4 Things Antero Resources Wants You to Know About What's Ahead
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Antero Resources (NYSE: AR) recently closed the books on a solid 2018 from both operational and financial perspectives. The natural gas driller delivered record production, which thanks to some recent infrastructure expansions, enabled the company to generate even more cash flow.
However, despite that strong performance, the company's stock price has fallen about 50% over the past year. Its management team has been working hard to get its stock turned around. Executives outlined several of these efforts on the company's fourth-quarter conference call, suggesting that its best days lie ahead.
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1. We have a strong competitive position
CEO Paul Rady stated on the call that "as we enter 2019, we like where we are positioned from both a scale and commodity diversification standpoint." He pointed out that his company is "the largest NGL (natural gas liquids) producer in the U.S. and the fifth-largest natural gas producer. This scale across both commodities provides us with the ability to manage through commodity price volatility and prosper with an increase in either commodity." He further noted: "Antero holds 40% of the core undrilled liquids-rich locations in Appalachia, over 2.5 times more than the closest competitor by our analysis. This extensive liquids inventory is a clear competitive advantage."
Antero believes its dual focus on natural gas and NGLs gives it multiple ways to win in the future. On the gas side, the company should benefit from the continued expansion of the country's liquefied natural gas (LNG) export capacity, while its NGL business will benefit from both exports as well as increased demand from new petrochemical plants. Both factors should help boost the value of these commodities.
2. We're planning to remain disciplined and flexible
Despite the bright future of both commodities, Rady noted on the call that the company plans to "remain disciplined, spending within cash flow in a low case, but have the ability to prudently grow production to maximize free cash flow if commodity prices improve, ultimately delivering an appropriate mix of return of capital to shareholders and further deleverage." The company noted that in an environment of $50 oil and $2.85 natural gas -- below the current market price -- that it could grow production at a 10% compound annual growth rate over the next five years, while living within its projected cash flow.
Meanwhile, in a stronger market of $65 oil and $3.15 natural gas, the company could grow output at a 15% compound annual growth rate, while generating between $2.5 billion and $3 billion in free cash flow over those five years. That's significant cash flow potential for a $3 billion company by market cap, and could enable it to buy back a substantial portion of its beaten-down stock.