efficient and drill terrific wells.

[David Deckelbaum, analyst]

Would you guys just mind updating us? It's all very helpful and just the Shell cracker progression and some of the assumptions that we should be thinking about your ethane volumes for next year?

[David Cannelongo, executive]

Yes, nothing new to what they've guided publicly on. They're doing some work on 1 of the 3 downstream units that's expected to be wrapped up by the end of the year. So 2024, we expect to see significantly higher and more stable volumes from us going to that facility.

So you would expect to see that show up in our net production. We also have a handful of other customers that will be calling on us for more ethane on contracts that are ramping up in 2024 as well. So I think you'll see a combination of the shell cracker effect as well as others in the net production in '24 on the ethane side.

[Michael Kennedy, executive]

Yes. And then further to that, when it comes to the ethane cracker, we always risk that quite heavily. And that's why you've seen with -- even with the start-up delays that we've had this year with the ethane cracker. We're still well ahead of production guidance, and we actually guided our ethane volumes down recently.

So the production that we're talking about levels will be risked for further kind of just start up. Your typical start-up issues. And then if the ethane cracker actually does perform a little bit better in the year that will just be upside to volumes.

[Operator]

The next question is from Jean Salisbury of Bernstein.

[Jean Ann Salisbury, analyst]

As you mentioned, we're seeing LPG export capacity tightness along the Gulf Coast. How much flexibility does Antero have to export more from the East Coast, which I think has a little bit more spare capacity?

[David Cannelongo, executive]

Well, we do a pretty good job with that, in particular, in the time of the year where you want to export as much as possible, which is the shoulder months, spring through summer and into the fall. There's times of the year where we're sending 85%, 90% of our propane to the international docks.

So hard to really get much above that. But you want to leave some flexibility for domestic and for variations in production month-to-month, but we try and maximize that as much as we can during the non-heating season.

[Jean Ann Salisbury, analyst]

Okay. That makes sense. And then you kind of touched on this on an earlier question, but your local gas realizations were a little bit lower due to maintenance at Cove Point in Tennessee. Was that kind of this perfect storm where it was also kind of poor basis because of the high storage?

And is that like a lot more maintenance than usual in the season? Or do you view it as just everything is more volatile now that everything is quite full when there's any maintenance event, it kind of flows out?

[Michael Kennedy, executive]

Yes, it was a good way to put it. That was the perfect storm and the backup volumes from Cove Point and the TCO and in the backup volumes from Tennessee and the TCO just led to a really wide basis. It was historic. It was the widest basis we've seen at TCO. So all that is subsided, though going into Q4 with Cove Point being back on and Tennessee flowing so.

[Operator]

The next question is from Jacob Roberts of Tudor, Pickering, Holt.

[Jacob Roberts, analyst]

We appreciate the macro commentary and the detail you guys gave in the near to medium term. Just curious, and maybe a 2025 plus time frame, what you would need to see in the forward curve to potentially allocate more capital to dryer areas?

[Michael Kennedy, executive]

Yes. I mean good question. It's obviously always relative to liquids, but liquids does have some constraints around processing. So you could envision a scenario if there is a call on gas, which we believe could have very much occur with the build-out of the LNG during that time frame you referenced that you would need more gas, and we have the ability to deliver more gas through our dry gas acreage inventory.

You could see a scenario there. But right now, we just program in maintenance capital holding these levels flat and then enjoying the higher commodity prices and the free cash flow and paying down debt and buying back shares. But there is possibility if it goes quite high. We essentially have over 1,000 locations of premium dry gas inventory held by production over in our eastern half of the field. So we have that optionality. But right now, when you model it out, we'll just have maintenance capital.

[Operator]

Next question is from Gregg Brody of Bank of America.

[Gregg Brody, analyst]

Just on the volume decision, whether you keep 3Q, 4Q flat or what you originally thought you would be, how do you think about that and optimizing the Antero Midstream business. What's the -- how you think through that.

[Michael Kennedy, executive]

Yes, we don't really think about Antero Midstream. We think about Antero Resources and its free cash flow profile. Antero Midstream is just a beneficiary of the growth and capital efficiencies, and that all translates to them as well because they're getting much more production per well and it's very contiguous acreage, so very capital efficient. But we think from an AR perspective, how do we maximize free cash flow and the commodity price environment we're in.

So if you have higher commodity prices, that would -- and that's what the strip suggests, then that would lead most likely to try to maintain a higher production level. If you had lower commodity prices, more like 2023 type pricing on natural gas, you would probably favor a lower capital budget. So that's kind of what we look at. We definitely want to maximize free cash flow at AR and use it to pay down the debt and return capital.

