Antero Resources (AR) - Acquisition

[dan_s]

Comments below are from Stifel update.

AR Announces Strategic Acquisition: After the close on June 9, AR announced it has
signed a definitive agreement to acquire 55,000 net Marcellus acres from
Southwestern Energy for $450 million, increasing the company’s total net acreage
10% to 628,000 net acres. The acquired acreage consists of 33,000 net in Wetzel
County, WV (expanding the company’s footprint north), 12,000 net infill acres in
Tyler County, WV, and 10,000 net acres scattered throughout numerous other WV
Counties (Exhibit 1). Approximately 75% of the Marcellus acreage is in the
liquids-rich window and 25% is in the dry gas window. The acquired acreage also
holds Utica rights across 41,000 net acres. Excluding the value for the existing
production (14 MMcfe/d), we estimate AR paid approximately $7,500/acre. The
transaction is expected to close during 3Q16. Management plans to host a
conference call today at 9am EST to review the acquisition.
An unnamed third party holds a 30-day tag along option to sell the remaining 19%
average working interest in the acquired properties to AR under the same terms.
Should the third party exercise its option, the total purchase price for the
acquisition would increase to $560 million.

Acquisition Overfunded Via Equity Offering: In conjunction with the acquisition,
AR launched and priced a common equity offering of 26.75 million shares, raising
gross proceeds totaling $762 million (excluding the 4.0125 million share
over-allotment). These proceeds will more than fund the acquisition (with or without
the tag-along option), which will delever the company’s balance sheet.

NAV Neutral, CFPS Dilutive: We estimate the acquisition and offering to be net
neutral to our NAV. However, we are lowering our FY16/FY17 CFPS
estimates -3%/-5% to $3.54/$3.68.

AR Boosts 2017 Production Guidance: Management boosted its FY17
production guidance 5% to 20-25% y/y. All incremental production in 2017 is
expected to flow to favorably priced markets through AR’s FT portfolio. The
guidance increase is a result of AR’s decision to add an additional rig in 2H16.
Furthermore, management continues to have confidence that its recent Marcellus
wells in the highly-rich and highly-rich condensate windows are outperforming its
type curves. Due to service cost reductions and operating efficiencies, AR
reiterated its FY16 $1.3B budget.

Balance Sheet Solid: We project net debt/TTM EBITDA of 3.7x at YE16 and
YE17 (Exhibit 3). With natural gas production fully hedged through 2019, natural
gas prices should have a negligible effect on AR’s leverage profile.

[dan_s]

Read this: http://www.oilandgas360.com/antero-reso ... bd6f54fb96

[dan_s]

You should all listen to the June 10 conference call. Be sure to download the slides, so you can follow along.

The CC will not only explain the reason for making the acquisition from SWN, but it will also educate you on the full potential of Antero.

This deal is also significant for Antero Midstream (AM).

[dan_s]

I have updated my forecast model for AR and it will be posted to the EPG website late today.

My valuation goes down slightly to $35.80 because of the increased share count.

It is important to note that OVER 100% of Antero's natural gas production is hedged at $3.80/mmbtu to $4.01/mmbtu for 2016 and $3.68/mmbtu for 2017. Also, Antero's natural gas is very high btu gas, so it sells at a premium. For example, Antero's realized gas price in Q1 was $3.96/mcf.

All of the acquired leasehold will be dedicated to Antero Midstream (AM). This is a very significant part of the transaction.