Antero Resources Poses A Strong Case For LNG Export Growth

seekingalpha04-17

Antero Resources is well-positioned to cater to existing LNG takeaway capacity as producers face a soft domestic gas market.New gas-fired power plants and LNG export terminals coming online in late-...

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Resources为液化天然气出口增长提供了有力的证据","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"XOM":1,"AR":1,"LNG":1,"ORCL":1},"content_text":"Antero Resources is well-positioned to cater to existing LNG takeaway capacity as producers face a soft domestic gas market.New gas-fired power plants and LNG export terminals coming online in late-2024/early-2025 could provide relief to the domestic gas market.Antero Resources may experience positive gas pricing dynamics as new export capacity comes online, potentially leading to stronger share returns.   mysticenergyAntero Resources (NYSE:AR) has found itself in a prime position as the broader natural gas pureplays face a soft domestic gas market. As producers pull back on dry gas production paired with the pause on new LNG export facility approvals, Antero is positioned well to cater to their existing LNG takeaway capacity. Despite gas being priced sub-$2/Mcf, I anticipate some price alleviation going into the end of CY24 and into CY25 as LNG export capacity comes online and domestic demand improves with new gas-fired power plants. I rate AR shares with a BUY recommendation with a price target of $31.67/share at 9.93x eFY25 EV/aEBITDAX. Macroeconomics The natural gas market has faced significant headwinds coming into CY24. Between the warmer winter and the pause on new export approvals, it seems like 2024 just isn’t the year for natural gas producers. Despite these exogenous hurdles, there are a few signs of hope to relieve these negative pressures. On the domestic front, the power demand for data centers to power AI-related applications has been making its rounds in the headlines. According to the IEA, a simple ChatGPT request is said to utilize nearly 10x more electricity when compared to the typical Google search. As hyperscalers like Oracle Corp. (ORCL) scale their regional data center presence to cater to the growing AI demand, expanding power capacity will need to be addressed to ensure reliable uptime. As AI applications scale, it has been estimated that 25% of the power demand in the US will be consumed by AI data centers by 2030, up from 4% today. In addition to this, the EIA reported that 28% of US coal capacity will be retired through 2035. This equates to 59GW of capacity that will need to be replaced in order to maintain the current baseload. There are a few options being weighed for replacement capacity, including natural gas, renewables, and nuclear. Renewables, most specifically offshore wind, have posed major challenges in the high interest rate environment as these turbines have been found to be noneconomical. Expansionary nuclear reactor capacity is still about 5-10 years out as small modular reactors test for efficacy. Though I do believe that SMRs will one day play a major role in US power capacity, I expect a slower-than-anticipated ramp-up of localized capacity resulting from the modestly negative public opinion for nuclear energy and the long construction process. This leaves us with natural gas as the solution. The EIA estimates 20 new gas-fired power plants will come online between 2024-2025 for a total capacity of 7.7GW. Using a conversion table from GWh to kWh, these new plants will add an additional ~77Bcf of natural gas demand for power generation (please leave a comment if the conversions are off, and I will correct the material). I believe that this domestic capacity will provide some relief to the domestic gas market if new export capacity continues to be put on hold. Another tailwind for the domestic gas market involves the two new LNG export terminals that are expected to come online in late-2024/early-2025. The Exxon Mobil (XOM) and QatarEnergy Golden Pass LNG export terminal in the US Gulf of Mexico is expected to receive an inspection report in November 2024 amidst the completion of train 1. Kathryn Mikells, CFO of ExxonMobil, suggested that the firm expects first LNG in 1H25. Venture Global’s Plaquemines LNG terminal is expected to have phase 1 completed and produce LNG by the end of 2024 or early 2025 with phase 2 approved for FID. The Plaquemines facility is expected to add an additional 20mm MTPA of capacity, while the Golden Pass will add 15.8mm MTPA when each phase is completed.   