Earnings Call Transcript - AR Q1 FY2026

Operator

Greetings, and welcome to the Antero Resources Corporation first quarter 2026 earnings conference call and webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow up with formal presentation. You may be placed in the question queue at any time by pressing star 1, and we ask you to please ask one question and one follow-up, then return to the queue. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star 0. It's now my pleasure to turn the call over to Dan Katzenberg, Vice President of Investor Relations. Please go ahead.

Dan Katzenberg, Head of Investor Relations

Thank you for joining us for Intero's first quarter 2026 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 interoresources.com, where we have provided a separate earnings call presentation that will be reviewed during today's call. Today's call may contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures. Joining me on the call today are Michael Kennedy, CEO and President, Brennan Kruger, CFO, Dave Cantalongo, 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 Mike.

Michael Kennedy, CEO

Thank you, Dan. Good morning, everyone. I'd like to start my comments by praising our operations team for their success during winter storm fern. Their ability to achieve 100% uptime on our operations throughout the storm is an impressive achievement. As highlighted on slide number three, our team's efforts and strong pricing helped us deliver one of the best quarterly results in company history. Also, as highlighted on the slide, we closed on the HG acquisition in the Ohio Utica shale divestiture. The HG acquisition added substantial production, cash flow in nearly 400,000 net acres and 400 drilling locations to our core West Virginia Marcellus position. Importantly, the acquisition will drive corp, which lowers our breakeven costs and drives margin enhancement. Turning to the integration of HG, we are significantly ahead of schedule. We recently turned in line our first HG pad. This six-well pad, located in the liquids-rich area, has 110,000 total lateral feet, or average lateral length over 18,000 feet per well. Notably, this pad has one of the highest net royalty interests at 89%, further enhancing its rate of return. We expect the pad to produce $150 million per day and remain flat at these levels for quite a while. On the acquired assets, we have already achieved operating synergies of $15 to $20 million and are now forecasting over $80 million for the full year, outpacing our initial target of $50 million. Once we closed on the acquisition and took control of operations, we found incremental cost-saving opportunities, which include drilling and completion design changes, water handling optimization, and benefits from our economies of scale that are driving faster than forecasted synergies. Our first quarter production was a record 3.9 BCFE per day, 13% above the year-ago period. This production growth is expected to continue through 2026 with full-year production of 4.1 BCFE per day, a nearly 20% increase from 2025. Turning to the right-hand side of the slide, our quarterly financial results were highlighted by our ability to capture substantial premiums to benchmark prices. These high premiums, combined with our terrific operational performance, generated free cash flow of $657 million, the second highest level in our company history. We used this free cash flow to accelerate debt reduction following the HG acquisition. At the time of the acquisition announcement, we had targeted free cash flow available to fund the acquisition from December through the end of the first quarter to be approximately $500 million. We exceeded this target by $250 million. Looking ahead, improved NGL fundamentals are expected to result in us hitting our leverage target of one times by mid-2026, six months ahead of prior. Next, let's turn to slide number four, which highlights our latest hedge position. For 2026, over 60% of our natural gas volumes are hedged, and we have one-third hedged in 2027. Our strategy continues to be targeting a natural gas hedge position of 25% to 50% of annual production, which reduces the volatility in our cash flow and provides an opportunity to be counter-cyclical in share buybacks or assets. On the liquid side, we remain unhedged. today by touching on Intero's advantage position in today's global backdrop, which is highlighted on slide number five. The recent geopolitical events have highlighted the advantage of Intero's corporate strategy. We have the highest LNG exposure among Appalachian producers, selling 2.3 BCF per day of production to sales points along the LNG fairway. At the same time, we are the largest producer exporter of NGLs in the U.S., selling them majority of our LPG, which includes propane and butane, into international markets. We expect recent global supply outages and disruptions to lead to increasing risk premiums for U.S. and NGL barrels, both in the near term and in the years ahead. These global events are leading to increased demand from international NGL and LNG buyers They're looking to de-risk their exposure and increasing purchases of U.S. supply. This shift towards U.S. supply supports higher export utilization and more attractive price premiums at our sales points along the coast. This highlights Antero's unique export strategy and positions us well to benefit from today's rising global demand for U.S. energy. 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,

