Analyst Note| Stephen Ellis |
After rolling our model to 2021, refreshing our model for the latest oil and gas prices, and incorporating its partnership agreement with QL Capital Partners, we are increasing our fair value estimate for Antero Resources to $7.50 from $3.75 per share. Our no-moat rating remains unchanged, as does our extreme uncertainty rating. Given Antero's leverage, our fair value estimate is very sensitive to near-term prices, but also changes in leverage. About $2 per share of our fair value increase was linked to the increase in oil and gas prices. The other significant contributor was the decrease in long-term debt (about $2 per share), and the increase in the value of Antero's stake in Antero Midstream (about $0.50 per share). The changes were slightly offset by lower expected production due to the various asset sales and agreements Antero has signed recently.
The QL Capital Partners partnership is a good deal, in our view, as it lowers Antero's cost position beginning in 2022, while also providing substantial free cash flow upside in a healthy oil and gas price environment. We expect Antero to be able to rapidly deleverage in this environment and be below 2 times net debt/EBITDA later in 2021.