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In a Dec. 19 research note, analyst John Freeman reported that Raymond James downgraded Antero Resources Corp. (AR:NYSE) to an Underperform rating from an Outperform, generally due to a bleaker outlook for oil and natural gas prices.

Specifically, Raymond James in the short term remains bearish on natural gas and lowered its price forecast for oil, Freeman wrote. Also, the financial services firm noted the current prices Antero is getting for its natural gas “are not as attractive.”

Another factor in the downgrading of Antero is that it, future commodity prices aside, may not meet its projected $1.6 billion of free cash flow through 2022 because doing so hinges on the company achieving certain efficiencies and successfully marketing its excess capacity in 2020. “These issues would obviously intensify with any decrease in activity,” Freeman pointed out.

In other news, the analyst relayed, Antero announced on Dec. 18 “a hedge monetization consisting of $235 million from the unwinding of 68% of April through December natural gas swap volumes next year (replaced with collars) and $122 million from the resetting of 2020 swap contacts from $3.25 to $3, with the $357 million of total proceeds being used for debt reduction.” However, the effect of this transaction is that cash gets pulled from future periods to the present. To reflect the financial move, Raymond James updated its model on the energy company.

Finally, Freeman noted that Antero released production guidance for Q4/18, which is about 400 million cubic feet of unhedged gas. Further, the company projects that with the launch of the Rover pipeline, about 30% of that volume will be sold to premium markets in the U.S. Midwest. Consequently, Raymond James revised its Q4/18 forecast on Antero as well, bumping up Q4/18 production and the premium to Henry Hub on natural gas.

Antero’s stock is currently trading at around $9.47 per share.
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Disclosures from Raymond James, Antero Resources Corp., December 19, 2018


Analyst Compensation: Equity research analysts and associates at Raymond James are compensated on a salary and bonus system. Several factors enter into the compensation determination for an analyst, including i) research quality and overall productivity, including success in rating stocks on an absolute basis and relative to the local exchange composite Index and/or a sector index, ii) recognition from institutional investors, iii) support effectiveness to the institutional and retail sales forces and traders, iv) commissions generated in stocks under coverage that are attributable to the analyst’s efforts, v) net revenues of the overall Equity Capital Markets Group, and vi) compensation levels for analysts at competing investment dealers.

The analyst John Freeman, primarily responsible for the preparation of this research report, attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers and (2) that no part of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this research report. In addition, said analyst(s) has not received compensation from any subject company in the last 12 months.

Certain affiliates of the RJ Group expect to receive or intend to seek compensation for investment banking services from all companies under research coverage within the next three months.

Raymond James & Associates, Inc. makes a market in the shares of Antero Resources Corporation.

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