Antero Sticking With Maintenance Capital to Maximize Cash Flows and Returns

Antero delivered fourth-quarter volumes averaging 3,191 million cubic feet per day of natural gas, which was enough to push the full-year average above the low end of the firm’s 3,200-3,300 mmcf/d guidance range for 2022. And in 2023 management is looking for more of the same, with a production target of 3,250-3,300 mmcf/d (2% higher at the midpoint). The 2023 budget for drilling and completions has been set at $875 million-$925 million, which is 14% higher at the midpoint than last year’s budget. The firm still intends to run three rigs and two completion crews, but it will drill and bring online fewer wells, and the average lateral length of its 2023 wells will be slightly shorter, as well. Shares traded sideways on the day of the release.

The optics of doing less with more are not ideal, but growth is not the game plan for this company. The firm is intentionally capping capital spending at maintenance levels to maximize near-term free cash flow, which it has been using to reduce leverage and fund share repurchases. It bought 25 million shares in 2022, reducing the float by 7%, and net debt to annualized EBITDA was a robust 0.5 times at the end of the fourth quarter. That gives management plenty of flexibility to execute its plan to return 50% of free cash to shareholders in 2023.

Further, while 14% inflation sounds unpalatable it is more manageable than what some upstream peers have been grappling with, particularly on the oil side. It’s higher than the 10% we were allowing for, though, and the incremental uptick, coupled with a further decrease in natural gas prices since our last update, brings our fair value estimate to $23 per share from $25.