2021. The Company adopted the
standard effective January 1, 2022 under the modified
retrospective transition method, which impacts only the debt
instruments outstanding on the adoption date.
Upon adoption of this new standard, the Company reclassified $24
million, net of deferred income taxes and equity issuance costs,
from additional paid-in capital and increased long-term debt by $27
million, reduced deferred income tax liability by $6 million and
reduced accumulated deficit by $3 million as of January 1, 2022.
Additionally, annual interest expense for the 2026 Convertible
Notes beginning January 1, 2023 is based on an effective interest
rate of 4.9% as compared to 15.1% prior to the adoption of
this new standard.
(3)
Transactions
|
(a)
|
Conveyance of
Overriding Royalty Interest
|
On June 15, 2020, the Company
announced the consummation of a transaction with an affiliate of
Sixth Street Partners, LLC (“Sixth Street”) relating to certain
overriding royalty interests across the Company’s existing asset
base (the “ORRIs”).
The ORRIs include an overriding
royalty interest of 1.25% in all
of the Company’s operated proved developed properties in West
Virginia and Ohio, subject to certain excluded wells (the “Initial
PDP Override”) as of April 1, 2020, and an overriding royalty
interest of 3.75%
in all of the
Company’s undeveloped properties in West Virginia and Ohio (the
“Development Override”) as of April 1, 2020. Wells turned to sales
after April 1, 2020 and prior to the later of (a) the date on which
the Company turns to sales 2.2 million
lateral feet (net to the Company’s interest) of horizontal wells
burdened by the Development Override and (b) the earlier of (i)
April 1, 2023 and (ii) the date on which the Company turns to
sales 3.82 million lateral feet (net to
the Company’s interest) of horizontal wells burdened by the
Development Override, are subject to the Development Override. As
of April 1, 2023, the Company had turned to sales over
2.2 million lateral feet and less than
3.82 million lateral feet. As a
result, wells turned to sales on or after April 1, 2023 will not be
subject to the ORRIs.
The ORRIs also include an additional
overriding royalty interest of 2.00% of the Company’s working
interest in the properties underlying the Initial PDP Override (the
“Incremental Override”). The Incremental Override (or a portion
thereof, as applicable) may be re-conveyed to the Company (at the
Company’s election) if certain production targets attributable to
the ORRIs are achieved through March 31, 2023. Any portion of the
Incremental Override that may not be re-conveyed to the Company
based on the Company failing to achieve such production volumes
through March 31, 2023 will remain with Martica.
Prior to Sixth Street achieving an
internal rate of return of 13% and
1.5x cash-on-cash return (the
“Hurdle”), Sixth Street will receive all distributions in respect
of the Initial PDP Override and the Development Override, and the
Company will receive all distributions in respect of the
Incremental Override, unless certain production targets are not
achieved, in which case Sixth Street will receive some or all of
the distributions in respect of the Incremental Override. Following
Sixth Street achieving the Hurdle, the Company will receive
85% of the distributions in respect of the ORRIs to
which Sixth Street was entitled immediately prior to the Hurdle
being achieved.
On February 17, 2021, Antero
Resources announced the formation of a drilling partnership with QL
Capital Partners (“QL”), an affiliate of Quantum Energy Partners,
for the Company’s 2021 through 2024 drilling program. Under the
terms of the arrangement, each year in which QL participates
represents an annual tranche, and QL will be conveyed a working
interest in any wells spud by Antero Resources during such tranche
year. For 2021, 2022 and 2023, Antero Resources and QL agreed to
the estimated internal rate of return (“IRR”) of the Company’s
capital budget for each annual tranche, and QL agreed to
participate in the 2021, 2022, and 2023 tranches. For 2024, Antero
Resources will propose a capital budget and estimated IRR for all
wells to be spud during such year and, subject to the mutual
agreement of the parties that the estimated IRR for the year
exceeds a specified return, QL will be obligated to participate in
such tranche. Antero Resources develops and manages the drilling
program associated with each tranche, including the selection of
wells. Additionally, for each annual tranche in which QL
participates, Antero Resources and QL will enter into assignments,
bills of sale and conveyances pursuant to which QL will be conveyed
a proportionate working interest percentage in each well spud in
that year, which conveyances will not be subject to any
reversion.
Under the terms of the arrangement, QL funded 20% and 15% of
development capital for wells spud in 2021 and 2022, respectively,
and will fund development capital of (i) 15% for wells spud in 2023
and (ii) if they participate in 2024,