Antero Resources Corporation
is well poised for growth on the back of long reserve-life properties of Appalachian Basin acreages. However, its high debt continues to be a concern.
Headquartered in Denver, CO, Antero Resources is an independent explorer, primarily engaged in the acquisition and development of natural gas, natural gas liquids as well as oil resources in the Appalachian Basin. It is one of the fast-growing natural gas producers in the United States. With a market cap of $4.1 billion, the company is engaged in creating long-term value for shareholders.
The Zacks Consensus Estimate for the partnership’s bottom line for 2021 is $1.18 per share, indicating 310.7% year-over-year growth. The bottom-line estimate has witnessed one upward estimate revision and no downward movement in the past 30 days. Moreover, the consensus mark for the top line is pegged at $4.7 billion, suggesting a rise of 16.8% year over year.
Let’s take a closer look at the factors that substantiate its Zacks Rank #3 (Hold).
What’s Favoring the Stock?
Antero Resources is among the fast-growing natural gas producers in the United States. Its strategic acreage position in the low-risk/long reserve-life properties of Appalachian Basin is a major positive. The company’s core acreage position allows it to make use of significant long lateral drilling opportunities and capital efficiencies. Antero Resources boasts 451,000 and 91,000 net acres in Marcellus and Utica shales, respectively, which positions it well to boost production. Given the fact that it has an inventory of more than 2,000 premium undeveloped drilling locations in core of the Appalachian Basin, the company’s production outlook seems bright.
Antero Resources expects 2021 net drilling and completion capital to be $590 million, indicating a 20% decline from 2020 levels. This upside will be supported by the company’s increasing operating efficiency. Moreover, it expects to generate more than $600 million in free cash flow this year. Importantly, it has formed a drilling partnership with QL Capital Partners worth $500-$550 million, which will fund 60 incremental wells from 2021 till 2024. The move is expected to enable the company to fill unutilized transportation capacity.
Antero Resources plans to complete 65-70 gross wells in 2021, with well costs amounting to $675 per lateral foot on average during the first half of 2021. Notably, the costs will likely decline to $635 per lateral foot by the second half due to its sand and completion initiatives. Moreover, the company plans to drill a total of 80-85 gross wells, including 70 in the Marcellus and 10-15 in the Ohio Utica. This is expected to increase the company’s well cost savings and profitability.
It expects net marketing expenses in the range of 8-10 cents per Mcfe for 2021, indicating a decline from 12 cents and 22 cents in 2020 and 2019, respectively. G&A expense is expected in the range of 8-10 cents per Mcfe for 2021. The metric came in at 8 cents per share in 2020. The decrease in costs will boost the bottom line.
Hurdles in Growth Path
However, there are certain factors that are worrisome.
The company expects 2021 net natural gas equivalent production within 3,300-3,400 MMcfe/d, indicating a decline from the 2020 figure of 3,578 MMcfe/d. This is likely to hurt Antero Resources’ bottom line, as natural gas contributes primarily to its production.
Explorers and producers are not getting enough incentives to ramp up hydrocarbon production volumes as the pandemic is still affecting major economies in Asia. The company is facing great uncertainty as a new wave of infections is hitting the major energy importers, which might keep its profits under pressure.
As of Mar 31, 2021, Antero Resources had no cash and cash equivalents. Although it had an adjusted available liquidity of $1.8 billion, the company has significantly higher long-term debt of $2.6 billion. This can affect its financial flexibility, given the negative impacts of the COVID-19 pandemic.
To Sum Up
Despite significant prospects, Antero Resources’ lower production and pandemic-related demand destruction are concerning. Nevertheless, we believe that systematic and strategic plan of action will drive its long-term growth.
Stocks to Consider
Some better-ranked players in the energy space include
Earthstone Energy, Inc.
Pembina Pipeline Corporation
PHX Minerals Inc.
, each having a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
Earthstone’s sales for 2021 are expected to jump 87.7% year over year.
Pembina Pipeline’s bottom line for 2021 is expected to rise 37.4% year over year.
PHX Minerals’ bottom line for 2021 is expected to surge 140% year over year.
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