Antero Resources Corp: More Growth Than You'd Believe

The amount of long-term growth forecasted by Antero Resources Corporation (NYSE: AR  ) is almost unheard of outside of social media stocks, especially for a company with a greater than $15 billion market cap. The Marcellus and Utica Shale natural gas exploration and production firm is probably mostly unknown by investors after going public last October. 

Despite production growth rates of over 100% and heading toward nearly 950 MMcfe/d during 2014, the company continues to forecast growth rates in excess of 50% in both 2015 and 2016. At this point, Antero appears to be overcoming the infrastructure bottlenecks that have disturbed Marcellus production by Cabot Oil & Gas (NYSE: COG  ) and Utica growth at Gulfport Energy Corp (NASDAQ: GPOR  ) . The biggest question is whether the growth at Antero can be maintained as guided.

Massive first quarter
Antero Resources claims to be the most active driller in the Marcellus and it shows with production surging 105% for the quarter to reach 786 MMcfe/d. The company has 15 rigs running in the Marcellus compared to only six operated by Cabot Oil & Gas. The interesting part is that Cabot decided to forgo plans to expand to seven rigs in the area to focus more short-term capital on the oil-rich Eagle Ford shale.

Even more impressive was revenue growth that for the first quarter surged 127% to reach $413 million, compared to only $181 million in the prior year period. Analysts forecast revenue surging to $525 million in the current third quarter for a roughly 25% gain in only six months.

Despite the infrastructure issues leading to lower price realizations for Cabot in the Marcellus, Antero Resources is still forecasting solid production growth of over 40% through 2016. Similarly, Gulfport greatly reduced breakneck production growth to improve long-term operating efficiencies and reduce costs from service crews, while at the same time removing potential risks of infrastructure snags down the road. Though the Utica specialist still expects production growth exceeding 100% to average nearly 40,000 boe/d for the year, the company reduced the previous guidance that upset the market.

Liquids growth
As with any exploration and production firm, liquids based production is more attractive than dry gas all things being equal. The biggest issue that most firms run into is that shifting to an oily region across the country leads to disruptions in drilling from moving crews and establishing a base of operations in the new region. In the case of Antero, the company was able to create a liquids holding of 115,000 acres in the Utica Shale core of Ohio.

For the first quarter, liquids production soared nearly 600% to reach 16,332 Bbls/d. The company expects further significant growth this year with guidance for an average production rate of 25,000 Bbls/d. The more impressive number is that revenue will reach the 24% level providing significant upside to cash flow.

Bottom line
The production growth rates of Antero Resources are almost unimaginable for a large-cap firm, but investors need to understand the recent lessons of Cabot Oil & Gas and Gulfport Energy. Breakneck growth can have downsides as well, especially in these new shale plays where infrastructure issues reduce access to markets with attractive prices. Assuming Antero Resources remains on its current path without hiccups, the stock is undoubtedly attractive. Investors need to keep in mind that achieving these growth rates at the expected size by 2015 is increasingly difficult.

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