Antero Resources (AR) Q3 Results

[dan_s]

I will update my AR forecast model and valuation tomorrow, but note that Q3 production was above my forecast. Also, AR gets very good realized prices for their production. They have an outstanding hedge book. As I have posted here numerous times, the acquisition AR got from SWD is a "Game Changer" which sets this company up for more than 20% annual production growth. I am amazed that this company does not draw more Wall Street attention. Like RRC, AR has a great marketing team. Their production will also top 2.0 Bcfe per day in 2017. - Dan

Third Quarter Highlights Include:
•Average net daily gas equivalent production was a record 1,875 MMcfe/d (26% liquids), a 25% increase over the prior year quarter and a 6% increase sequentially
•Includes a record 81,460 Bbl/d of liquids production, a 56% increase over the prior year quarter and a 9% increase sequentially
•Realized $0.05 per Mcf premium to Nymex natural gas price, or $2.86 per Mcf, before hedging
•Realized C3+ NGL price of $17.56 per barrel, 39% of Nymex WTI price before hedging
•Realized natural gas equivalent price of $3.96 per Mcfe including NGLs, oil and hedges, a 3% increase over the prior year quarter
•Net marketing expense decreased to $0.10 per Mcfe
•Net income of $238 million, or $0.78 per share, compared to net income of $534 million, or $1.93 per share, in the prior year quarter
•Adjusted net income of $55 million, or $0.18 per share, a 293% increase compared to the prior year quarter
•Record adjusted EBITDAX of $373 million, a 28% increase compared to the prior year quarter
•Signed a definitive agreement to sell approximately 17,000 net acres in Pennsylvania for $170 million
•Borrowing base under the Company's credit facility was increased by $250 million to $4.75 billion

Recent Developments

On October 25th, 2016, Antero signed a definitive agreement for the sale of approximately 17,000 net acres primarily located in Washington and Westmoreland Counties, Pennsylvania for $170 million. The transaction monetizes acreage that is outside of Antero's infrastructure build-out and beyond its five year drilling plan. It is expected to close in the fourth quarter of 2016. Tudor, Pickering, Holt & Co. acted as financial advisor to Antero in connection with the transaction.

On October 24th, 2016, Antero's borrowing base under its credit facility was increased to $4.75 billion, a $250 million increase over the Company's previous borrowing base of $4.5 billion. Lender commitments under the facility remain at $4.0 billion. The bank syndicate, which is co-led by JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A., is currently comprised of 29 banks.

On October 7th, 2016, Antero completed a private placement of 6,730,769 shares of common stock at a price of $26.00 per share, resulting in $175 million of net proceeds. Pro forma for the proceeds from the Pennsylvania divestiture and the private placement, Antero's September 30, 2016 consolidated net debt to trailing twelve months EBITDAX was 3.2 times and consolidated liquidity was $4.0 billion.

Commenting on recent activity, Paul Rady, Chairman of the Board and CEO said, "We are pleased to be in a position to continue to organically grow production at 20% to 25% annually, while de-leveraging the balance sheet. Since year-end 2015, we have reduced our trailing twelve months leverage by a half a turn to 3.2 times today, while growing production by over 350 MMcfe/d and adding 65,000 net acres in the high-graded core of the Marcellus for long-term development. Virtually all of this acreage has now been dedicated to Antero Midstream for infrastructure build-out. We are an industry leader in the Marcellus and Utica Shale plays due to our differentiated strategy and that is evident today in our results."

[dan_s]

Antero's average natural gas price before hedging increased 23% from the prior year quarter to $2.86 per Mcf, a $0.05 per Mcf premium to the average Nymex price for the period. Virtually all of Antero's third quarter 2016 natural gas revenue was realized at currently favorable price indices, including Columbia Gas Transmission (TCO), Chicago, Tennessee Gulf and Nymex. Antero's average realized natural gas price after hedging for the third quarter of 2016 was $4.30 per Mcf, a $1.49 premium to the Nymex average price for the period. This represents an 8% increase compared to the prior year quarter. During the quarter, Antero realized a cash settled natural gas hedge gain of $184 million, or $1.44 per Mcf.

The Company's average realized C3+ NGL price before hedging for the third quarter of 2016 was $17.56 per barrel, or 39% of the Nymex WTI oil price, which represents a 45% increase as compared to the prior year quarter. Antero's average realized C3+ NGL price including hedges was $19.96 per barrel, a 21% increase compared to the third quarter of 2015. Antero's average realized ethane price for the third quarter of 2016 was $0.19 per gallon, or $8.00 per barrel. The average realized oil price was $34.93 per barrel, a $9.92 differential to Nymex WTI and a 15% increase as compared to the third quarter of 2015.

Antero's average natural gas-equivalent price including C2+ NGLs and oil, but excluding hedge settlements, increased from the prior year quarter by 21% to $2.82 per Mcfe. The Company's average natural gas-equivalent price, including C2+ NGLs, oil and hedge settlements, increased by 3% to $3.96 per Mcfe compared to the prior year quarter. For the third quarter of 2016, Antero realized a total cash settled hedge gain on all products of $197 million, or $1.14 per Mcfe.

Commenting on realized pricing, Glen Warren, President and CFO, said, "For the third quarter, we realized a $0.05 premium to Nymex on natural gas sales, before hedges, which is at the top end of our full year guidance. Additionally, while many of our peers were forced to shut in production in September due to the widening of Dominion South and TETCO M2 differentials to $1.96 per Mcf back of Nymex, we were able to realize an $0.08 premium to Nymex for the month, or a $2.04 per Mcf premium to these local indices. This once again highlights the significant value of our firm transport portfolio where we can physically move our gas to more healthy indices. This demonstrates our ability to mitigate Northeast basis risk, which in turn results in significant visibility for our continued growth plans."


Antero's realized natural gas price, including the impact of cash settlements on their hedges, was $4.30/mcf of the 3rd quarter. - Dan