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Why Is Antero Resources (AR) Down 37.5% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Antero Resources (AR). Shares have lost about 37.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Antero Resources due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Antero Resources Q4 Earnings Beat, Revenues Lag Estimates

Antero Resources Corporation reported adjusted fourth-quarter 2019 loss per share of 2 cents, narrower than the Zacks Consensus Estimate of a loss of 11 cents. In the year-ago quarter, it had recorded earnings of 56 cents per share.

Total operating revenues amounted to $952.7 million, missing the Zacks Consensus Estimate of $1,031 million. Moreover, the top line declined from the year-ago quarter’s $1,045.6 million.

The narrower-than-expected loss can be attributed to lower operating expenses, partially offset by decline in realized commodity prices and natural gas equivalent production.

Overall Production Declines

Total production through fourth-quarter 2019 was recorded at 293 billion cubic feet equivalent (Bcfe), which marginally decreased from 296 Bcfe a year ago. Natural gas production (accounting for almost 70% of total output) decreased to 205 Bcf from 206 Bcf in the December quarter of 2018.

Production of oil in fourth-quarter 2019 was 809 thousand barrels (MBbl), down 28% from 1,125 MBbl in the prior-year period. Its production of 4,325 MBbl of C2 Ethane was marginally higher than 4,323 MBbl in the year-ago quarter. The company’s output of 9,603 MBbl of C3+ NGLs in the December quarter of 2019 was just 1% higher than 9,463 MBbl a year ago.

Realized Prices (Excluding Derivatives Settlements) Decline

Natural gas equivalent price realization in the quarter was $2.96 per thousand cubic feet equivalent (Mcfe), down 27% from $4.05 in the year-earlier period. Realized prices for natural gas decreased 35% to $2.50 per thousand cubic feet from $3.83 a year ago.

The company’s oil price realization in the quarter was $49.29 per Bbl, down 5% from $51.83 a year ago. Its realized price for C3+ NGLs declined to $29.61 per Bbl from $30.92 in the prior-year quarter. Realized price for C2 Ethane decreased 43% to $7.44 per Bbl from $13.12 a year ago.

Operating Expenses Decline

Total expenses in the quarter under review declined to $1,035 million from $1,092.3 million in the year-ago period. This decline can be attributed to lower lease operating, exploration, production and ad valorem tax costs than the fourth quarter of 2018. However, Marketing and Gathering, compression, processing, and transportation costs rose from the year-ago period.

Repurchases

The company bought back 8.3 million shares in the fourth quarter at weighted average price of $2.50 per share. Moreover, it repurchased $225 million principal amount of 2021 and 2022 senior unsecured notes at 17% weighted average discount price. This move decreased the company’s total debt and net interest expense by $37 million and $6 million on an annualized basis, respectively.

Capital Spending & Financials

For drilling and completion operations, it spent $300 million through fourth-quarter 2019.

As of Dec 31, 2019, Antero Resources had no cash and cash equivalents. It had adjusted available liquidity of $1.5 billion and a long-term debt of $3,76 million. It has a debt-to-capitalization ratio of 35%. 

Proved Reserves

As of year-end 2019, Antero Resources had an estimated proved reserve base of 18.9 trillion cubic feet of gas equivalent, reflecting a 5% increase from 2018 levels. About 61% of the proved reserve was natural gas and 62% was classified as proved developed.

Guidance

The company announced its net natural gas equivalent production guidance for 2020 of 3,500 MMcfe/d, indicating a 9% year-over-year rise. Liquids production for 2020 is expected to be 187,500 Bbls/d. The company hedged 94% of its natural gas production guidance of $2.87 per one million British thermal units.

The company expects net marketing expense for 2020 within 10-12 cents per Mcfe. It expects 2020 drilling and completion capital to be $1.15 billion, suggesting a 10% decline from 2019 levels. Total capital budget for the current year is expected to be $1.2 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 80% due to these changes.

VGM Scores

At this time, Antero Resources has a poor Growth Score of F, a grade with the same score on the momentum front. 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Antero Resources has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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