Energy Prospectus

I just finished reviewing our updated profile on AR that will be posted to the EPG website tonight and sent out to all members via email Wednesday morning.
AR is a "gasser" that is on-track for a SIGNIFICANT increase in operating cash flow because a lot of their "Bad Hedges" expire at the end of December.

Operating cash flow per share:
2019A = $3.61
2020A = $3.14 thanks to the pandemic
2021E = $5.10
2022E = $7.69

A reasonable valuation for an upstream company with a solid balance sheet and this much running room (~950 Premium HZ drilling locations in the core area the liquids rich Marcellus) will be at least 5X operating cash flow per share. So, $40 is a reasonable 12-month price target.

AR is up 270% YTD, but it has a lot more upside for us.

We cover Antero Midstream (AM) in the same profile because AR controls it and AM's future is tied to AR's growth.

Thanks Dan ... I checked out your Antero model and you are using $36/bbl for NGLs in 2022.

It's a bit strange what is going on there. The firm says it got $32/bbl. in Q3 -- yet on its website it shows that it's currently getting $63/bbl for NGLs. Is the difference just hedges?

If it is hedges, and if they continue to 2022, I guess my thought would be to value the company on 2023 numbers, when presumably more hedges roll off. It's only 14 months away and stocks theoretically discount the future.

Speaking of hedges ... jeez what a bloodbath. The firm took hedge losses of $1.2 billion just in Q3. I know this is not a "cash" loss ... but it's still got to show up somewhere. If you're the CFO and these enormous hedge losses come to your desk, do you have to do anything about it? (Like are there margin calls or something?) Tx ... mike

Regarding AR liquids, the web shows propane sales and arb weekly which is the best part of the liquids stream. There are other less pricey components which brings the avg down to the mid 30’s
AR said in last call he isn’t writing anymore hedges

Regarding hedges, if you think the impact to AR was bad check out CRK, they have a negative net worth on Balance Sheet now as they completely missed the boat

I too have been critical on crap hedges. These guys are supposed to be experts and know more than us. They gave away all the upside from stronger prices this year and wrote the hedges when there was a glut of ng. I’m not against hedging, I’m against non cash swaps, buy puts or collars and retain some upside. If they had to spend cash for puts they would think harder in what they are doing.

Hind site is 20/20.
AR's hedging program saved the company in 2020.
Hedging is usually required by the debt holders, so key is to use today's and future FCF to payoff debt ASAP.
As of Nov 5 closing prices
AR up 285% YTD
CRK up 121% YTD
CTRA up 131% YTD
EQT up 62% YTD
RRC up 258% YTD < We are sending out an updated profile on RRC today at noon.

This has been a VERY GOOD year for the "gassers" and if ngas stays over $4.00 it will get even better in 2022.

Regarding CRK's book value: Wait until you see their year-end reserve report it will show that their assets are worth at least twice the current book value. GAAP account rules make balance sheets almost worthless for upstream companies. Comstock uses the Successful Efforts method of accounting, which is even more conservative than the Full Cost method. The Cash Flow Statement is the only financial statement that really matters.

Thanks Dan ... I've been thinking the same thing lately: What is the point of looking at book when book is depressed by hedge accounting?

In the real world you either a) get the spot price when you sell the gas or b) recoup your hedge losses if gas goes down between now and then.

Then there are the write-downs the E&Ps all took when oil and gas prices were low. Well, obviously you have to mentally reverse all those write-downs, but that takes time to actually make it onto the balance sheet.

That's interesting about the difference between Antero's realized NGL price and what they show on the website. If they are getting what they state, then Antero is actually getting the same price as Range for NGLs -- if not a bit less. Hmm.