David A. Cannelongo, Other

Dave Canolongo, for his company. Continually monitoring the Middle East, and in our opinion, today's second largest NGLs, not NGLs. We are poised to benefit from the impact to the global NGL market, and virtually all of that. This is the only other major. On the demand side, the graph on the right shows the major buyers, such as China and India. these buyers have no other options to lift more volume from the U.S. LPG dock expansions couldn't have come at a better time, alleviating bottlenecks seen in recent years and making barrels available. The U.S. has added up to 610,000 barrels total terminal capacity to approximately 3 million barrels a day. Additional expansions through 2028 will add approximately another 1 million barrels a day. The full impact of the recent deep bottleneck on propane has been fog in the U.S. Gulf Coast, a relatively higher proportion of butane exports in recent months following the closure of the strata hormonus have kept U.S. propane as well-positioned to backfill constrained Middle East products, seeing a sharp increase in export volume 2.3 million barrels a day of record-level exports. Slide number seven, the purple dotted line on the chart shows the level of propane export of 90 percent. We represent the U.S. averaging of over 400,000 barrels, indicating that there is the tan dotted line represents the pre-Epic Fury inventory outlook from the same third party for the blue dotted line presumes that new dock capacity will add an additional 100,000 barrels a day of exports the remainder of this year to replace a small portion of the has already been logged. The purple dotted line illustrates what happens to U.S. propane storage if dock utilization rates run at 90% for the remainder of 2026. Under this case, we would fall below the five-year range by the early summer. As a reminder, Intero produces 46 million net barrels, increasing $1 per barrel in 46 million. Intero's forecast guarantee remains in the global energy markets. From here until there are concrete agreements for U.S. energy supply, and particularly NGL. With that, I'll now turn it over to our Senior Vice President.

Justin Fowler, Other

The next slide is titled Near-Term LNG Capacity. It's expected to increase by ultimately exporting 2.4 BCF per day in 2027. Turning to slide number 10, changes and disruptions in that region are likely to result in 2026. The EU will need to begin purchasing significant cargoes from the U.S., and Asia is also in a similar position. And global supply outages result in U.S. LNG utilization down U.S. storage into regional demand, which is on this slide, are the ones that have been published. In just West Virginia in recent weeks, we have had projects announced, also separately a project that is...late last year, the state of West Virginia announced its 50 by 50 plan, which is an initiative to increase to 50 gigawatts by 20. And then the large demand users will be able to commit to long-term deals with Britton Krueger, CFO of the interior.

Brendan Krueger, CFO

On slide 12, which highlights our cash cost reductions going forward, we reduced our 2026 cash cost guidance by 10 cents per MCFE at the midpoint. This reduced range reflects second quarter through fourth quarter 2026 cash production expense reductions of 26 cents per MCFE, or over 10% below the full-year average in 2025. When we include G&A and net marketing expense, cost reductions total $0.30. Beyond 2026, we see opportunities for further cost reductions and margin enhancement through several initiatives that we plan to discuss in the quarters ahead. Many of the initiatives relate to our commercial agreements on natural gas and liquids takeaway, as well as taking a more balanced approach to the development of our liquids-rich and dry gas acreage. We see opportunities to lower our overall transport expense and improve our corporate margins through direct agreements with end users, replacing expiring transport with better net-backed transactions, and simply letting certain contracts that are no longer needed expire. Some of these opportunities will occur in the near future, while others will take place over multiple years as contracts come up for renewal. Moving further to the regional demand opportunities that Justin discussed, in just the last few months alone, we have participated in requests to provide proposals for gas supply that total over 5 BCF a day. While it is still undetermined whether we will participate in these projects, we do believe the demand is only growing for natural gas, and particularly natural gas that can be supplied by an investment grade producer with multiple decades of undeveloped inventory. Moving to slide 13, I'd like to finish my comments by touching on the progress we have made with funding the HG acquisition. As shown on the chart, we are ahead of initial expectations of paying down the debt associated with this recent transaction. With the help of the exceptional operations performance that Mike touched on, we were able to generate over $750 million of free cash flow from December of last year through the end of this first quarter, which was used to pay down over 25% of the acquisition cost. Combining this with the proceeds from the Utica divestiture, we have already funded over half of the transaction. Based on our next 12 months free cash flow at CurrentSRIP, we expect to have fully funded the transaction by early next year. This updated payoff timing is nearly a year ahead of what we expected when we announced the acquisition in December. To reiterate what we have said on past calls, after paying off the remainder of the debt associated with the HG acquisition, we will have increased production by more than 700 million cubic feet a day equivalent, added 400 undeveloped locations to our core West Virginia Marcellus inventory, and meaningfully reduced our cost structure, which translates into higher sustained free cash flow. Importantly, we accomplished these changes without having to issue a share of AR equity. At the same time, the overall macro environment for natural gas and NGLs has only strengthened with the current geopolitical environment and continued structural demand growth from both power and USLNG. With that, I will now turn the call over to the operator for questions.

