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Antero IPO Rumored as Marcellus-Focused Output Triples
Antero Resources LLC, the Appalachian Basin-focused powerhouse powered by private equity giant Warburg Pincus, said last week net production in 1Q2013 jumped 114% year/year and increased 21% sequentially, primarily driven by 24 new wells brought online in the Marcellus Shale.
The Denver-based producer, rumored to be preparing an initial public offering (IPO) that could be worth up to $10 billion, has 16 operated wells running in the Marcellus and Utica formations. Almost all (97%) of the proved reserves are in the Marcellus, and 25% of total output is liquids.
According to Antero, total production in 1Q2013 averaged 383 MMcfe/d. Liquids output, which only started up over the past year, averaged 2,392 b/d, 166% higher than in 4Q2012. Natural gas accounted for most of the output (96%), at 369 MMcf/d, while natural gas liquids (NGL) captured 3% and crude oil was 1%. Net production in 1Q2013 of 34 Bcfe included 33 Bcf of gas, 205,000 bbl of NGLs and 10,000 bbl of oil.
Natural gas sales increased 170% year/year to $122 million, while NGL sales (not a contributor in 1Q2012) added $10.6 million. Oil sales soared, up 1,727% to $877,000 from $48,000. Lease operating expenses were significantly higher, rising 55% in 1Q2013 to $1.07 million from $693,000 in 1Q2012.
Average natural gas prices before hedges increased 31% year/year to $3.67/Mcf and average natural gas-equivalent prices before hedges increased 38% to $3.87. Average realized gas prices including hedges decreased by 10% from a year ago to $5.13/Mcf. Average gas-equivalent prices including NGLs, oil and hedges, fell 8% to $5.26/Mcfe.
Per-unit production costs were higher year/year at $1.47/Mcfe from 99 cents, which Antero attributed to an increase in midstream costs because it included gathering fees not included a year ago. A joint venture formed by Crestwood Midstream Partners LP last year bought Antero’s Marcellus gathering system in northern West Virginia, and Antero agreed to provide midstream services for Crestwood within 104,000 net acres.
In the Marcellus, where Antero has 312,000 net acres, with only 19% considered proved reserves at year-end 2012, 14 rigs are running in northern West Virginia, and a 15th rig is expected in late June. Antero currently has 560 MMcf/d of gross operated production in the play, mostly from 160 horizontal wells, with estimated net production of 479 MMcfe/d. Another 26 horizontal wells are either in the process of completing or waiting on completion, and there are dedicated hydraulic fracturing crews.
The Marcellus wells completed and placed online to date have averaged 24-hour peak rates of 13.7 MMcf/d, an average estimated ultimate recover of 10.5 Bcfe assuming ethane rejection, and an average lateral length of about 7,000 feet.
In the Utica Shale in Ohio, where Antero has an estimated 92,000 net acres, two drilling rigs are operating. Estimated net production is 35 MMcfe/d, including 2,300 b/d of NGLs and condensate “that is shut-in waiting on infrastructure associated with two wells completed during 2012 and three recently completed wells.” All together, six horizontal wells have been completed. Four more wells have been drilled; two are being completed.
Antero has an agreement with MarkWest Utica EMG LLC to provide marketing services in the liquids rich/condensate window of the Utica Shale play, and the midstreamer currently is building the Seneca processing complex in Noble County, OH. Seneca I, a 200 MMcf/d cryogenic gas processing facility, and Seneca II are expected to ramp up later this year.
Rumors have surfaced that Warburg is pondering an IPO for Antero. According to Reuters, Barclays plc, JP Morgan Chase & Co. and Citigroup Inc. are to lead the transaction, and it could be publicly traded later this year. Warburg initially invested in Antero in 2003, and at that time, the operator bought a lot of Barnett Shale leases. In 2005, it sold the Barnett assets to ExxonMobil Corp. subsidiary XTO Energy for close to $1 billion. Warburg then financed the move into the Appalachian Basin.
Antero recently increased its bank credit facility to $1.75 billion, a $530 million increase over its previous borrowing base. Lender commitments also were increased by $500 million to $1.2 billion. At the end of March Antero had $404 million drawn under its credit facility and $32 million of outstanding letters of credit, resulting in $764 million of available liquidity and more than $1.3 billion of unused borrowing capacity.
Meanwhile, Warburg in early May closed a $11.2 billion global fund, one of the largest private equity funds raised since the financial crisis in late 2008. Warburg Pincus Private Equity XI LP is to invest in “growth companies” within its key industry sectors. Warburg’s model has been to partner with management teams to build companies. Antero, for example, was formed in 2002 by former executives with Barrett Resources (sold to Williams in 2001) and Pennaco Energy (sold to Marathon Oil Corp.) Warburg came in with financing for Antero initially in 2003.
Net income from continuing operations moved to the red column in 1Q2013 to a loss of $47.9 million from year-ago profits of $287.5 million. Adjusting for the one-time items, net income was $41.7 million versus $24.3 million. Operating income also was in the red at minus $48.5 million from year-ago profits of $510.3 million. Cash flow fell to $100.5 million from $110.2 million. Revenues in the latest quarter plunged year/year by 89% to $61 million from $553 million in part because of a $120 million hedging loss and on the sale of some Marcellus midstream properties. In the latest period, liquids production contributed 9% of sales before hedges, compared with less than 1% of total sales in 1Q2012. Adjusting for one-time items, net revenues nearly doubled (97%) to $182 million.
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