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Antero IPO Tops the Charts

Investors poured into onshore operator Antero Resources Inc. in its debut Thursday on the New York Stock Exchange, gaining more than 18% to close at $52.01. "AR," the most heavily traded stock of the day, saw more than 28.4 million shares trade hands.

Based on investor interest, Antero was estimated to be worth about $11 billion. The offering's proceeds are being used to pay down debt and fund its expanding exploration program, which has been narrowed to the prolific shales in Ohio, Pennsylvania and West Virginia.

Antero launched its initial public offering (IPO) earlier this month at a price of $38.00-42.00. However, investors were more interested than the exploration and production (E&P) company had expected. Antero instead opened a day earlier than scheduled at $44.00/share.

Antero is the second largest IPO to launch this year. Zoetis, formerly Pfizer Animal Health, is the only company with a higher debut. The initial $1.5 billion deal value is the largest U.S.-listed E&P IPO since Statoil ASA's $2.9 billion opening in June 2001, according to Dealogic.

The Denver-based E&P has become a "must-own" name because of its dominance in the Marcellus and Utica shales, said Miller Tabak & Co. analyst Adam Michael. "This is one of the highest-quality E&P companies I've seen, as far as the acreage position, in a while," said Westwood Holdings Group Inc. analyst Bill Costello. "They seem to be right in the sweet spot."

Over the past year Antero has become a pure-play operator in Appalachia, with about 329,000 net acres in the Marcellus, 102,000 in the Utica and about 170,000 in the Upper Devonian. It once held considerable assets in the Rockies, as well as the Woodford and Barnett shales, but no more.

With Warburg Pincus LLC's backing, Antero was launched in early 2003, helmed by CEO and Chairman Paul Rady and President and CFO Glen Warren Jr. The original company was sold to XTO Energy Inc. in April 2005. (XTO now is the U.S. E&P arm of ExxonMobil Corp.) Less than two years later, the second Antero was launched, again with Warburg's backing and again with Rady and Warren at the helm. Rady, a former Barrett Resources executive, had helped to create and then run Pennaco Energy Inc. beginning in 1998 until it was sold three years later to a Marathon Oil Corp. predecessor. Warren had been CFO at Pennaco.

Over the past five years Antero has sold nearly all of its assets outside the Northeast to concentrate on the Marcellus Shale and increasingly the Utica Shale. Funds to expand the drilling program came by selling off the Arkoma Basin assets, Piceance Basin properties and its midstream operations in Appalachia.

Antero now has 15 rigs operating in West Virginia, with Marcellus output averaging 555 MMcfe/d net. Of the 199 horizontals drilled in the Marcellus, 197 are online. It also is going back into the midstream business by building gathering facilities in West Virginia's Doddridge and Ritchie counties. Contracts with MarkWest Energy Partners LP and affiliates now process most of Antero's rich gas.

In the Utica, four rigs are operating and producing on average 85 MMcfe/d net. Eleven horizontal wells in Ohio are online.

Net output in 1Q2013 increased year/year by 114% and in 2Q2013, it rose 115% from 2Q2012. Proved reserves at midyear were 47% higher than in the first half of 2012. Antero's capital budget is $2.45 billion and at the end of June about $1.2 billion had been spent. Proved reserves at mid-year totaled about 6.3 Tcfe, a 47% increase from the end of 2012.

Private equity will continue to exert a lot of control over Antero, with Warburg affiliated funds holding more than 38% of the voting interests in Antero Resources Investment LLC, which owns 87% of the producer. Yorktown Partners LLC and Trilantic Capital Partners also own stakes.

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