Operator

Well, now we conduct your question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press start 2 if you'd like to remove yourself from the queue. As a reminder, please ask one question and one follow-up and return to the queue. Our first question is coming from Arun Jayaram from J.P. Morgan Chase & Company. Your line is now live.

Arun Jayaram, Analyst — J.P. Morgan Chase & Company

Good morning, gentlemen. Dave, maybe starting with you, I was wondering if you could just give us a little bit more color on how your marketing arrangements work regarding your export volumes. I know you printed a $0.94 premium to Mont-Bellevue in 1Q for C3+. But give us a little bit of sense of how much international exposure you have to pricing versus Mont-Bellevue.

David A. Cannelongo, Other

Yeah, Ruin, good morning. You know, we did in the first quarter we had, so we've been participating. You'll see some. Yeah, you mentioned 2.3 million barrels of exports last week, so that's a punchy number.

Arun Jayaram, Analyst — J.P. Morgan Chase & Company

Dave, maybe not to pick on you, but one of your peers did raise their NGL realization guidance. I know they do the entire barrel, not just C3+, to call it a 125 to 250 premium. It's not to quibble on that, but you maintain your overall guidance. I was wondering if you'd just give us some thoughts around that, the maintenance of your guidance and not a raise, given you did book a little bit of a premium in 1Q.

David A. Cannelongo, Other

Yeah, Rune, I would say we did actually raise guidance on the ethane piece, and that's really maybe the story. I think that's in their NGL price. It's the reason, you know, dramatically when you're doing that ethane price. Great.

Arun Jayaram, Analyst — J.P. Morgan Chase & Company

Go ahead, Mike.

Michael Kennedy, CEO

Yeah, Rune, I would just highlight. We're very conservative when it comes to our guidance. There's a lot of uncertainty like there is today. We're not going to try to capture that in a moment in time. We'll just see how it plays out over the years.

Arun Jayaram, Analyst — J.P. Morgan Chase & Company

Great. Thanks a lot, gentlemen.

Operator

Thank you. Next question today is coming from Kevin McCurdy from Pickering Energy Partners. Your line is out live.

Kevin McCurdy, Analyst — Pickering Energy Partners

Hey, great. Thanks for taking my question. I wanted to ask about the cash production expenses. It looks like you lowered them 10 cents. Just maybe for some clarification, How much of that reduction is driven by synergies from the HG acquisition versus just maybe lower gas prices?

Michael Kennedy, CEO

Yeah, the majority of that's the HG. Lower gas prices were a couple pennies to that, but it's around our ability to operate the assets and the integration and how quickly we'd be able to function that.

Kevin McCurdy, Analyst — Pickering Energy Partners

Maybe as a follow-up, looking for some clarification on the CapEx budget. In the 4Q earnings release, you guys talked about the opportunity or the option to spend an extra $200 million growth capital. In this release, it looks like your official guidance is still at $1 billion. Just maybe curious how you're thinking about spending that extra growth cap, given the current prices in gas and NGLs.

