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Bull of the Day: Antero Resources Corporation (AR)

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Last week, Baker Hughes reported that U.S. supplies of natural gas unexpectedly fell by 43 billion cubic feet.  This news put the spotlight on Natural Gas Liquid (NGL) production.  Our Zacks Bull of the Day, Antero Resources (AR - Free Report) is currently well positioned itself to take advantage of this news as they are in the process of doubling their NGL production by 2020.

This Zacks Ranked #1 (Strong Buy) is an independent oil and natural gas company. It is primarily engaged in the exploitation, development and acquisition of unconventional oil and liquids-rich natural gas properties primarily located in the Appalachian Basin in West Virginia, Ohio and Pennsylvania. Antero Resources Corporation is headquartered in Denver, Colorado.

Recent Earnings Data

Antero Resources easily beat both the Zacks consensus earnings and revenue estimates for the 6th consecutive quarter.  On a year over year basis, the company saw gains in net daily equivalent production average +33%, liquids production +59% (all-time record production in the quarter), and adjusted net income +26%.  Management also increased their 2017 C3+ natural gas liquids (NGL) price realization guidance before hedging from a range of 45%-50%, to a range of 50%-55%.  

New Pipeline Projects

In February, two pipeline projects received approval; Mariner East 2 pipeline project was issued permits for the construction of the 350 mile NGL pipeline.  This pipeline is owned by Sunoco, but Antero is an anchor shipper with a 31,500 barrels per day commitment.  This pipeline is expected to be placed into service by the end of Q3 17. Also, Energy Transfer partners received approval to construct the Rover Pipeline where Antero is an anchor shipper with an 800,000 MMBtu/d firm commitment.  According to management, “The pipeline will connect Antero's Marcellus and Utica Shale assets to the Midwest and Gulf Coast via additional downstream firm transportation that Antero already holds.  The project will also enable Antero to transport natural gas both from the Sherwood and Seneca processing facilities, allowing for maximum optionality on its firm transportation portfolio.”  The Rover Pipeline is expected to be in service by Q3 17.  

Management’s Take

According to Glen Warren, President and CFO, "During the fourth quarter, Antero was the largest producer of C3+ natural gas liquids in Appalachia and realized a C3+ natural gas liquids price before hedging of $25.22, which was 51% of the average Nymex WTI oil price and 45% higher than the prior year quarter.  This realization was also well above the top of our full year NGL pricing guidance range of 35% to 40% of WTI.  When this improvement in NGL pricing outlook is combined with our continued growth in liquids production and the buildout of the Mariner East 2 project, we believe we have the most powerful NGL story in the Northeast."  

Stock Price and Earning Consensus Graph

As you can see in the graph below, AR has beaten the Zacks consensus earnings estimate for 8 consecutive quarters, and after a difficult 2015 and 2016, estimates for 2017 have improved.

Antero Resources Corporation Price, Consensus and EPS Surprise

Antero Resources Corporation Price, Consensus and EPS Surprise | Antero Resources Corporation Quote

U.S. Natural Gas Liquid Composite Price ($ per million Btu)

As you can see in the graph above, AR’s stock price was much higher in 2014, but then saw their stock price cut in half through 2015 and 2016.  One of the negative factors impacting the stock price was the price of NGL.  In January of 2014 it was 11.61, then in January of 2015 it dropped to 5.08, then in 2016 it fell even further to 3.69.  But now in January of 2017, it jumped up to 6.77.  This jump up in price was also before the Baker Hughes report showing that natural gas supplies fell by 43 million cubic feet.  

Increasing Earnings Estimates

Over the past 30 days the Zacks consensus earnings estimates for Q1 17, FY 17 and FY 18 have all seen upwards revisions.  Q1 17 improved from -$0.02 to $0.00, FY 17 more than doubled from $0.06 to $0.14, and FY 18 jumped up from $0.84 to $1.12.  

Bottom Line

With the new pipelines expected to be online in Q3, management now expects the company to double their current NGL production levels by 2020.  Further their four year drilling program will enable AR to grow total production levels above 20% annually.  Lastly, management has enough cash on hand to make further acquisitions to increase their footholds in the Application region.

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