Antero Resources Q3 Results - Nov 1

[dan_s]

Antero reported Q3 production that came in below my forecast, but much higher realized NGL prices than what I was expecting more than made up for it. Production should accelerate into year-end.

Keep in mind:
> Antero has more than 100% of their natural gas production for 2018 hedged at $3.50, so the cash settlements on their hedges are HUGE. $268.4 million cash YTD.
> Antero is the largest producer of NGLs in the U.S., so getting more than $3/bbl higher than I was expecting had a big impact on cash flow from operations.
> Antero's GAAP Net Income is a very misleading number. With their HUGE hedges the mark-to-market adjustments on their hedges totally distorts quarterly results. Focus only on operating CFPS.

Operating cash flow per share:
2016A = $4.32
2017A = $6.12 < $2.38 / share for hedges that they monetized in Q3 2017
2018E = $5.56
2019E = $6.99 < Compares to First Call's estimate of $7.22
2020E = $7.29 < First Call's estimate

I have updated my forecast/valuation model for Antero and it will be posted to the EPG website late today. I have increased my valuation by $1/share to $31.00.

Antero has announced a significant stock buyback program (10% of current shares outstanding) because they think their stock is grossly undervalued by the market.
Antero is targeting 20% to 25% annual production growth.
Antero Resources (AR) has a controlling interest in Antero Midstream (AM), so results are reported on a consolidated basis. The deduction from Net Income for "Income Attributable to Non-controlling Interests" is for the outside ownership of AM.

Antero Midstream (AM) is going to convert to a C-Corp. AM is a midstream company that has VERY STRONG growth locked in for many years. Their dividends go up quarter-after-quarter.