Michael Kennedy, CEO

Yeah, Kevin, that's unchanged. Still $1 billion, the potential to go to $1 billion, too. I think to attract incremental capital with no underlying commitments needed. So it is discretionary. It's complete, you know, local or natural gas. See if it's attractive to complete those. So that's the second half event, and we'll be able to make the call then with more information around the natural gas prices.

Kevin McCurdy, Analyst — Pickering Energy Partners

Great. Appreciate it. Thank you.

Operator

Okay, the next question is coming from John Freeman from Raymond James. You're right. It's now live.

John Freeman, Analyst — Raymond James

Thanks. Good morning, guys. Brendan, I wanted to follow up on what you highlighted that y'all are, I guess, evaluating and looking at five Bs a day of various sort of gas supply arrangements. Can you speak to sort of the mix of those between sort of like LNG or data center opportunities or otherwise?

Michael Kennedy, CEO

That was all regional, local demand, not only data centers, but power projects as well. It didn't have any LNG.

Brendan Krueger, CFO

I think where we see a lot of the benefit why we're getting a lot of these requests for proposals on this is just driven by the integrated nature of having both upstream and midstream, you know, AR being an investment-grade producer that can supply the gas and significant undeveloped inventory at AM that can build the pipelines to the areas that need it. So I think that's what's driving a lot of the requests.

John Freeman, Analyst — Raymond James

Got it. And then obviously good to see the accelerated free cash flow ability to pay down that term loan even quicker. I know y'all are going to, you know, try to be opportunistic, but obviously it looks like the main focus is taking, you know, the majority of the free cash flow, vast majority, and taking out that term loan by the start of 27. If we look ahead to 27, am I thinking about it right that once the term loan is gone and you just have basically that 2030, 2036 paper that's, A, very attractively priced, and I think neither of it can even be recalled until, like, 2028, should we just assume once we get to that point where the term loan is gone that nearly all the free cash flow is going toward buybacks?

Michael Kennedy, CEO

Yeah, that'd be a fair assumption. And, you know, right now, you know, one of the attractiveness of our ability to be counted, you do see any weakness will be there for that time frame. But assuming current commodity term loan.

John Freeman, Analyst — Raymond James

Thanks, guys. Appreciate it.

Operator

Thank you. Next question is coming from Gabe Dowd from Truish. Your line is now live.

Gabe Dowd, Analyst — Truist

Thanks, operator. Morning, everyone. Maybe just curious around expectations for future M&A is maybe, you know, some additional West Virginia acreage and packages that could be available. So just curious, given HG and how quickly you've kind of hit some of the synergies, if there's a continued appetite for more.

Michael Kennedy, CEO

We're the dominant energy producer in West Virginia. We produce about half of the natural gas in the state, a million acres there, and decades' worth of inventory. And so we are the West Virginia energy producer. So anything within West Virginia, you would assume that we would evaluate, and if it's attractive to us, it would be something.

Gabe Dowd, Analyst — Truist

Got it. Got it. Okay. That's helpful. And then I guess just as a quick follow-up, you noted this in the past and AM obviously providing some additional benefits in conversations with gas deals, but could you also maybe just highlight or talk about how AM could prove to be a differentiator on the water side with some of these data centers and hyperscalers? Thanks, guys.

Michael Kennedy, CEO

Industrial builder of northern West Virginia, whether it's gathering for a sense of water system.

Gabe Dowd, Analyst — Truist

Great. Great. Thanks, guys.

Operator

thank you next question is coming from jacob roberts from tph online is not live

Jacob Roberts, Analyst — TPH

good morning can you uh can you remind us of where you see the liquids cut progressing through this year and really i'm curious if you could talk more about the processing cost reduction is that solely a function of the higher dry gas volumes or is there more to the hd story that

Michael Kennedy, CEO

we're not seeing no it just doesn't really move them you know i think it's like 30 70 or what's the exact brendan low 30s on the on the liquids and it doesn't really move the needle we've got one rig right now drone liquids one in kind of the blended like liquid slash dry gas on the hc acreage so remove the needle from wherever okay perfect and if i could follow up on that comment

Jacob Roberts, Analyst — TPH

about some of the recontracting potential coming up it's part of that thinking that you see the potential for a long-term supply agreement with a utility or data center or something like that that could help offset some of the FTE commitments by way of a supply contract?

