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Antero Resources (NYSE:AR) may now be able to generate over $3.2 billion in positive cash flow in 2022, despite being on track to have over $2 billion in realized hedging losses for the year. It may end up generating an even higher amount of positive cash flow in 2023 based on current strip as it is only hedged on 2% of its natural gas production next year. Thus, at strip, it may be able to generate over $6.8 billion in positive cash flow from 2022 to 2023.
2022 Outlook
Antero may now generate over $9 billion in revenues before hedges in 2022 at current strip prices. It is benefiting from very strong natural gas prices (with Henry Hub strip for 2022 around $7.30 now).
Antero’s 2022 hedges have around negative $2.086 billion in estimated value.
| Type | Barrels/Mcf | $ Per Barrel/Mcf | $ Million |
| Natural Gas | 812,125,000 | $7.50 | $6,091 |
| Ethane | 23,177,500 | $16.00 | $371 |
| C3+ NGLs | 39,237,500 | $62.00 | $2,433 |
| Oil | 3,285,000 | $99.00 | $325 |
| Hedge Value | -$2,086 | ||
| Distributions To Martica | -$120 | ||
| Antero Midstream Dividends | $125 | ||
| Total | $7,139 |
I’ve assumed that Antero’s cash production expense ends up a bit over its guidance 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 | $ Million |
| Cash Production Expense | $2,800 |
| Marketing Expense | $84 |
| Cash G&A | $133 |
| Cash Interest | $115 |
| Capital Expenditures | $775 |
| Total Expenditures | $3,907 |
Antero had previously projected that it would end up with $2.5+ billion in positive cash flow in 2022, but that was based on late April strip prices. The 2H 2022 strip for natural gas was still strong (at around $7.25) at the time, but has since gone up further to around $8.50.
Share Repurchases
Antero Resources repurchased 3.7 million shares for $100 million in Q1 2022, at an average price of $27.11 per share. It currently has a $1 billion share repurchase program that it may finish in Q4 2022. This is based on its plan to use approximately 25% of its free cash flow for share repurchases until its credit facility is repaid (in Q2 2022), followed by 50+% of its free cash flow for share repurchases after that.
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 had $2.3 billion in NOLs as well as other tax attributes. With the strong commodity prices it is using up those tax attributes very quickly though, and previously projected that it would become a cash taxpayer in late 2023. With strip prices further improving since it made that comment, it may start paying cash taxes in mid-2023 now.
2023 Outlook
At current strip ($95 WTI oil and $6.05 NYMEX gas) for 2023, Antero may be able to generate close to $8 billion in revenues after hedges. This is actually higher than its projected 2022 revenues (after hedges) due to still strong natural gas prices at 2023 strip, combined with a very limited amount of 2023 hedges.
Antero has only 2% of its 2023 natural gas production hedged, and those hedges have around negative $58 million in value at strip.
Antero actually may have more of its 2024 natural gas production already hedged. It has a swaption agreement that gives the counterparty the right to enter into a swap agreement to purchase 427,500 MMBtu per day in natural gas at $2.77 per MMBtu in 2024. At this point, it seems likely that the counterparty will exercise that right, which would cover around 18% to 19% of Antero’s 2024 natural gas production.
| Type | Barrels/Mcf | $ Per Barrel/Mcf | $ Million |
| Natural Gas | 835,850,000 | $6.25 | $5,224 |
| Ethane | 23,725,000 | $12.50 | $297 |
| C3+ NGLs | 40,150,000 | $55.00 | $2,208 |
| Oil | 3,650,000 | $87.00 | $318 |
| Distributions To Martica | -$120 | ||
| Antero Midstream Dividends | $125 | ||
| Hedge Value | -$58 | ||
| Total | $7,994 |
Antero is now projected to generate $4.056 billion in positive cash flow in 2023 at current strip prices, before the impact of cash taxes. Cash taxes may reduce its 2023 positive cash flow to around $3.6 billion if it starts paying cash taxes around mid-2023.
| Expenses | $ Million |
| Cash Production and Marketing Expense | $2,916 |
| Cash G&A | $137 |
| Cash Interest | $110 |
| Capital Expenditures | $775 |
| Total Expenditures | $3,938 |
Notes On Valuation
Antero is thus now projected to generate above $6.8 billion in positive cash flow by the end of 2023 at current strip. This would allow it to complete its $1 billion share repurchase program, and potentially end up with $3.7 billion in net cash (assuming its convertible notes are converted into shares). Antero may also end up with approximately 309 million shares outstanding after the share repurchases and conversion of its convertible notes.
Antero would be worth approximately $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 reverted back to $3.50 after 2023.
Antero’s estimated value would increase to approximately $53 per share if NYMEX gas prices ended up around $4.00 in the longer term (after 2023) along with $80 WTI oil.
Conclusion
Antero Resources may be able to generate an even higher amount of positive cash flow in 2023 than in 2022 based on current strip prices. It is currently projected to end up with $3.7 billion in net cash at the end of 2023 while also completing its $1 billion share repurchase program.
Antero’s estimated value is quite sensitive to how long elevated natural gas prices last and what long-term prices end up at. If natural gas follows strip prices to the end of 2023 and then averages $3.50 after that, Antero might be slightly overvalued at its current price. If natural gas follows current strip beyond 2023 and averages a higher price (2024 to 2027 strip is currently around $4.50), then Antero may still have a fair bit of upside.
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