Antero Resources: Near-term cash flow generation potential (NYSE: AR)

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Anterior resources (NYSE:AR) may now be able to generate more than $3.2 billion in positive cash flow in 2022, although it is on track to have more than $2 billion in realized hedge losses for the year. . It can end generating an even higher amount of positive cash flow in 2023 based on the current strip, as it is only hedged on 2% of its natural gas production next year. So, at the strip, it could be able to generate more than $6.8 billion in positive cash flow from 2022 to 2023.

Outlook 2022

Antero could now generate more than $9 billion in revenue before hedges in 2022 at current strip prices. It benefits from very high natural gas prices (with the Henry Hub strip for 2022 around $7.30 now).

Antero’s hedges for 2022 have a negative estimated value of approximately $2.086 billion.

Type Barrels/Mcf $ per barrel/Mcf millions of dollars
Natural gas 812,125,000 $7.50 $6,091
Ethane 23,177,500 $16.00 $371
NGL C3+ 39,237,500 $62.00 $2,433
Oil 3,285,000 $99.00 $325
Coverage value -$2,086
Distributions in Martica -$120
Antero Midstream Dividends $125
Total $7,139

I assumed that Antero’s cash production spend ends up a bit above its forecast range due to the impact of higher production taxes. This would still allow Antero to generate $3.232 billion in positive cash flow in 2022 (net of Antero Midstream dividends and distributions to non-controlling interests in Martica).

Expenses millions of dollars
Cash production expenses $2,800
Marketing costs $84
G&A in cash $133
Cash interest $115
Capital expenditure $775
Total expenses $3,907

Antero had previously forecast that it would end up with more than $2.5 billion in cash flow positive in 2022, but that was based on strip prices at the end of April. The 2022 2H strip for natural gas was still strong (around $7.25) at the time, but has since risen to around $8.50.

Share buybacks

Antero Resources repurchased 3.7 million shares for $100 million in the first quarter of 2022, at an average price of $27.11 per share. It currently has a $1 billion share buyback program that it could complete in Q4 2022. This is based on its plan to use approximately 25% of its free cash flow for share buybacks. shares until its credit facility is repaid (in the second quarter of 2022), followed by 50+% of its free cash flow for share buybacks thereafter.

Cash taxes

One thing to note is that Antero Resources will likely start paying cash taxes in 2023. It mentioned on its Q1 2022 earnings call that it has $2.3 billion in NOL as well as other tax attributes. With high commodity prices, he uses these tax attributes very quickly and previously predicted that he would become a cash taxpayer at the end of 2023. With strip prices still improving since he made that comment, he could start paying cash taxes in mid-2023. 2023 now.

Outlook 2023

With the current strip ($95 WTI oil and $6.05 NYMEX gas) for 2023, Antero may be able to generate nearly $8 billion in revenue after hedging. This is actually higher than its projected 2022 revenue (after hedging) due to still high natural gas prices at 2023 strip, combined with a very limited number of 2023 hedges.

Antero has only hedged 2% of its natural gas production in 2023, and those hedges have a negative value of approximately $58 million at stripping.

Antero may actually have more of its 2024 natural gas production already hedged. It has a swaption agreement which gives the counterparty the right to enter into a swap agreement to purchase 427,500 MMBtu per day of natural gas at $2.77 per MMBtu in 2024. At this point, it seems likely that the counterparty will exercise this right, which will cover approximately 18% to 19% of Antero’s natural gas production in 2024.

Type Barrels/Mcf $ per barrel/Mcf millions of dollars
Natural gas 835,850,000 $6.25 $5,224
Ethane 23,725,000 $12.50 $297
NGL C3+ 40,150,000 $55.00 $2,208
Oil 3,650,000 $87.00 $318
Distributions in Martica -$120
Antero Midstream Dividends $125
Coverage value -$58
Total $7,994

Antero is now expected to generate $4.056 billion in cash flow positive in 2023 at current strip prices, before the impact of cash taxes. Cash taxes could reduce its positive 2023 cash flow to around $3.6 billion if it starts paying cash taxes around mid-2023.

Expenses millions of dollars
Cash Production and marketing expenses $2,916
G&A in cash $137
Cash interest $110
Capital expenditure $775
Total expenses $3,938

Notes on assessment

Antero is therefore now expected to generate over $6.8 billion in cash flow positive by the end of 2023 at the current strip. This would allow it to complete its $1 billion share buyback program and potentially end up with $3.7 billion in net cash (assuming its convertible notes are converted into stock). Antero could also end up with about 309 million shares outstanding after share buybacks and the conversion of its convertible bonds.

Antero would be worth around $41 in a scenario where it ended up with 309 million shares outstanding and $3.7 billion in net cash at the end of 2023, but NYMEX gas prices fell back to $3.50 afterwards. 2023.

Antero’s estimated value would increase to around $53 per share if NYMEX gas prices end around $4.00 in the longer term (post 2023) with $80 WTI oil.

Conclusion

Antero Resources may be able to generate an even greater amount of positive cash flow in 2023 than in 2022 based on current strip prices. It is currently expected to end up with $3.7 billion in net cash at the end of 2023 while completing its $1 billion share buyback program.

Antero’s estimated value is quite sensitive to the duration of high natural gas prices and long-term prices. If natural gas follows strip prices through the end of 2023, then averages $3.50 thereafter, Antero could be slightly overvalued at its current price. If natural gas follows the current band beyond 2023 and has a higher average price (the band from 2024 to 2027 is currently around $4.50), then Antero may still have a nice edge.