Michael Kennedy, CEO

Yeah, I think that's, you know, it's a big story going forward. I mean, our initial story was lowering the cost for the HD and developing dry gas and optimizing our acreage and portfolio. But on a go-forward base for arrangements, we had to take out the initial FTE because We created this development program in Appalachia in West Virginia, and we needed to underwrite all the takeaway. But those agreements are 10, 15 years old, and so now going forward, they really need to be in the hands of the end user, and we'll be able to enter into really attractants on a go-forward basis, and we recontract that. Some of them around some liquids very near-term are actually ones we're not using and just caring, and you're talking hundreds of millions of dollars of incremental EBITDA to us on an annual basis when these expire.

Jacob Roberts, Analyst — TPH

Great. If I could tack one more on, is there a counterparty type that seems more amenable to that type of arrangement?

Michael Kennedy, CEO

Much high demand for our product, as you haven't noticed, across North America and the world. So there's so much demand for our product that they're all amenable to being the buyer of our product.

Jacob Roberts, Analyst — TPH

Great. I appreciate the time, guys.

Operator

Thank you. Our next question is coming from Josh Silverstein from UBS for Writers Now Live.

Josh Silverstein, Analyst — UBS

Good morning, guys. Just on the new power capacity coming to the region, I'm curious just maybe on the volume and maybe pricing side. Is this something that you're kind of waiting around to see develop and then you can grow supply into this? And then do you want to get more pricing exposure to local pricing as well? I mean, I'm assuming the power capacity is right around where you guys are. very little transport cost there. So the realizations could be, you know, pretty good.

Michael Kennedy, CEO

Exactly. You know, we are attracted to the local demand just because it's low cost and able to supply the – it's all incremental demand too, so we'll be able to grow into it.

Josh Silverstein, Analyst — UBS

And then just on the HG acquisition as well, you highlighted the optics cost synergies. You know, the biggest piece of the synergies you outlined previously was on the development optimization. I just wanted to see how that's going, if that's something that, you know, we'll start to see more of a benefit of later on this year, more than 27, relative to what you're seeing right now?

Michael Kennedy, CEO

Yeah, definitely. That is the majority of the synergy. You know, a perfect example is leasing stages per day. HG was in the two, three, four stages. And the well is going south and doing 11 on that. So you can imagine the efficiencies and optimization and cycle times that come with that. And we did not underwrite that in our acquisition valuation. So that all accrues. That's the biggest one also with drilling, too. We're under nine days per well. They were triple, quadruple that. So putting that into the portfolio really brings forward all that value for us.

Operator

Thank you. Next question is coming from Neil Maytop from Goldman Sachs from L.I.

Neil Maytop, Analyst — Goldman Sachs

Yeah, good morning, team. Slide 7 is really great where you guys talk about the new propane dock capacity And the base case is in slide eight as well, I should say, just both of them. The base case, I think, is pretty clear, but the export case is quite extreme by the summer. And so maybe you could talk about how real is this potential for the max export case to play out, and what are the biggest gaining factors for it not to play out?

David A. Cannelongo, Other

While the world...

Neil Maytop, Analyst — Goldman Sachs

And so much of this is dependent on when the dock capacity is coming online. Can you just talk about, as you guys look at future dock expansions and the stuff that's slated for 26, is everything tracking? Tracking well?

David A. Cannelongo, Other

Yeah, I would say so. I mean, I think, you know, one of the large midstream players was talking about the commissioning in one of their projects, kind of, you know, getting those products.

Neil Maytop, Analyst — Goldman Sachs

Very cool. Thanks, guys.

Operator

Next question is coming from Philip Youngworth from BMO. Your life is now life.

Philip Youngworth, Analyst — BMO

Thanks. Sticking with the recent announcements in West Virginia, about a year ago, the state, they did sign the microgrids bill. This was meant to attract data centers. Just wondering how much of a help this has been in the conversations with hyperscalers, And then what are some of the other main positives that would favor West Virginia, which is right in your backyard, versus other states within Appalachia?

