What: June wasn't a great month for investors in Antero Resources Corp. (NYSE:AR). Its stock sank 13.1%, largely due to the weight of weak industry data that suggests the nation is oversaturated with natural gas, which is putting downward pressure on its price. While that's not a near-term issue for Antero Resources, if the current price persists it could weigh on the E&P company's future cash flow and returns.
So what: According to the U.S. Energy Information Administration, the nation has more than 2.5 trillion cubic feet of natural gas in storage right now. For perspective, that's enough natural gas to meet the need of 2.5 million households for 15 years. Furthermore, that's 38.3% more gas than was in storage a year ago and suggests the market is oversupplied with the commodity at the moment. There's no sign on the horizon that storage levels will abate -- the Natural Gas Supply Association expects record natural gas production this summer, more than offsetting record demand. This scenario is pushing the price of natural gas lower.
In the near term, however, natural gas price weakness has virtually no impact on Antero Resources' operations, as 94% of its 2015 production is hedged at $4.42 per Mcfe, which is well above the current spot price of less than $3 per Mcfe. That being said, the company's hedged volumes trail off over time, which will make it more susceptible to lower natural gas spot prices.
Now what: There isn't a whole lot of optimism in the natural gas market right now while the market is oversaturated with natural gas. Projected robust future production will likely keep the market oversupplied and keep a lid on the price of natural gas. Investors reacted to that future impact on Antero's cash flow by selling off its stock in June.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.