Is Antero Resources Poised for Success?

Michael Teague  |

Last week’s flurry of IPOs saw no less than seven companies begin selling shares on Wall Street for the first time. While several of these debut performances were remarkably well received by investors, however, one company looks as though it is has been singled out for success.

The Denver, Colorado-based Antero Resources Corporation ($AR) held its IPO on Thursday Oct. 10 under the aegis of the private equity firm Warburg Pincus LLC with an initial offering consisting of 30 million shares priced in a range of $38 to $42 each. The oil & gas exploration and production company’s stock was quickly gobbled up by investors, however, and by the end of the day Antero ended up selling nearly 36 million shares, and closing at $52 per and raising over $1.5 billion in the process.

Last Thursday’s events were foreshadowed the previous day on, whose very own IPO expert Francis Gaskins who bluntly described the company’s prospects with his observation that “AR is on a fast ramp-up growth path.” Furthermore, the two trading sessions that have followed in the wake of Antero’s debut have done nothing but confirm this blunt optimism; by Friday’s closing bell, shares were had edged up to just over $53, and at the conclusion of Monday’s session had added another 4.40 percent to end the day at $55.64.


What’s All the Excitement About?

Part of the bullishness around Antero Resources has to do with timing. The company has entered the publicly traded phase of its existence just as the oil and gas economy is being dramatically reorganized to focus on “unconventional” reserves. Thanks to rapid advances over the last decade in exploratory and drilling technology, in particular with 3-D microseismic imaging, the energy industry has gained access to enormous new reserves of oil, natural gas, and liquid natural gas that were previously thought to be out of reach, or were simply undiscovered.

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Offshore, these reserves are located under thousands of feet of water and sand beneath the floor of the ocean, and the process of reaching them is incredibly risky. Onshore, the process of hydraulic fracturing has released copious amounts of oil and gas from the shale formations miles beneath the ground we walk on.

In the United States in particular, the ever-increasing abundance of shale plays is the main driver of the “energy revolution” of which Antero is very much a part, operating as it does in two of the most plentiful of the country’s (known) reserves in the Appalachian Basin underpinning the country’s Northeastern portion.

Between the Utica shale, where the company sits on over 100,000 net acres, the Marcelus shale where it sits on over 300,000 acres, and the Upper Devonian shale where it owns rights on prospects,  Antero as of the month of June reported proven reserves at about 28  trillion cubic feet of natgas equivalent. The company is optimistic about its chances in the Appalachian, with 4,576 different well positions staked out, about two thirds of which are expected to be sitting on particularly large amounts of gas.

Operationally, the company is sound; for the month of September, Antero produced 640 million cubic feet of natural gas equivalent per day, the larger portion of which comes out of the Marcellus shale. For the second quarter of 2013, the company saw a year-over-year increase in production of 120 percent.

Antero also sits on a strong financial foundation. Low operating costs are bolstered by a hefty 2013 capital budget of $2.45 billion, of which $1.45 was allocated to drilling and completion at gas-rich wells. For the first six months of the year, the company reported revenue of $448 million, a 50 percent increase on the prior year period.

In the longer term, however, it remains to be seen how willing the global energy economy is to exchange crude for natural gas and liquid natural gas. Over 90 percent of Antero’s reserves are natural gas and equivalents, and while the overall trend seems to be pointing in that direction, gas is still not as profitable as highly valued crude. With that said, the company has steadily been upping its production of oil over the past year.

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