After listening to AR's Q2 conference call I have updated my forecast/valuation model and I am raising my current valuation by $7 to $70/share, primarily because I have raised my valuation multiple from 6.0 to 6.5 X annualized operating cash flow per share.
Keep in mind that my model is based on HH ngas prices averaging $7.00 in Q3, $7.50 in Q4 and $5.00 in 2023.
AR has firm transportation agreements to premium hubs for all of their production and they now expect to get premiums of $0.30 to $0.40 per mcf over HH gas prices for their gas, primarily because of the high Btu content of their gas.
AR's production mix is approximately 68% natural gas, 30% NGLs and 2% crude oil.
AR's production increase by ~5% from Q1 to Q2 and that trend should continue. Their full-year production guidance is 3.2 to 3.3 Bcfepd with 175,000 to 185,000 bpd of liquids, most of which is high value NGLs. Their 2022 exit rate should be ~3.5 Bcfpd.
The Company's realized prices in Q2 (net of cash settlements on their hedges) were $4.94/mcf of natural gas, $97.73/bbl of crude oil and $49.36/bbl of NGLs. Their unhedged volumes continue to increase, and they have very little production hedged for 2023. On the CC they said they don't intend to hedge anymore production going forward because they are bullish on commodity prices + they've completely paid off their credit facility debt and have no other debt covenants that require hedging.
Based on my model, AR should generate approximately $2.8 billion of FCF this year; over $1.6 billion in 2H 2022. They are aggressively buying back their stock and paying off debt. I expect them to start paying dividends in 2023.
TipRanks: "Raymond James analyst John Freeman maintained a Buy rating on Antero Resources (AR) today and set a price target of $65.00. According to TipRanks.com, Freeman is a top 25 analyst with an average return of 35.5% and a 61.3% success rate."
I am expecting more analysts to increase their price targets on AR after such a strong quarter and the improving outlook for natural gas and NGL prices.
Antero Resources (AR) Valuation Update - July 28
Antero Resources (AR) Valuation Update - July 28
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Antero Resources (AR) Valuation Update - July 28
Antero Midstream (AM) also reported solid Q2 results that came very close to my operating cash flow forecast.
AM is in our High Yield Income Portfolio. They pay a quarterly dividend of $0.225 for annualized yield of ~9.15%.
AM is a C-Corp.
My current valuation of AM is $12.00 and I give it an A+ safety rating because of the relationship with Antero Resources (AR).
--------------------------------------
Denver, Colorado, July 27, 2022—Antero Midstream Corporation (NYSE: AM) (“Antero Midstream” or the “Company”) today
announced its second quarter 2022 financial and operational results. The relevant unaudited condensed consolidated financial statements
are included in Antero Midstream’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.
Second Quarter 2022 Earnings Highlights:
• Net Income was $79 million, or $0.17 per share, in line with the prior year quarter
• Adjusted Net Income was $96 million, or $0.20 per share (non-GAAP measure)
• Adjusted EBITDA was $221 million (non-GAAP measure)
• Capital expenditures were $70 million
• Net cash provided by operating activities was $170 million
• Free Cash Flow before dividends was $105 million (non-GAAP measure)
• Low pressure gathering volumes increased by 3% compared to the prior year quarter
• Fresh water delivery volumes increased by 6% compared to the prior year quarter
• Placed on line the Castle Peak compressor station, adding 160 MMcf/d of capacity in the liquids-rich Marcellus shale
Paul Rady, Chairman and CEO said, “During the second quarter Antero Midstream successfully placed on line the Castle Peak
compressor station in the liquids-rich Marcellus shale. This compressor station, which added 160 MMcf/d of initial capacity, is the
fourth of six compressor stations in Antero Midstream’s liquids-rich midstream corridor in Tyler and Wetzel Counties in West Virginia.
Looking forward, we have identified underutilized compressor units and equipment that will be relocated and reused to expand this
station by an additional 80 MMcf/d in 2023. This results in approximately $5 million of estimated capital savings on this compressor
station alone. Additionally, we have identified further opportunities for compressor unit relocation and reuse that are expected to generate
another $15 million of capital savings, or $20 million of total capital savings in 2023 and 2024.”
Mr. Rady added, “We continue to be encouraged by the well results seen in the liquids-rich Marcellus corridor. These recent pads tied
into the integrated gathering and processing system drove the increase in volumes during the second quarter. Importantly, the well
control and results give us confidence in delivering the planned throughput and EBITDA growth over the next several years.”
My updated forecast/valuation model has been posted to the EPG website.
AM is in our High Yield Income Portfolio. They pay a quarterly dividend of $0.225 for annualized yield of ~9.15%.
AM is a C-Corp.
My current valuation of AM is $12.00 and I give it an A+ safety rating because of the relationship with Antero Resources (AR).
--------------------------------------
Denver, Colorado, July 27, 2022—Antero Midstream Corporation (NYSE: AM) (“Antero Midstream” or the “Company”) today
announced its second quarter 2022 financial and operational results. The relevant unaudited condensed consolidated financial statements
are included in Antero Midstream’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.
Second Quarter 2022 Earnings Highlights:
• Net Income was $79 million, or $0.17 per share, in line with the prior year quarter
• Adjusted Net Income was $96 million, or $0.20 per share (non-GAAP measure)
• Adjusted EBITDA was $221 million (non-GAAP measure)
• Capital expenditures were $70 million
• Net cash provided by operating activities was $170 million
• Free Cash Flow before dividends was $105 million (non-GAAP measure)
• Low pressure gathering volumes increased by 3% compared to the prior year quarter
• Fresh water delivery volumes increased by 6% compared to the prior year quarter
• Placed on line the Castle Peak compressor station, adding 160 MMcf/d of capacity in the liquids-rich Marcellus shale
Paul Rady, Chairman and CEO said, “During the second quarter Antero Midstream successfully placed on line the Castle Peak
compressor station in the liquids-rich Marcellus shale. This compressor station, which added 160 MMcf/d of initial capacity, is the
fourth of six compressor stations in Antero Midstream’s liquids-rich midstream corridor in Tyler and Wetzel Counties in West Virginia.
Looking forward, we have identified underutilized compressor units and equipment that will be relocated and reused to expand this
station by an additional 80 MMcf/d in 2023. This results in approximately $5 million of estimated capital savings on this compressor
station alone. Additionally, we have identified further opportunities for compressor unit relocation and reuse that are expected to generate
another $15 million of capital savings, or $20 million of total capital savings in 2023 and 2024.”
Mr. Rady added, “We continue to be encouraged by the well results seen in the liquids-rich Marcellus corridor. These recent pads tied
into the integrated gathering and processing system drove the increase in volumes during the second quarter. Importantly, the well
control and results give us confidence in delivering the planned throughput and EBITDA growth over the next several years.”
My updated forecast/valuation model has been posted to the EPG website.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group