Morgan Stanley Sees Antero Resources As 'Exposed To The Best Aspects Of Shale'

Morgan Stanley’s Drew Venker initiated coverage of Antero Resources Corp AR with an Equal-weight rating and price target of $29.

Attractive Attributes

Venker believes that “AR's exceptional hedge portfolio mutes commodity price risk while retaining exposure to the most attractive aspects of shale: efficiency gains and productivity enhancements.”

The analyst also noted that Antero Resources’ deep inventory offers the company scale to benefit from potential capital efficiency gains. However, these positives are offset by the company’s above average leverage.

Stock Upside

Given the stock 11 percent year to date outperformance, compared to its oil-weighted peers, Venker believes that the risk-reward is balanced at present, although there could be significant upside if Antero Resources “continues to deliver better well performance, lower well costs, and improved price realizations.”

Lowest Development Cost

The company delivered the lowest development cost in 2015 among its Marcellus-Utica peers at $0.64/Mcfe.

Venker believes that there could be potential for costs to decline further as “1) contracts for drilling rigs and completion crews roll off and it begins paying the lower market rate for these services and 2) Antero continues to increase its average lateral lengths, which generally improve capital productivity.”

Although there has been some concern regarding the company’s excess firm takeaway, the analyst noted that the cost was manageable at 4 percent of the estimated 2016 revenue. This could further decline to less than one percent of revenue by 2020, as Antero Resources continues to grow.