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A Compelling Opportunity in the Energy Sector

Strong realized natural gas prices and leverage to liquids put Antero Resources at an advantage to its peers.


Dave Meats: Antero Resources is a natural gas company operating in the Marcellus and Utica Shales in West Virgina and Ohio. The stock is currently trading at a 25% discount to our fair value estimate, and is one of the few compelling opportunities in the generally overvalued E&P segment. The company is growing its production at a robust clip and expects 30% production growth this year and a CAGR of 20%-22% after that, according to its recently published four-year outlook.

There are two key advantages that separate Antero from its peers. The first is very strong realized natural gas prices. The company has fully hedged its natural gas output for 2017 and 2018, with significant volumes protected in subsequent years as well. In addition, the company has locked in enough firm transport and sales contracts to ensure that it can sell all of its production in premium markets outside Appalachia, sidestepping basis risk. As a result, management expects to earn a premium to Nymex through 2020 at least, which is pretty rare for a natural gas producer in the northeast.

Dave Meats does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.