Antero Resources (AR)

[dan_s]

I have update my forecast model for Antero Resources (AR). It will be posted to the EPG website late today.

Antero is a "gasser" and a pure play on the Marcellus/Utica. Production mix 74.7% natural gas, 23.7% NGLs and only 1.6% crude oil.
Antero has more than 100% of forecast natural gas production for 2017 hedged at $3.63/MMBtu. It's "realized" gas price (net of cash settlements on hedges) should be over $4.00/mcf in 2017. Actual cash settlements on hedges in 2016 were over $900 Million.

AR is a BIG COMPANY. 2017 production will be more than 360,000 Boe per day. Compare to Continental Resources (CLR) production of ~220,000 Boe per day.
AR's proven reserves are more than 2.5 Billion BOE.

Based on my forecast model, which is very close to what First Call now has for revenues, cash flow from operations in 2017 should cover their entire capex budget. AR is forecasting 20% to 25% production growth in 2017. My forecast is based on just 20% production growth.

My valuation increases by $2.50/share to $50.00/share. First Call's price target is $33.96. There are several very low price targets that are averaged into the FC number. The only explanation that I can give is that several Wall Street firms are still using very low commodity price decks and they do not understand the impact that Antero's hedges have on cash flows. If you look at First Call's revenue forecast numbers for any upstream company, just realize that some firms do not consider cash settlements on hedges as "revenue". I do.

GAAP accounting rules for hedges are extremely confusing to most investors and many Wall Street analysts. Wall Street analyst should be ashamed of themselves for not understanding hedge accounting, but I can assure you that some do not.

If you agree with me that natural gas and NGL prices are going higher this year, then AR is definitely a company you need to take a hard look at. Start by reading our recent profile on the company.

My updated forecast will be posted to the EPG website this evening.