EIAIn terms of broader gas production, I do anticipate a continuation of pricing pressure as a result of associated gas production in the Permian Basin. According to the EIA, oil production in the US averaged 13.1MMbbl/d for the week of April 5, 2024.   EIAGas production for that same week declined by -258MMcf/d with the majority of the decline coming out of gas basins like the Appalachia and Haynesville. Gas production in the Permian increased by 140MMcf/d as a result of higher productivity within the basin. Given that oil prices have remained in an oil-friendly price range for Permian production, I anticipate higher associated gas production as a result, which will in turn pressure dry gas producers. Given the macro story above, I believe that the gas producers may experience some relief as new power and export capacity comes online later in the year.   TradingViewInvestment Case For Antero Resources Antero Resources may be in an optimal position for their producing assets. The firm sells approximately 75% of their natural gas production to the LNG corridor. Nearly all of Antero’s gas is sold out of basin at Tier 1 pricing points along the LNG corridor. Management discerned in their Q4’23 earnings call that Tier 1 prices reflect increasing premiums to NYMEX in 2025 and beyond. They noted that 30% of their 2Bcf/d production sells at a $0.29 premium above the NYMEX in 2026. In addition to more appealing pricing, management forecasts significantly lower capital requirements for eFY24 to maintain similar production to FY23. Capital investments for eFY24 are projected to come in at $430mm, $294mm lower than the previous year. Capital requirements are expected to equate to $0.55/Mcfe for eFY24. Management also anticipates to drop a completion crew in eFY24 after dropping one drilling rig at the end of CY23 for a total of two drill rigs and one completion crew. This poses a very palatable case given the firm’s ability to drill longer laterals with a more appealing decline curve while maintaining flat production y/y.   Corporate ReportsForecasting out, I expect Antero to grow production gradually as new capacity demand comes online. Depending on gas prices going into eCY25, I believe that the firm may remain in their strong position as Haynesville producers remain priced out of the market. I do expect some positive gas pricing dynamics to come into play as new export capacity comes online in e1h25, freeing up some of the excess domestic production between liquids and dry gas producers.   Corporate ReportsFor eFY24, I anticipate Antero to return to operating with positive free cash flow on the back of lower capital investments paired with stronger gas pricing. I anticipate lower exploration expense going into eFY24 as the firm ended FY23 with proved reserves of 18.1Tcfe, 13.8Tcfe of which are proved developed reserves. I believe the firm will pull back on drilling and completion paired with longer laterals to achieve production volumes similar to FY23. Management’s eFY24 D&C capital budget is forecasted at $650-$700mm, a decrease of 26% from FY23. Management is also planning to increase production in their liquids-rich assets by 2% while decreasing gas production by 3% in eFY24. This should alleviate concerns for Antero from the near-term softer gas pricing as the Henry Hub spot remains sub-$2/Mcf. Valuation & Shareholder Value   Corporate ReportsAR shares currently trade at 9.66x EV/aEBITDA, a relative premium to peer gas producers. One of the values that AR does not provide is a quarterly dividend. This places all of the value on capital gains on the share price for AR. Though management may move to providing a quarterly dividend if gas prices strengthen, there have not been any hints that they may do so.   Corporate ReportsGiven my expectations for Antero’s production and cash flow generation, I believe the firm should be priced at $31.67/share at 9.93x eFY25 EV/aEBITDAX. The scale below will reflect the gas pricing market. Given my expectations for eFY24 cash flow, I believe that AR shares may experience some pullback into the gray-sky scenario before reaching my price target. Given the long-term strategy for the firm and the macroeconomic picture painted in the body of this report, I believe that AR shares can make an appealing addition to a portfolio. I provide AR shares with a BUY recommendation with a price target of $31.67/share. I recommend building a position throughout CY24 as the gas market teeters under $2/Mcf in the near-term.   Corporate Reports AR shares have historically traded within the range of natural gas prices, suggesting that stronger pricing may bring stronger share returns and vice versa.   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