Antero Resources (AR) Q1 results - May 1

[dan_s]

Antero Resources First Quarter 2019 Highlights Include:

Net daily gas equivalent production averaged 3,099 MMcfe/d (29% liquids by volume), a 30% increase over the prior year period < Compares to my production forecast of 3,221 MMcfe/d.

Liquids production averaged 148,003 Bbl/d, a 44% increase over the prior year period, contributing 35% of total product revenues before hedges

Realized natural gas equivalent price averaged $4.00 per Mcfe after hedges including liquids

Realized C3+ NGL price averaged $31.63 per Bbl for the quarter and $34.70 per Bbl during February and March once Antero began to export significant volumes out of Marcus Hook via Mariner East 2

Realized natural gas price averaged $3.30 per Mcf, a $0.15 premium to the NYMEX Henry Hub natural gas price per MMBtu before hedges

Reported $979 million of Net Income, or $3.17 per diluted share, and Adjusted Net Income of $108 million (Non-GAAP), or $0.35 per diluted share < Compares to my forecast of $0.23 EPS. The big "Reported Net Income" or GAAP is because of the big increase in the value of their hedges.

Reported Adjusted EBITDAX of $443 million (Non-GAAP)

Reduced debt by $360 million during the quarter with proceeds from the simplification transaction and $68 million of Free Cash Flow generated during the quarter

Debt to trailing twelve months Adjusted EBITDAX declined to 2.1x

755,000 MMBtu/d of natural gas is hedged at a weighted average price of $3.34 and 1,575,000 MMBtu/d is hedged at a $2.50/MMBtu floor for the last three quarters of 2019

Set what we believe is a world record for a horizontal well by drilling 9,184 lateral feet in 24 hours

Paul Rady, Chairman and CEO said, "We begin 2019 with significant momentum driven by both organizational and operational achievements. On the organizational front, we closed the midstream simplification transaction in mid-March and reduced leverage to 2.1x with the cash proceeds. We also deconsolidated Antero Midstream financials from Antero Resources. We believe this will result in more transparency for the upstream business and create a simpler story going forward. On the operational front, we began shipping propane and butane on Mariner East 2 to the Marcus Hook dock for export in February. This has resulted in a material uplift to our cash flow, as international spreads to Mont Belvieu have been attractive. We are the anchor shipper on Mariner East 2 with nearly one-third of the total available capacity under contract and additional expansion rights. As the largest liquids producer in the U.S. with this geographical advantage out of the Northeast through Mariner East 2, we are well positioned to achieve superior margins on our liquids volumes going forward."

I will update my forecast/valuation model on Thursday.

[dan_s]

Updating AR's forecast model now.

Two very important items in the Q1 press release.

1. Liquidity:
Borrowing Base Reaffirmed at $4.5 Billion
As a result of the recent spring borrowing base redetermination, the borrowing base under Antero Resources' credit facility was reaffirmed at $4.5 billion. Lender commitments under the facility will remain at $2.5 billion. The bank syndicate is currently comprised of 24 banks. As of March 31, 2019, Antero had $50 million of outstanding borrowings under its credit facility.

2. Accounting change for AR's investment in AM:
Basis of Financial Presentation
In connection with the closing of the previously announced simplification transaction between Antero Midstream GP LP and Antero Midstream Partners LP ("Antero Midstream Partners") on March 12, 2019, among other things, Antero Midstream GP LP converted to a Delaware corporation and changed its name to Antero Midstream Corporation ("Antero Midstream") and Antero Midstream Partners became Antero Midstream's wholly owned subsidiary. As of March 31, 2019, Antero Resources owned 31% of the shares of common stock of Antero Midstream. Through March 12, 2019, Antero Midstream Partners' results were consolidated within Antero Resources' results. Upon closing, Antero Midstream Partners was deconsolidated from Antero Resources and Antero Resources' interests in Antero Midstream were accounted for under the equity method of accounting within Antero Resources' results. The GAAP results discussed below include the results of Antero Midstream Partners from January 1, 2019, through March 12, 2019, on a consolidated basis, and from March 13, 2019 to March 31, 2019, the results of Antero Midstream Partners are no longer consolidated.

[dan_s]

Hedge Restructuring & Deleveraging (December 2018)
• Generated proceeds of $357 million to repay debt
• Resulting hedge portfolio protects price on 100% of 2019 and >50% of 2020 expected natural gas production at
~$3.00/MMBtu

Share Repurchases (November/December 2018)
• Repurchased 9.1 million shares (3% of outstanding shares) at an average price of $14.10/share
• Approximately $470 million remaining in current $600 million share repurchase program

[dan_s]

The de-consolidation of AM complicates the forecast a bit, but I don't see any reason to lower my valuation of AR. My updated forecast model will be posted to the EPG website.

First Call's target price is now $13.45/share, but NONE of the 19 forecasts that Reuters is using to come up with that price have been updated for Q1 results.

[dan_s]

Stifel just updated their report on AR. Their price target is $18.00.