Antero Resources (AR) Q1 Results - April 28

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dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Antero Resources (AR) Q1 Results - April 28

Post by dan_s »

I am updating my forecast/valuation model today. Note that AR is still generating significant free cash flow.

Note from Raymond James
Antero Resources Corporation
Capex Commentary Paints Optimistic 2024 Outlook
John Freeman , CFA (RJA)
Market Perform 3 | NM target

While AR’s 1Q results were underwhelming (slightly better production on outsized capital
spend), the company’s call provided plenty of optimism — specifically surrounding long-
term capex trajectory. Noting cost deflation (raw materials) and a slightly lower well count y/
y (thanks to AR’s steadily decreasing base decline), Antero expects 2024 capital spend to fall
~10% y/y (and expectations for 2025 to be ~15% below this year’s spending) — this without
accounting for possible service cost deflation. After refreshing our model, 2024 capex stands
at ~$943M (D&C + Land), reflecting a ~10% decrease y/y. This reduction, coupled with
Martica’s 1Q23 conclusion, nets 2024 FCF of ~$1.3B (~21% yield at current strip), over 3-times
that of this year’s projected total.
Still, given AR’s in-line peer valuation and our bearish,
near-term natural gas outlook , we remain on the sidelines for now and reiterate our Market
Perform rating.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Antero Resources (AR) Q1 Results - April 28

Post by dan_s »

These expenditures caused AR's Q1 operating cash flow to come in below my forecast.

"In the first quarter of 2023, Antero executed an early settlement of its 2024 natural gas swaptions that averaged $2.77 per Mcf, for approximately $200 million. The Company unwound the 2024 swaptions to gain full exposure to the higher expected strip prices in 2024. Antero believes that the lower natural gas strip in 2023 will result in reduced industry drilling and completions, which will provide support to higher natural gas prices ahead of the expected LNG export demand growth beginning in 2024."

"In the first quarter of 2023, Antero terminated a firm transportation commitment related to an unutilized pipeline to local Appalachian markets for $24 million. The termination of this contract was at a discounted value to commitments through 2025 and reduces net marketing expense by $13 million annually."

The argument can be made that these cash expenditures should be shown in the "Investing Activities" section of the cash flow statement, since they do impact future periods. Another example of how GAAP accounting rules are often misleading.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Antero Resources (AR) Q1 Results - April 28

Post by dan_s »

I have updated my forecast/model for AR. I am lowering my current valuation by $1 to $35.

Today AR is trading for $23/share. Obviously, I like AR's long-term potential, but Q2 is going to be tough for them to generate any free cash flow and the company does carry a lot of debt.

TipRanks: "In the last 3 months, 12 ranked analysts set 12-month price targets for AR. The average price target among the analysts is $33.67. The 12 price targets range from $25 to $46."
Dan Steffens
Energy Prospectus Group
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