Bet you disagree w/ BMO. They seem to focus on hedged income for the wrong reasons:
<<Antero Resources (AR -3.6%) is sharply lower as BMO Capital downgrades shares to Market Perform from Outperform with a $21 price target, saying the 17% rally since early September likely has run its course.
The rally in natural gas liquids prices is fully priced into AR shares and the stock lacks a clear long-term catalyst, says BMO's Philip Jungwirth.
Although AR is just 2.4% higher overall this year, the stock has outperformed dry gas peers EQT Corp. (EQT -0.5%) and Cabot Oil & Gas (COG +1.4%) by more than 20% YTD, and Jungwirth believes AR is now valued in-line with the rest of the Marcellus group.
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AR downgraded
Re: AR downgraded
AR won't benefit much from this winter's spike in natural gas prices because they have 100% of their 2018 and 2019 hedged at $3.50. If gas price do spike higher, AR will have to record some large mark-to-mark (non-cash) expense for the large hedge position. For all of the companies with large hedge positions, GAAP Net Income is a worthless number.
Where AR does have a lot of upside:
> 20% annual production growth
> It sells a lot of NGLs and those volumes will be going up a lot as more midstream capacity comes online in the Marcellus/Utica
> My valuation of AR is based on just 6X operating CFPS. That is a very low multiple for a company with this much upside.
AR, RRC and GPOR are all trading below book value. Unless youthink natural gas prices are going a lot lower (below $2.00/MMBtu) then all of these companies should be trading for at least book value. Under Tab 1 of the Main Sweet 16 Spreadsheet (column H) you can see the Net Book Value of each company.
All three of these companies will be very profitable if gas and NGL prices just hold where they are today.
Where AR does have a lot of upside:
> 20% annual production growth
> It sells a lot of NGLs and those volumes will be going up a lot as more midstream capacity comes online in the Marcellus/Utica
> My valuation of AR is based on just 6X operating CFPS. That is a very low multiple for a company with this much upside.
AR, RRC and GPOR are all trading below book value. Unless youthink natural gas prices are going a lot lower (below $2.00/MMBtu) then all of these companies should be trading for at least book value. Under Tab 1 of the Main Sweet 16 Spreadsheet (column H) you can see the Net Book Value of each company.
All three of these companies will be very profitable if gas and NGL prices just hold where they are today.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: AR downgraded
Keep in mind that AR is the largest producer of NGLs.
Per Raymond James weekly report:
The composite NGL barrel outperformed both oil benchmarks as well as Henry Hub,
finishing the week in question 4.3% higher at $0.93/gal. Of the purity product
markets, all products finished the week higher, excluding natural gasoline. Ethane
was up 13.9% during the week, finishing at $0.55. This increase contributed much
of the overall NGL performance during the week. The increase in ethane price
brings it to its highest levels since April 2012, and marks the first week it has
broken $0.50 over the period. The product’s outperformance relative to
Henry Hub caused the ethane frac spread to widen by 22.2%, going from $4.48 to
$5.47. The wide spread continues to incentivize ethane recovery across a
substantial portion of the country. This allows those processing plants that have
the ability to make short-term price driven recovery/rejection adjustments to
profit. We continue to look closely at propane prices and inventories given the
supply/demand dynamics in the space.
This product gained 0.7% on more favorable near-term supply/demand
fundamentals. Propane stocks continue to track lower than historical comps,
thanks in part to relatively sticky exports results. We are alert to these
developments as the summer injection season for natural gas and NGLs enters its
final stages now in September. The remaining products – normal butane, isobutane,
and natural gasoline – moved 4.2%, 12.5%, and -3.7%, respectively.
Per Raymond James weekly report:
The composite NGL barrel outperformed both oil benchmarks as well as Henry Hub,
finishing the week in question 4.3% higher at $0.93/gal. Of the purity product
markets, all products finished the week higher, excluding natural gasoline. Ethane
was up 13.9% during the week, finishing at $0.55. This increase contributed much
of the overall NGL performance during the week. The increase in ethane price
brings it to its highest levels since April 2012, and marks the first week it has
broken $0.50 over the period. The product’s outperformance relative to
Henry Hub caused the ethane frac spread to widen by 22.2%, going from $4.48 to
$5.47. The wide spread continues to incentivize ethane recovery across a
substantial portion of the country. This allows those processing plants that have
the ability to make short-term price driven recovery/rejection adjustments to
profit. We continue to look closely at propane prices and inventories given the
supply/demand dynamics in the space.
This product gained 0.7% on more favorable near-term supply/demand
fundamentals. Propane stocks continue to track lower than historical comps,
thanks in part to relatively sticky exports results. We are alert to these
developments as the summer injection season for natural gas and NGLs enters its
final stages now in September. The remaining products – normal butane, isobutane,
and natural gasoline – moved 4.2%, 12.5%, and -3.7%, respectively.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group