2023-10-04 05:00:48 ET
Summary
- Antero is now projected to generate $200 million in 2H 2023 free cash flow and over $700 million in 2024 free cash flow.
- While natural gas prices have gone down slightly since late July, it benefits from improved prices for NGLs and oil.
- Natural gas accounts for around 65% of Antero's projected 2H 2023 production and around 50% of its projected 2H 2023 revenue.
- Antero sells all of its natural gas outside of the Appalachian markets, allowing it to realize slightly above NYMEX for its natural gas.
Antero Resources ( AR ) is now projected to generate approximately $200 million in free cash flow in the second half of 2023 at current strip prices. Natural gas prices remain relatively weak, although the December 2023 futures are at around $3.30, which would be the highest price for natural gas since January 2023.
Around 35% of Antero's production and 50% of Antero's oil and gas revenues (based on 2H 2023 projections) come from NGLs (including ethane) and oil though, so it should benefit from stronger prices for those commodities.
I had a hold rating for Antero back in July, based on there being relatively limited (under 10%) estimated one-year upside for its stock based on my long-term commodity prices of $3.75 NYMEX gas and $75 WTI oil. With Antero's stock falling by 6.5% since then and my projections of its near-term free cash flow actually increasing a bit since then, I now believe that Antero has enough upside to be considered a buy.
I now estimate Antero's value at slightly over $28 per share at long-term WTI oil and $3.75 NYMEX gas.
Notes On Realized Natural Gas Prices
Natural gas accounts for approximately 65% of Antero's production and approximately 50% of its oil and gas revenues based on 2H 2023 forecasts.
NYMEX natural gas prices are expected to average approximately $2.78 per Mcf during the second half of 2023, and Antero expects to realize $0.04 per Mcf above NYMEX during this period.
Antero's realized prices for natural gas are expected to be higher in Q4 2023 than in Q3 2023, with a projection that it will realize approximately $2.53 per Mcf in Q3 2023 and around $3.10 per Mcf in Q4 2023. The improvement in Q4 2023 (compared to Q3 2023) would be driven by a combination of a $0.45 per Mcf increase in NYMEX prices and a $0.12 per Mcf improvement in Antero's realized prices compared to NYMEX.
Antero is able to achieve a premium to NYMEX since 100% of its natural gas production is sold outside of the Appalachian markets (which typically have a differential of over negative $1).
Antero does incur substantial transportation costs to facilitate its access to premium markets though. It reported $0.73 per Mcf in transportation expenses in Q2 2023.
Potential 2H 2023 Outlook
The current strip for the second half of 2023 is now around $2.78 for natural gas and mid-$80 for oil. Compared to when I last looked at Antero in late July, natural gas prices have declined slightly, but the improvement in other commodity prices has been enough to increase Antero's overall projected revenues modestly.
Antero is now projected to generate $2.29 billion in revenues after hedges (and including the effect of distributions to Martica and the receipt of Antero Midstream dividends) in the second half of the year.
Type | Barrels/Mcf | $ Per Barrel/Mcf | $ Million |
Natural Gas | 409,562,500 | $2.82 | $1,155 |
Ethane | 12,995,000 | $11.25 | $146 |
C3+ NGLs | 21,030,500 | $39.00 | $820 |
Oil | 2,213,000 | $76.25 | $169 |
Distributions To Martica | -$60 | ||
Antero Midstream Dividends | $63 | ||
Hedge Value | -$3 | ||
Total | $2,290 |
This boosts Antero's projected 2H 2023 free cash flow (excluding changes in working capital) to approximately $200 million.
Expenses | $ Million |
Cash Production and Marketing Expense | $1,542 |
Cash G&A | $75 |
Cash Interest | $43 |
Capital Expenditures | $430 |
Total Expenditures | $2,090 |
As a result, Antero could end 2023 with around $1.3 billion in total debt, before spending on share repurchases.
Antero aims to return 50% of its free cash flow to shareholders but reported negative free cash flow in Q2 2023. As a result, it only spent $16 million on share repurchases in Q2 2023, with those shares being "used to offset tax withholding obligations related to the vesting of equity awards to Antero employees."
Due to improved free cash flow expectations in 2H 2023, Antero could spend $100 million on share repurchases during the second half of the year. This would leave it with $1.4 billion in total debt at the end of 2023 while allowing it to repurchase around 4 million more shares.
Potential 2024 Outlook
Compared to a few months ago, the 2024 natural gas strip has gone down slightly to around $3.40 while NGLs and oil strip prices have improved. Similar to the second half of 2023, this leads to slightly improved overall results for Antero.
At current strip prices, I now expect Antero to generate $4.946 billion in revenues in 2024.
Type | Barrels/Mcf | $ Per Barrel/Mcf | $ Million |
Natural Gas | 808,475,000 | $3.45 | $2,789 |
Ethane | 25,550,000 | $11.20 | $286 |
C3+ NGLs | 41,062,500 | $38.50 | $1,581 |
Oil | 4,015,000 | $71.00 | $285 |
Distributions To Martica | -$120 | ||
Antero Midstream Dividends | $125 | ||
Total | $4,946 |
Antero is now projected to generate $706 million in free cash flow in 2024 at current strip prices and before any working capital changes.
Expenses | $ Million |
Cash Production and Marketing Expense | $3,055 |
Cash G&A | $155 |
Cash Interest | $80 |
Capital Expenditures | $950 |
Total Expenditures | $4,240 |
If Antero puts 50% of that free cash flow towards share repurchases, it could repurchase 14.5 million shares at its current share price. Antero's net debt would also decline to $1.05 billion at the end of 2024 in this scenario.
Notes On Valuation
I previously estimated Antero's value at approximately $28 per share at long-term $75 WTI oil and $3.75 NYMEX gas. Antero's projected free cash flow over the next year and a half has gone up by around $57 million (approximately $0.19 per share) since I looked at it in July. Antero's share price has also dipped a bit, allowing for potentially cheaper share repurchases.
Thus I'd now estimate Antero's value at slightly above $28 per share (such as $28.25 per share) at long-term $75 WTI oil and $3.75 NYMEX gas.
Conclusion
Antero appears to be a better value now compared to late July. Antero's share price has gone down 6.5% since I last looked at it, while its projected 2H 2023 and 2024 cash flow at current strip prices has improved slightly. I now estimate Antero's value at approximately $28.25 per share based on my long-term commodity prices of $75 WTI oil and $3.75 NYMEX gas. This is approximately 16% upside from its current share price, which is enough for me to consider it a buy now.
For further details see:
Antero Resources: Projected FCF Improves Modestly Due To Prices For Oil And NGLs