ANTERO RESOURCES CORPORATION
Fitch Ratings has affirmed
Fitch has also affirmed AR's senior unsecured notes due 2026, 2029 and 2030 at 'BBB-'.
AR's rating reflects its significant production scale, large reserves and drilling inventory, low production costs, as well as conservative gross debt and leverage level. The company has firm transportation contracts that facilitate its natural gas and natural gas liquids (NGLs) sales from the Appalachian basin to hubs in distant regions, primarily the
The Stable Outlook assumes that the company will reduce its debt in 2024 after the debt increase in 1H23 driven by muted natural gas prices. Fitch expects that AR's leverage will remain below 1.5x at midcycle prices.
Key Rating Drivers
Liquids-Rich Natural Gas Producer: AR's 2Q23 output was 3.4 billion cubic feet of natural gas equivalent per day (bcfe/d), or 566 thousand barrels of oil equivalent per day (kboe/d), which represents significant scale of production supporting the rating. Natural gas share was 66%, ethane was 12%, liquefied petroleum gas (LPG) and heavier NGLs were 20%, and 2% was oil. AR has higher percentage of NGLs in its product mix than other gas-focused
Conservative Debt Policy: Fitch expects AR to generate around
Gas, Petrochemicals Price Exposure: AR's natural gas and ethane revenues substantially depend on changes in
Fitch expects an increase in natural gas prices in 4Q23 as the number of gas-focused drilling rigs has been declining in 2023. Ethane, propane and butane prices are subject to imbalances in the petrochemical markets, among other factors. LPG discount to crude oil was above average in 9M23 due to high inventories.
Strong Asset Base: The rating is supported by AR's 3 billion boe proved reserves with a 15-year proved reserve life, extensive acreage and drilling inventory in the core of the Marcellus and Utica shales. The company has low unit production costs and capex due to high well production rates. AR's 516,000 net acres are located across the Appalachian basin. As calculated by Fitch, AR's cash netbacks reached
Equity Stake in Midstream: AR retains exposure to midstream activities that have relatively stable revenue through the 29% interest in
Sizeable Midstream Costs: Gathering, processing and transportation expenses constitute by far the main cost item for AR. The company has modest unit lease operating costs, SG&A and taxes and above-average realized prices given the high share of NGLs. However, high midstream costs, which Fitch expects at
Fitch estimates that AR's netback would be considerably higher if AM was consolidated. Since the majority of transportation expenditures are firm commitments by AR and AM's tariffs are mainly rigid, AR's EBITDA margins are vulnerable to declining gas and NGL prices.
Marketing Loss to Decrease: AR has secured large transportation capacity to make sure it can ship its gas out of the Appalachian region to main consumption centers, including LNG plants. The company has contracts to sell all of its natural gas volumes out of basin. Currently, it has excess firm ship-or-pay transportation capacity that it provides to third parties. AR's marketing segment, which includes these operations, has been generating losses, eg, a
Fitch expects these losses to continue shrinking as the company's production volumes grow and some of its excess firm transportation contracts expire. AR should be better positioned than most of its gas-focused peers in a scenario involving gas transportation capacity shortage.
Lack of Hedging: AR does not hedge its sale prices and relies on low debt to navigate a stress scenario when natural gas prices fall substantially. This increases AR's exposure to a natural gas downcycles relative to peers. AR reflects hedges related to overriding royalty interests in its consolidated statements but they affect the results of non-controlling interests rather than AR's standalone cashflows.
Derivation Summary
AR is among the top
Fitch projects substantially lower end-2024 EBITDA leverage for AR than other peers: 0.6x for AR, 1.1x for EQT, 1.2x for SWN and 1.9x for CNX based on Fitch's current price deck. CHK is forecast to have 0.7x leverage, which is similar to AR.
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
WTI oil price of
Production of 3.4 bcfe/d in 2023, increasing by around 2% in 2024 and stagnating thereafter;
Capex of
No dividends or M&A transactions; excess FCF is utilized to reduce debt and buy back shares.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Significantly larger EBITDA scale;
Improvement in mid-cycle netbacks;
EBITDA leverage below 1x;
Gross debt reduction at or below
Factors that could, individually or collectively, lead to negative rating action/downgrade:
EBITDA leverage above 1.5x;
Change in stated financial policy that leads to higher absolute debt levels;
Weakening in differential trends and the unit cost profile;
Reduced availability of the RBL facility leading to weak liquidity.
Liquidity and Debt Structure
Sufficient Liquidity: At
Heavy Reliance on Leases: AR had
Issuer Profile
AR is natural gas, NGLs and oil producer. Company's shale upstream operations are based in the Appalachian basin of the
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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