AR and RRC could see lower NGL prices in 2023

[dan_s]

Note from Neal Dingmann at Truist Financial - Dec 20

While most investors are constantly monitoring the volatile daily moves of oil and gas,
we expect there could be a larger disconnect between consensus and the move we
have seen in NGLs, particularly in the northeast. As way of an example, we are now
expecting NGL pricing to drop q/q by 25-30%, taking down our 4Q22 EBITDA estimates
for Antero Resources (AR, Buy) and Range Resources (RRC, Hold), which now stand
14% & 11% below consensus.

While we still appreciate the significant FCF that the companies are creating in
this historically high gas/NGL price environment, we would caution about potential
upcoming estimate revisions across the Street in January as analysts update their price
decks and get a better grasp of the on-the-ground pricing.

Moving Parts
As a result of the lower expected NGL prices, there will likely be downward revisions
to near term estimates and potential Street target adjustments. While the move will
vary by producer based on its barrel composition, we would highlight the moves of the
individual components, with propane down the most QTD (-21%), followed by Ethane
(-19%), and then natural gasoline/isobutane/butane (-11%/-9%/-7%). With NGLs only
making up ~11% of revenues for our coverage group, we expect there will be a number
of estimates that overlook the drop in pricing and cause problems through staggered
estimate revisions. Of particular interest is ethane, which during periods of downward
price movement has historically resulted in increased ethane rejection causing both
volumes and pricing to run askew versus estimates. However, as the Shell (SHEL, Not
Rated) cracker ramps up to full volumes the basin could see some of that pressure
negated.

Antero Resources (AR): Updating Estimates, Price Target Unchanged
We have adjusted our realization estimates thereby lowering our NGL and gas pricing
with our FY23 EBITDA largely unchanged, but our 4Q22 EBITDA estimate is moving
down. Our $48 price target is derived from two equally weighted methodologies, with
the first being our ’23 EV/EBITDAX multiple of 3.5x applied to our 2023E EBITDAX
estimate of $3,828MM (consensus of $3,575MM) and the second being a FCF/EV Yield
assumption of 14.0%.

Range Resources (RRC): Updating Estimates, Price Target Unchanged
We have adjusted our realization estimates lowering our NGL pricing, with our FY23
EBITDA largely unchanged, but our 4Q22 EBITDA estimate moving down. Our $26
price target is derived from two equally weighted methodologies, with the first being our
’23 EV/EBITDAX multiple of 3.5x applied to our 2023E EBITDAX estimate of $1,950MM
(consensus of $2,082MM) and the second being a FCF/EV Yield assumption of 14.0%.

[Fraser921]

Interesting he uses 3.5 x…

Ar price has fallen from 40 plus

AR forecast is FCF of 2 b on EV of 10 is 20 %