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Antero Midstream IPO Fetches $1 Billion in Debut

Antero Resources Corp. saw its fortunes rise on Wednesday when it completed the initial public offering (IPO) of its midstream master limited partnership (MLP), raising $1 billion in one of the largest such debuts to date.

The company set the terms of the Antero Midstream Partners LP IPO last month and 40 million units were launched Wednesday at $25 each -- well above the $19-21 range it forecasted (see Shale Daily, Oct. 27). The MLP closed at $28.03 on Wednesday after its first day of trading under the symbol "AM" on the New York Stock Exchange.

"It was a great outcome for us and the market response was tremendous," said CFO Glen Warren during a conference call on Thursday to discuss third quarter results.

The proceeds could ultimately grow, however, if underwriters exercise their 30-day option to purchase up to 6 million additional units. The MLP will own all of the company's midstream assets and handle gathering and compression services across a majority of Antero's position in West Virginia and Ohio, where acreage and production both increased substantially in the third quarter.

Antero management said Thursday that the company had acquired an additional 32,000 net acres in the Appalachian Basin since July for $279 million, with the addition of 17,000 net acres in West Virginia's Marcellus Shale and another 15,000 net acres in Ohio's Utica Shale. That ballooned the Appalachian pure-play's total leasehold in the basin to 520,000 net acres.

Year-over-year production increased considerably in the third quarter by more than 90%, going from just 566 MMcfe/d in 3Q2013 to nearly 1.1 Bcfe/d last quarter (see Shale Daily, Oct. 16; Nov. 8, 2013). The gain was driven partly by average lateral lengths of 7,900 feet -- among some of the longest in the basin -- and a larger portion of wells completed with short stage lengths of about 200 feet (see Shale Daily, July 16; Feb. 27)

CEO Paul Rady also continued to highlight the company's firm transportation portfolio as he has during other recent quarterly calls. About 59% of the company's gas was sold to favorable markets, which helped lift Antero's realized commodity prices above those of its peers, some of whom are struggling with depressed natural gas prices and widening basis (see Shale Daily, Nov. 5; Oct. 30; Oct. 28; Oct. 24). Rady said the company continued to add to its firm transportation last quarter, bringing it to 4 Bcf/d between current and future agreements. Antero is currently selling some of that capacity to third parties.

Before hedges, Antero's realized natural gas price was $3.63/Mcf -- a 43 cent negative differential to the New York Mercantile Exchange average. But thanks in large part to its firm transportation portfolio, hedges and the btu content of its gas, after derivatives, the company gained a 25 cent premium to NYMEX during the quarter, selling its gas for $4.31/Mcf. That was still down, however, from the $4.81/Mcf it earned with hedges last year at the same time. 

"In the fourth quarter, we expect an increase in the percentage of gas sold to favorable markets to 65%, and that's compared to the 59% in the third quarter," Warren said. "This is due to a combination of higher expected fourth quarter Utica production volumes that are able to access the Chicago market through the [Rockies Express pipeline].

"Due to our hedges and increasing hedge position for 2015, we don't see any need to pull back on our capital budget," Warren added.

For now, the company will continue running 15 rigs between Ohio and West Virginia and its preliminary 2015 budget is set at $2.3-2.5 billion, which would remain roughly unchanged from this year.

Adjusted net income for the third quarter was $72 million (27 cents/share), up from the $49 million (19 cents/share) it reported in the year-ago period.

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