Antero Resources (AR)

[dan_s]

If you agree with me that natural gas prices will be much higher this winter, now is the time to take a hard look at AR and AM.

On June 9, 2016, Antero signed a definitive agreement with Southwestern Energy (SWN) to acquire approximately 65,500 net acres in the core of the Marcellus Shale for $450 million. We believe this acquisition will have a significant impact on future results.
• The price Antero paid for SWN’s stake in the Marcellus was negotiated when gas and NGL prices were much lower than where they are today. We believe Antero got a great block of leasehold at a great price.
• Antero estimates that the acquired acreage holds over 5.0 Tcfe of recoverable reserves with a PV-10 value of more than $1.5 billion.
• The deal is expected to close in September and immediately add 16,000 Mcfe per day of production.
• The most recent completions in the area are averaging over 2.0 Bcfpd per 1,000’ of lateral. EURs are 15 to 20 Bcfe per well.
• Production from most of the acquired leasehold can be dedicated to Antero Midstream (AM).
• 51,000 acres also has Utica Shale potential.
"We are excited about the recently announced acquisition adding quality net acres to further expand our consolidated position in the core of the Marcellus. Not only is the acreage primarily located in what we refer to as the 'high-graded' core area of the Marcellus, but the acquisition delivers all of the key attributes that Antero seeks in acquisitions. The acreage adds a significant amount of highly economic well locations to our portfolio, ties in directly with our existing firm transport portfolio allowing us to sell our gas at currently favorably priced markets and provides value creation for Antero Midstream through the acquisition of more than 100,000 gross acres in the dedication area. Going forward, we believe we are well positioned to achieve further consolidation in Appalachia during the downturn given our continuous operating improvements that further amplify our low cost development competitive advantage, along with our significant hedge position, diversified firm transportation portfolio, ample liquidity and healthy balance sheet." - Paul Rady, Chairman of the Board and CEO
Since Antero has more than 100% of their natural gas production hedged through 2017 at very good prices, the company reports high “realized” gas price each quarter. Realized commodity prices include cash settlements on hedges. Antero’s realized natural gas price for the 2nd quarter was $4.31/mcf. Their realized gas price for the remainder of 2016 should be over $4.30/mcf.

[bigtex]

--Analyst Actions: Jefferies Downgrades Antero Resources to Underperform from Hold
9:33 AM ET, 08/15/2016 - MT Newswires
09:33 AM EDT, 08/15/2016 (MT Newswires) --


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[dan_s]

After tweaking my forecast model yesterday, I've raised my valuation of AR to $40/share.
> First Call's price target is $33.25, which is up since their Q2 results came out.
> In a report by Stifel on August 3, they rate AR a BUY with a $33.00 target price.
Maybe Jefferies is not as optimistic about gas and NGL prices as Stifel and I are.

On August 3, Stifel rated AM a BUY with a $29.00 target price.

If natural gas and NGL prices are higher on December 31st (I think gas will be over $3.50) then AR is going to book a VERY BIG increase in proven reserves and the acquisition from SWN will look like the deal of the decade.

[bearcatbob]

If a Marcellus company like Antero hedges gas at say $3.50 - how does the regional differential get involved with the realized price? It is not like they can deliver to HH cheaply.

[dan_s]

Antero, like all upstream companies, sells their physical production at current prices. Cash settlements on hedges are "paper transactions", similar to cash settlements on Puts and Calls on stocks.

Realized price per mcf = (Actual sales + cash settlements on hedges) / production volumes

Because Antero has more than 100% of their production hedged at very good prices, the cash settlements on their hedges are very big. This causes the realized price per mcf to be quite large.

Cash settlements on hedges:
2015 = $856.6 million
2016
Q1 = $324.3 million
Q2 = $292.5 million

You can find a table of Antero's hedges at the bottom of my forecast model for the company under the Sweet 16 tab on our website.