Antero Resources (AR 2.09%) is sitting on a potential gold mine of liquids-rich natural gas in the Marcellus and Utica shale region. The company's resource-filled position has already fueled its ascension up the leaderboard to become the nation's fifth-largest gas producer and the leader in natural gas liquids (NGLs). Unfortunately, the driller hasn't been able to fully cash in on that production because it's lacked the infrastructure needed to take its output to premium-priced markets.
Those infrastructure bottlenecks, however, are beginning to go away. That's because midstream giant Energy Transfer (ET 0.21%) recently completed some critical projects. As a result, Antero Resources now has the access it needs to maximize the value of its production.
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Cashing in on its market access for NGLs
Antero Resources recently reported strong underlying first-quarter numbers. CEO Paul Rady discussed the factors fueling the company's success on the accompanying conference call. He pointed out that "we began shipping volumes for the first time in February through our commitment on the Mariner East 2 pipeline," which is operated by Energy Transfer and moves NGLs from processing facilities in the Marcellus region to Philadelphia, where Energy Transfer's Marcus Hook Terminal can export them to the global markets. According to Rady, "We have 50,000 barrels a day of propane and butane capacity contracted on the pipeline, which equates to about one-third of the available capacity on ME2 today. As the largest shipper on ME2 and with approximately 50% of our NGL production being sold into premium international markets today, we are well positioned to deliver peer-leading NGL price realizations going forward."
Rady further noted that the company is already experiencing the benefits of this pipeline. He stated on the call that it "boosted cash flow by approximately $20 million during the first quarter." That number should improve as the company ramps up its exports. Antero only exported 29% of its volumes during the quarter but expected that number to reach 50% once it hits full stride.
Locked in on natural gas
In addition to securing space on Energy Transfer's Mariner pipeline systems for its NGL volumes, Antero locked up capacity on several other pipelines for its natural gas volumes. The company, for example, is a major shipper on Energy Transfer's recently completed Rover Pipeline system, which moves gas to premium markets across the U.S. as well as in Canada.
Rady noted on the call that "with the entirety of our committed firm transport now in service" thanks to recently completed pipeline projects, it gives the company "significant visibility... with respect to our long-term development plan." For starters, the company estimates that it will earn a $0.15 to $0.20 per Mcfe premium to prevailing in-basin market prices for its natural gas because it can transport its output to premium markets. That gives it a competitive advantage over its peers not only should local prices weaken but because it can make longer-term decisions since it knows it can get its gas to higher-priced markets.
The pricing disconnect between local and premium markets could widen in the coming years, especially along the Gulf Coast as more LNG export facilities start up. Rady pointed out on the call that "our significant firm transport capacity into the Gulf Coast region provides a tremendous opportunity for us to benefit from this robust growth" of LNG export facilities. He added, "We expect our firm transportation portfolio to become increasingly valuable as LNG players look to secure long-term supply agreements with strong counterparties who have confidence in their drilling inventory over multiple decades. Antero has the production base, the drilling inventory depth and quality, the transport portfolio, and the balance sheet to be a very strong player in the LNG supply business."
Everything it needs to succeed
Antero Resources has struggled to get full value for its natural gas and liquids output in recent years due to the lack of adequate infrastructure to transport its volumes to higher-valued markets. However, thanks to the recent completion of several pipelines by Energy Transfer, the company now has full access to premium-priced markets. As a result, it should earn more money on its production than rivals that didn't lock in firm transportation on these systems, giving it a competitive edge.
