It has been about a month since the last earnings report for Antero Resources (AR). Shares have added about 7.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Antero Resources due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Antero Resources Q1 Earnings Miss on Lower Gas Prices
Antero Resources Corporation reported first-quarter 2020 adjusted loss per share of 13 cents against the Zacks Consensus Estimate of break-even earnings. In the year-ago quarter, it had recorded earnings of 31 cents per share.
Total operating revenues amounted to $1,317.1 million, beating the Zacks Consensus Estimate of $996 million. Moreover, the top line increased from the year-ago quarter’s $1,037.4 million.
The weak earnings can be attributed to significantly lower realized commodity prices, partially offset by increased natural gas equivalent production and decreased operating expenses.
Following the earnings release, the stock jumped 21.1% yesterday, as the company stated that even though it intends to significantly reduce capital spending for 2020, it has kept its 2020 production guidance unchanged. Despite the current market uncertainty, the company expects to generate positive free cash flow of $175 million for the full year, which cheered investors.
Overall Production Rises
Total production through first-quarter 2020 was recorded at 306 billion cubic feet equivalent (Bcfe), which rose 10% from 279 Bcfe a year ago. Natural gas production (accounting for almost 68% of total output) increased to 208 Bcf from 199 Bcf in the March quarter of 2019.
Production of oil in first-quarter 2020 was 938 thousand barrels (MBbls), down 8% from 1,017 MBbls in the prior-year period. Its production of 4,604 MBbls of C2 Ethane was 31% higher than 3,509 MBbls in the year-ago quarter. The company’s output of 10,833 MBbls of C3+ NGLs in the March quarter of 2020 was 23% higher than 8,794 MBbls a year ago.
Realized Prices (Excluding Derivatives Settlements) Decline
Weighted natural gas equivalent price realization in the quarter was $2.30 per thousand cubic feet equivalent (Mcfe), down 37% from $3.65 in the year-earlier period. Realized prices for natural gas decreased 40% to $1.98 per Mcf from $3.30 a year ago.
The company’s oil price realization in the quarter was $38.02 per Bbl, down 20% from $47.23 a year ago. Its realized price for C3+ NGLs declined to $21.31 per Bbl from $31.63 in the prior-year quarter. Realized price for C2 Ethane also decreased 42% to $5.82 per Bbl from $10.12 a year ago.
Total Operating Expenses Decline
Total expenses in the quarter under review declined to $1,054.7 million from $1,071.1 million in the year-ago period.
Average lease operating costs in the quarter were 8 cents per Mcfe, down 47% from the year-ago period’s 15 cents. The same for gathering and compression fell 17% year over year to 63 cents per Mcfe. Moreover, general and administrative costs fell 44% year over year to 9 cents per Mcfe in the first quarter of 2020. However, processing costs rose 13% year over year to 69 cents per Mcfe. Also, transportation expenses rose 11% to 61 cents per Mcfe from the year-ago level of 55 cents.
The company bought back 27 million shares in the first quarter at a weighted average price of $1.57 per share. It currently has 269 million shares outstanding. Moreover, it repurchased $383 million notional amount of 2021 and 2022 senior unsecured notes at a 21% weighted average discount price. This move decreased the company’s total debt by $81 million.
Capital Spending & Financials
For drilling and completion operations, it spent $300 million through first-quarter 2020.
As of Mar 31, 2020, Antero Resources had no cash and cash equivalents. It had adjusted available liquidity of $1 billion and a long-term debt of $3,707.8 million. It has debt to capitalization of 36%.
Even though the company intends to reduce capital spending for 2020, it has kept its net natural gas equivalent production guidance for 2020 unchanged at 3,500 MMcfe/d, indicating a 9% year-over-year rise. Liquids production for 2020 is expected to be 187,500 Bbls/d, per the original guidance.
It expects 2020 drilling and completion capital to be $750 million versus $1.15 billion announced originally, which then suggested a 10% decline from 2019 levels. This will be supported by the company’s increasing operating efficiency. Backed by the same, it has dropped its rig count to one rig for the rest of the year. Moreover, aided by its drilling and completion capital budget reduction, the company expects to generate $175 million in free cash flow this year.
It expects net marketing expense for 2020 to be $150 million. It has plans to generate proceeds of $650-$900 million in 2020 from the asset sale program. Moreover, 94% and 100% of its projected 2020 and 2021 natural gas production is hedged at $2.87 and $2.80 per MMBtu, respectively.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
Currently, Antero Resources has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Antero Resources has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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