IPO Preview: Antero Resources

Oct. 9.13 | About: Antero Resources (AR)

Based in Denver, CO, Antero Resources (NYSE:AR) scheduled a $1.2 billion IPO with a market capitalization of $10.2 billion at a price range mid-point of $40 for Thursday, October 10, 2013.

Seven IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

S-1 filed September 30, 2013

Manager, Joint Managers: Barclays; Citigroup; J.P. Morgan; Credit Suisse; Jefferies; Wells Fargo Securities

Co-Managers: Morgan; Tudor, Pickering, Holt; Baird; BMO Capital; Capital One Securities; Raymond James; Scotiabank; Howard Wei; Credit Agricole CIB; KeyBanc Capital Markets; Mitsubishi UFJ Securities; BB&T Capital Markets; Comerica Securities

Summary

AR is in the natural gas and oil exploitation & development business in what it believes are two of the premier North American shale plays.

AR is on a fast ramp-up growth path.

For the six months ended June 30 '13 vs June 30 '12 operating revenue was up 261% to $325 million from $90 million.

Valuation

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing reported june 6 mos

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Antero Resources

$10,160

11.3

61.2

3.5

3.5

12%

Click to enlarge

Glossary

Conclusion

Based on the fast ramp-up of operating revenues, recent increases in reserves, and a large number of potential wells, the rating on AR is a buy on the IPO.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:

Business

AR is an independent oil and natural gas company engaged in the exploitation, development and acquisition of natural gas, NGLs and oil properties located in the Appalachian Basin in West Virginia, Ohio and Pennsylvania.

AR is focused on creating shareholder value through the development of a large portfolio of repeatable, low cost, liquids-rich drilling opportunities in two of the premier North American shale plays.

AR currently holds 329,000 net acres in the southwestern core of the Marcellus Shale and 102,000 net acres in the core of the Utica Shale.

In addition, AR estimates that 170,000 net acres of its Marcellus Shale leasehold are prospective for the slightly shallower Upper Devonian Shale.

Finally, AR owns the deep rights on a portion of its Marcellus Shale acreage in West Virginia that AR believes is prospective for the dry gas Utica Shale.

AR believes its full cycle drilling, completion and operating costs on a per unit basis are among the lowest in the Marcellus Shale and the industry as a whole.

Reserves & drilling locations

As of June 30, 2013, estimated proved, probable and possible reserves were 6.3 Tcfe, 14.0 Tcfe and 7.4 Tcfe, respectively. Tcfe is one trillion cubic feet of natural gas equivalent.

Proved reserves were 23% proved developed and 91% natural gas, assuming ethane rejection.

As of June 30, 2013, drilling inventory consisted of 4,576 identified potential horizontal well locations, 64% of which are liquids-rich drilling opportunities.

Capital budget

AR's 2013 capital budget is $2.45 billion, including $1.45 billion for drilling and completion, substantially all of which is allocated to operated drilling in liquids-rich gas areas.

As of June 30, 2013, AR had spent $1.2 billion of its 2013 capital budget

Recent Operating Developments

Estimated current net daily production is 640 MMcfe/d, including 11,500 Bbls/d of NGLs and oil. Mmcfe/d is one million cubic feet of natural gas equivalent per day.

Estimated current net daily production in the Marcellus Shale is 555 MMcfe/d, including 7,400 Bbls/d of NGLs and oil. Estimated current net daily production in the Utica Shale is 85 MMcfe/d, including 4,100 Bbls/d of NGLs and oil.

Current net daily production represents the average net daily production for the period from September 1, 2013 through September 25, 2013.

Midstream Infrastructure

AR has invested a significant amount of capital in building low- and high-pressure gathering lines, compression facilities and water pipeline systems. AR currently owns and operate 103 miles of gathering pipelines and has contracted access to an additional 94 miles of gathering pipelines in the Marcellus and Utica Shales.

AR also owns and operate four compressor stations and has firm access to nine additional third-party compressor stations in the Appalachian Basin.

AR has additional gathering pipelines and compressor stations under construction to support planned drilling activities in the Marcellus and Utica Shales.

Dividend policy

No dividends

5% shareholders pre-IPO

Antero Resources Investment LLC, 100%. Antero Resources LLC was formed in October 2009 by members of the management team and the Sponsors,

Antero Investment will directly own 88.2% of AR's common stock.

Organization chart

About Antero Investment

Antero Investment is primarily owned by investment funds affiliated with or managed by Warburg Pincus LLC, Yorktown Partners LLC and Trilantic Capital Partners, or collectively, the Sponsors, and certain members of the management.

Warburg Pincus LLC is a leading global private equity firm focused on growth investing. The firm has more than $40 billion in assets under management. Its active portfolio of more than 125 companies is highly diversified by stage, sector and geography. Warburg Pincus is an experienced partner to management teams seeking to build durable companies with sustainable value. Founded in 1966, Warburg Pincus has raised 13 private equity funds which have invested more than $45 billion in over 675 companies in more than 35 countries. Since the late 1980s, Warburg Pincus has invested more than $6 billion in energy and natural resources companies around the world. In addition to Antero Resources LLC, notable energy investments for which the firm was lead and/or founding investor include Bill Barrett Corporation (NYSE: BBG), Encore Acquisition Company (since acquired by Denbury Resources (NYSE:DNR)), Kosmos Energy Ltd. (NYSE: KOS), Laredo Petroleum Holdings, Inc. (NYSE: LPI), MEG Energy (TSX: MEG), Newfield Exploration (NYSE: NFX), Spinnaker Exploration (since acquired by Norsk Hydro/Statoil (OTCQX:NHYKF)) and Targa Resources (NYSE: NGLS, TRGP). The firm is headquartered in New York with offices in Amsterdam, Beijing, Frankfurt, Hong Kong, London, Luxembourg, Mumbai, Port Louis, San Francisco, Sao Paulo and Shanghai.

Yorktown Partners LLC is a private investment manager investing exclusively in the energy industry with an emphasis on North American oil and gas production, and midstream businesses. Yorktown has raised 10 private equity funds totaling over $6.5 billion. Yorktown's investors include university endowments, foundations, families, insurance companies, and other institutional investors. The firm is headquartered in New York.

Trilantic Capital Partners is a global private equity firm focused on control and significant minority investments in North America and Europe with primary investment focus in the business services, consumer, energy and financial sectors. The firm currently manages four institutional private equity funds with aggregate capital commitments of $5.7 billion. Trilantic has offices in New York, London, Guernsey and Luxembourg.

Use of proceeds

AR expects to net $1.14 billion from its IPO

Proceeds are allocated to repay debt.

Disclaimer: This AR IPO report is based on a reading and analysis of AR's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.