Michael Kennedy, CEO

Yeah, that microgrid bill, and that kind of put West Virginia up front. West Virginia's advantage is, you know, it's near the population centers of the east. It's fairly cold. It's got all the advantages. I think we're uniquely positioned there as well.

Philip Youngworth, Analyst — BMO

Okay, great. Then a couple quarters ago, you included a regional gas demand project list in the deck. I think you had Monarch on here as a 2030 startup, $430 million a day of demand. Now it looks like it could be bigger and earlier, at least the first phase. So without updating this slide, are there any others you could see maybe being pulled forward as far as timing or increased as far as magnitude? And of the eight B's a day you're showing on slide 11, how much of this is either under construction or has reached FID now?

Brendan Krueger, CFO

The map on the – I don't have the exact figures in terms of what's under construction versus FID, but I think we would say of that 8 BCF a day, based on conversations we're having, and Justin talked about this, we see that well ahead of 10 BCF a day. I think a lot of these projects and what has been publicly disclosed are, you know, the initial phases. I think to the extent they can continue to build and scale, those numbers will be quite larger. So we're having a lot of those conversations, and some are speeding up. And so, you know, I think our view is you really see this start to take hold when you get out into that 27, 28, 29 time period in terms of these facilities coming on, and it'll be phased over time where you have, like Monarch's a good example. They've talked about their phase one, but that'll continue to phase and grow. and that microgrid bill that I think was asked about before, it allows you to phase within a four-mile halo. So some of these sites, you know, they have their four-mile halo where they can continue to scale up over time within that four-mile halo and still fall under the microgrid bill in West Virginia.

Philip Youngworth, Analyst — BMO

That's great. Thanks.

Operator

Thank you. Our next question today is coming from Leo Mariani from Roth. You're right. It's now live.

Leo Mariani, Analyst — ROTH

Yeah, hi, guys. You've been really helpful in terms of providing kind of the production ramp, you know, post-HG, kind of given the guide in 2Q and then into kind of second half. I was hoping to see if maybe you could talk about just kind of something similar on capital. I mean, presumably maybe first quarter is kind of a low and CapEx kicks up a little bit, you know, in the following quarters. I know obviously the growth capital could also be a component, and I assume that all that growth capital would end up in the second half if you decide to spend it. So just any color there would be helpful.

Michael Kennedy, CEO

Yeah, that's correct. We have a full contribution for capital in the second quarter for HG, so that takes you to the $300 million range. If we don't do that, then it will step in a third and fourth. Okay, that is helpful.

Leo Mariani, Analyst — ROTH

And just on the synergies, obviously you talked about, you know, the $80 million target. Would you expect that all to be realized here in 2026, or can some of that linger into next year? And is the bulk of that just, you know, it sounded like a lot of it was operating cost and G&A related, but is there a capital portion that we'll flow through there as well?

Michael Kennedy, CEO

Yeah, no, that's just for $26 million, the $80 million. That accelerates. We continue to improve and continue the synergies and we get the asset integrated into our operations on a go-forward basis. So that's just the $26 billion. $80 million this year, I think it's more like $100 million going forward. Thank you.

Operator

Thank you. Our next question today is coming from Doug McGapp from Wolf Research. Why is that live?

Doug McGapp, Analyst — Wolfe Research

Thanks, fellas. Appreciate you having me on. I wonder if I could come back again to slides seven and eight. I just want to make sure I'm not missing something here. So your base case looks still quite conservative. What would it take for you to change that? Because it seems, at least based on enterprise's comments, that exports are already running at record levels in April. So what would it take for you to reset that? Not to belabor the point, but I think Neil brought this up earlier. So just to be clear, is your view then on the premium to Mount Bellevue directly related to your view on exports? In other words, if price, say, exports go up, does your Mount Bellevue premium get reset again in the second quarter?

David A. Cannelongo, Other

We think.

