EUR 850.00 For Business Accounts Only

Morningstar | Antero Produces Natural Gas and NGLs in Ohio and West Virginia

Antero produces natural gas from the Marcellus Shale in West Virginia and the Utica Shale in Ohio. It is concentrating on areas with a relatively high liquids content; natural gas liquids and condensate account for about 30% of its production. This was a headwind during 2014-16 because of weak liquids pricing. But the outlook is brighter, owing to increasing domestic and export demand for ethane and increasing pipeline capacity out of the Appalachia region. Antero, with about 40% of the entire basin's undeveloped liquids-rich acreage, is better positioned to capture this upside than most of its peers.The firm also benefits from very strong realized natural gas prices. It has a comprehensive hedge portfolio that limits its exposure to benchmark prices. Hedges currently run out to 2023, and 100% and 90% of expected volumes are protected in 2018 and 2019, respectively. And while basis differentials in Appalachia remain far wider than historical norms, Antero is managing this with its extensive firm transport portfolio, enabling it to sidestep bottlenecks and sell 90% of its output in premium markets outside the basin. Its gas has a high heat content, even after stripping out the NGLs and condensate from its production, which supports a further price uplift. The result is that while many gas producers contend with steep discounts to Nymex, Antero is consistently earning a slight premium.Securing strong prices also affects Antero on the expense side, however, as its transport and marketing costs are relatively high. In 2017, its adjusted unit margin (EBITDA less finding and development costs) was about $0.80 per thousand cubic feet of equivalent, roughly 30% below the peer average of $1.16/mcfe despite higher unit revenue (comparing with Cabot, Range, and Gulfport). And because Antero consolidates its 53% stake in Antero Midstream, it eliminates substantial intercompany sales, reducing reported production costs by $0.50-$0.60. Therefore, stand-alone exploration and production margins were weaker still, albeit with considerably more scope for improvement than peers due to the firm’s exposure to strengthening NGL markets.