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Morningstar | Mariner East 2 Delay Weighs on Antero in 2018, but 2019-Plus Outlook Unchanged

Antero remains on track to hit guidance for production and capital expenditures after the second quarter. Output was 2,520 mmcfe/d in the period (6% higher sequentially and 15% higher year over year). But the firm’s financial results fell slightly short of Street estimates, with adjusted EBITDA and adjusted earnings per share coming in at $405 million and $0.02 respectively (as compared with consensus estimates of $422 million and $0.17). We believe this was driven by higher-than-expected net marketing costs, which were $0.30/mcfe on a consolidated basis. Full-year guidance for this item was unchanged at $0.10-$0.125 per mcfe though, signaling second-half improvement.

Likewise, disappointing NGL differentials also weighed on results. Realized C3+ prices were consistent with expectations but Nymex WTI increased about $5/bbl in the quarter. Management is looking ahead to the entry into service of the Mariner East 2 pipeline, which should reduce discounts for both propane and butane. However, as this has been delayed to the fourth quarter the firm lowered its 2018 guidance for NGL pricing (now 57.5%-62.5% of WTI, versus 62.5-67.5% previously). There should be no impact on 2019 pricing, assuming no further delays. Further, as a side benefit the pipeline delay also lowers the firm’s 2018 production expenses slightly, although again this won’t change the long-term outlook.

We plan to incorporate these operating and financial results in our model shortly, but after this first look our fair value estimate and no-moat rating remain unchanged.