Doug McGapp, Analyst — Wolfe Research

Well, this is a moving target. I get that. But my follow-up is going back to the data center comment. I just wanted to make, maybe it's for you, I wanted to see if you can get some clarification. Everybody and their grandmother is trying to basically negotiate a data center supply deal. Obviously, you've got a bit of a geographical advantage if it's in your backyard, but are any of your negotiations exclusive or have they all been put up to bid? Can you kind of walk us through what the nature of the negotiations looks like? And I'll leave it there. Thanks.

Brendan Krueger, CFO

Yeah, I think for most of them, it's a request for proposal to a number of parties. I think at the end of the day, we feel we're well-advantaged, be an investment-grade producer, but to the extent we don't get these and you still have this demand take place, it should cause a rise in local prices, which we'll obviously benefit from. So we're certainly supportive of all of these projects to continue to get them off the ground. There's only so much gas that can go around, But we think it just drives ultimately an increase in local pricing, which will benefit from, I think, in a pretty significant way as well.

Doug McGapp, Analyst — Wolfe Research

Where I'm going with this is get the deal or not, you're not going to give up market share, right? So presumably you benefit regardless of who signs the deal. Got it. Thanks so much, guys.

Operator

Thank you. The next question today is coming from Paul Diamond from Citi. Why is it now live?

Paul Diamond, Analyst — Citi

Thank you. Good morning, y'all. Thanks for taking the call. Sticking on the AI and power contracts for a moment, across the space, we've seen some variability in the term, structure, and where, I guess, all these things settle. Can you talk about what you've seen in your conversations? Is there an emerging structure that's most common, or is it more highly variable based on end market needs?

Brendan Krueger, CFO

Yeah, I think it depends on where the supply is coming from. So some of these deals that we're looking at, we would look to supply off of our firm transport. You know, the pricing for that deal, if it's coming off of our firm transport, may be different than if, you know, Antero Midstream is building, you know, a pipeline in-state to supply a gas deal. So depending on the deal, the pricing could change. I think, you know, a lot of these guys, they're seeing what we talked about, which is, you know, we talked about 5 BCF a day of demand. And we obviously cannot supply five BCF a day of that supply. And so I think they're getting a bit more nervous in terms of where's all the supply going to come from, which we think will ultimately drive better pricing on these deals and cause a rise in the local pricing. But it could take a local market index or it could be tied to Henry Hub. I think those are still up in the air at this point.

Paul Diamond, Analyst — Citi

Got it. Makes perfect sense. And then sticking on, you guys talked a bit about the balance between gas and liquids on a medium-term basis. You talked a bit about how that structure might be. Is that more like normal cycle reactivity, or is that a building of ducts for a more short-cycle response? Just how you guys see that playing out.

Michael Kennedy, CEO

Yeah, it's a bit about what is really driving it just a little bit more balance. Like a month ago, 1,000 locations in the premium core of the Marcellus dry gas, so we need to develop that. And having it coincide with all this local demand will really drive kind of just one rig there for the foreseeable future. We'll obviously have one rig in the liquids as well, our western portion of our acreage. And then we'll have one that's on the HG asset, and that kind of flows between dry gas and liquid. So it's more kind of a blend, just to really have a little bit more balance. That'll really margins and drive our even growth. So, we're excited about it, which position we had, and developed that.

Paul Diamond, Analyst — Citi

Got it. And just one quick follow-up there. Do you see, I guess, do you see any value in building a large duck inventory, or is that, do you kind of like the structure you've been operating under?

Michael Kennedy, CEO

Yeah, I don't know about a large one, but what we're talking about is three pads right now, maybe enter into 2027. The call we make in the second half just. Got it. Appreciate the clarity. Yep, thanks.

Operator

Thank you. We reached out of our question and answer session. I'd like to turn the floor back over to management for any further closing comments.

Dan Katzenberg, Head of Investor Relations

I'd like to thank everybody for joining us on the first quarter 2026 conference call. Please feel free to reach out to any further questions. Have a good day.

Operator

Thank you. That does conclude today's teleconference and webcast. We just connect your line at this time and have a wonderful day. We thank you for your participation today.