Antero Resources (AR) Valuation Update - July 28
Posted: Thu Jul 28, 2022 11:17 am
After listening to AR's Q2 conference call I have updated my forecast/valuation model and I am raising my current valuation by $7 to $70/share, primarily because I have raised my valuation multiple from 6.0 to 6.5 X annualized operating cash flow per share.
Keep in mind that my model is based on HH ngas prices averaging $7.00 in Q3, $7.50 in Q4 and $5.00 in 2023.
AR has firm transportation agreements to premium hubs for all of their production and they now expect to get premiums of $0.30 to $0.40 per mcf over HH gas prices for their gas, primarily because of the high Btu content of their gas.
AR's production mix is approximately 68% natural gas, 30% NGLs and 2% crude oil.
AR's production increase by ~5% from Q1 to Q2 and that trend should continue. Their full-year production guidance is 3.2 to 3.3 Bcfepd with 175,000 to 185,000 bpd of liquids, most of which is high value NGLs. Their 2022 exit rate should be ~3.5 Bcfpd.
The Company's realized prices in Q2 (net of cash settlements on their hedges) were $4.94/mcf of natural gas, $97.73/bbl of crude oil and $49.36/bbl of NGLs. Their unhedged volumes continue to increase, and they have very little production hedged for 2023. On the CC they said they don't intend to hedge anymore production going forward because they are bullish on commodity prices + they've completely paid off their credit facility debt and have no other debt covenants that require hedging.
Based on my model, AR should generate approximately $2.8 billion of FCF this year; over $1.6 billion in 2H 2022. They are aggressively buying back their stock and paying off debt. I expect them to start paying dividends in 2023.
TipRanks: "Raymond James analyst John Freeman maintained a Buy rating on Antero Resources (AR) today and set a price target of $65.00. According to TipRanks.com, Freeman is a top 25 analyst with an average return of 35.5% and a 61.3% success rate."
I am expecting more analysts to increase their price targets on AR after such a strong quarter and the improving outlook for natural gas and NGL prices.
Keep in mind that my model is based on HH ngas prices averaging $7.00 in Q3, $7.50 in Q4 and $5.00 in 2023.
AR has firm transportation agreements to premium hubs for all of their production and they now expect to get premiums of $0.30 to $0.40 per mcf over HH gas prices for their gas, primarily because of the high Btu content of their gas.
AR's production mix is approximately 68% natural gas, 30% NGLs and 2% crude oil.
AR's production increase by ~5% from Q1 to Q2 and that trend should continue. Their full-year production guidance is 3.2 to 3.3 Bcfepd with 175,000 to 185,000 bpd of liquids, most of which is high value NGLs. Their 2022 exit rate should be ~3.5 Bcfpd.
The Company's realized prices in Q2 (net of cash settlements on their hedges) were $4.94/mcf of natural gas, $97.73/bbl of crude oil and $49.36/bbl of NGLs. Their unhedged volumes continue to increase, and they have very little production hedged for 2023. On the CC they said they don't intend to hedge anymore production going forward because they are bullish on commodity prices + they've completely paid off their credit facility debt and have no other debt covenants that require hedging.
Based on my model, AR should generate approximately $2.8 billion of FCF this year; over $1.6 billion in 2H 2022. They are aggressively buying back their stock and paying off debt. I expect them to start paying dividends in 2023.
TipRanks: "Raymond James analyst John Freeman maintained a Buy rating on Antero Resources (AR) today and set a price target of $65.00. According to TipRanks.com, Freeman is a top 25 analyst with an average return of 35.5% and a 61.3% success rate."
I am expecting more analysts to increase their price targets on AR after such a strong quarter and the improving outlook for natural gas and NGL prices.