Energy Prospectus

New Report from Stifel
Antero Resources Corporation (AR, $7.13, Buy; Target $18.00) - Slight 1Q19 Miss.
Inflection Point Could be on the Horizon - Jane Trotsenko
We view today's press release as slightly positive despite an adj. EBITDA miss of 4%. The management team made slight tweaks to 2019 guidance, the majority of which are already reflected in Consensus estimates. In the press release, the company notes that it is going to drop one rig and a completion crew in 2Q19. Higher efficiencies allow Antero to reaffirm the lower end of D&C capex guidance while keeping the 2019 drilling program and production guidance unchanged - a development that is likely to be perceived positively by the market. The Street is currently modeling $1.5B in capex spend for Antero for 2020 and about 9% y/y production growth. Given production efficiencies achieved, we believe Antero is well positioned to beat both of these two estimates.

Per Antero's CC: Annual production growth should be 10% to 15% after 2019 growth of 15% to 18% this year. Even if natural gas averages $2.50 for all future periods, all future growth should be funded by cash flow from operations.

Note that Antero has 100% of this year's natural gas hedged. Including the cash settlements on those hedges, their realize natural gas price was $3.79/mcfe in Q1.

Comments from TPH

AR Q1'19 Quick Look
Slight positive on ME2 liquids pricing and FY guidance update; Q1 prod'n miss ethane-driven
Sector: NAm E&P | Ticker: AR | Recommendation: HOLD | Target: $14 | Close: $7.13
In contrast to some of what we've seen this season, AR's release comes with a FY budget reduction. Efficiencies are improving stages per day, which is lowering well costs and allowing management to downshift to 4 rigs / 3 crews (-1 each) for a slight, but welcomed, -3% reduction to FY spending plans to $1.3-1.375B. No change to guided ranges on FY well count or production; could see actuals shake out near the low end of ranges depending on ethane volumes. For context, Q1 production came in below estimates (3,099 vs. TPHe/Street 3,165/3,188), driven by economic ethane rejection (~10mboepd lighter volumes vs. TPHe). Likely a bigger focal point than all of the above, ME2 C3+ pricing exceeded the company's expectations, shaking out at MTB +17c/gal vs. vs. prior expectations of MTB +5-10c/gal and driving an increase to FY corporate C3+ pricing expectations (from $30-32.50/bbl to $33.55-36.60/bbl). 35c clean EPS compares to TPHe/Street 38c/30c. $380MM Q1 capex was in-line with Street (TPHe $365MM).

We will be sending out an updated profile on Antero Resources (AR) on May 8. My valuation stays at $22/share and could go higher because of the significant improvement in their balance sheet since a year ago. With 100% of this year's natural gas hedged, strong revenues and free cash flow are locked in.