[Gregg Brody, analyst]

And just moving this consolidation, obviously, has been a big theme as of late. Obviously, you have a huge inventory that you can access. So there isn't necessarily a need to buy anything. But how are you thinking about that today? And then how does Antero Midstream fit into that discussion as well, if at all?

[Michael Kennedy, executive]

Yes. Well, we're just focused on an organic leasing strategy. That's the best capital we can spend from an M&A perspective. And Antero Midstream gets all the acreage from AR dedicated. And when we acquired the acreage, we worked really hard. And 99% of the time, it comes with free and clear from any midstream dedication.

So it's immediately dedicated to Antero Midstream. So those acreage adds really benefit AM, and that's why they have over a 20-year life of inventory behind their midstream assets. So the acreage accrues to AM as well.

[Gregg Brody, analyst]

But then just maybe bigger picture, just you're seeing a lot of peers get -- there's discussions of peers getting bigger. I'm curious if that's making you think a little harder about M&A or status quo?

[Michael Kennedy, executive]

No, we're focused on the operational efficiencies. I mean we've grown 9% year-over-year without doing M&A. So we are very operationally efficient. We've got no constraints. We've got all the acreage locations, the midstream, the processing, the firm transport to the LNG corridor, the balance sheet.

So if you put that all together, there's really no need for M&A. And then when you look at our operational efficiencies, it's really hard for us think of any play that would compete for capital compared to our future programs. So that's why we're focused on the organic leasing.

[Gregg Brody, analyst]

All makes sense and consistent with the past. And just one last one, something you said on the call, which I think it's consistent with what you've implied in the past. But I think you have this debt target near term, I believe it's about $1 billion. You made a comment about paying down the debt. Is there an actual goal to get debt at Antero Resources to 0? Or is $1 billion the right number?

[Michael Kennedy, executive]

0 is the target.

[Gregg Brody, analyst]

If you were to take a guess when that would happen by, when do you -- is that just a function of paying down debt [indiscernible].

[Michael Kennedy, executive]

[indiscernible] prices. I would say that, like you mentioned, it's always been $1 billion is the goal. So the first -- the free cash flow will go to that first. Then once you get to the $1 billion and below, that would get you out of the credit facility and the '26 notes that are callable in January, then you look at it and say, well, maybe 50-50, probably a little bit more on the return of capital but it will just depend on commodity prices and where our bonds are priced.

I mean our 2030s are 5-3/8. So that's a good piece of paper, that's $600 million. So you may want to kind of keep that in the capital structure and buy back shares or return capital. But the other debt pieces are at pretty high interest rates that we'd like to take out.

[Operator]

Next question is from Subhasish Chandra of Benchmark.

[Subhasish Chandra, analyst]

On the spot to sales improvement there over the years, I think a big element of that is just well sort of waiting on completion. So I guess my question is, can you describe sort of the path you took to reduce that time. And if you think that the program is going to maximize or I should say, minimize that variable going forward.

[Michael Kennedy, executive]

Yes. We don't really have any waiting on completion. We try to plan all of our programs that it's just in time. So when you're done drilling the well, you're on that pad completing it as soon as possible.

So that's how we do it. There may be a week here or there where there's some -- we call it white space in the schedule. But generally, we try to minimize that and be as efficient as possible and not have any DUCs because that's nonperforming capital.

[Subhasish Chandra, analyst]

Yes. So I guess, several years back when it was 400 days plus, et cetera. What was different then?

[Michael Kennedy, executive]

We can see our on that Slide 3, the pumping hours have almost -- are up like 65%. That's an 86% increase in completion stages per day and then the drilling times to have a greatly improved. So it's a combination of both. But to go from 427 year-to-date 160, it's over 60% reduction and that 160 is definitely sustainable.

[Subhasish Chandra, analyst]

Got it. Okay. And just a clarification, I guess, on the debt reduction question. 0, I guess, is the ultimate target, I guess, bank debt is there, I would assume, as a top priority to reduce the 0 first? And is that sort of.

[Michael Kennedy, executive]

Yes.

[Subhasish Chandra, analyst]

Is that sort of a priority before there's meaningful share buybacks? Or how do you sort of balance the two?

[Michael Kennedy, executive]

Yes. The goal is always, and we had 0 bank debt essentially or near 0 coming into the year. So that would be the first use of the free cash flow is paying down that credit facility, then after that, it would be over 50% to return to shareholders. But we also have the '26 notes. There's less than $100 million on the callable in January. So I would kind of lump that together with the credit facility.

[Operator]

There are no additional questions at this time. I would like to turn the call back to Brendan Krueger for closing remarks.

[Brendan Krueger, executive]

Yes. Thank you for joining us on today's call. Please reach out with any further questions. Thank you.

[Operator]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.