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'No silver bullet' for Antero's balance sheet, CFO says

Antero Resources Corp. executives reiterated the Appalachian driller's commitment to slashing debt amid low natural gas and NGL prices, just days after Moody's lowered the company's corporate family rating and changed its outlook to negative due to increased refinancing risks.

The $750 million to $1 billion Antero expects to generate through asset sales in 2020 are targeted at reducing "absolute debt" from $3.9 billion to under $3 billion, according to Antero President and CFO Glen Warren.

"We think that's really necessary," he said during a Dec. 16 investor conference call held by Scotiabank. "In this market it just doesn't pay to have leverage in the mid-twos that can flex to 3x with low commodity prices. We'd really like to have less leverage than that."

Antero on Dec. 9 announced plans to unload a combination of lease acreage, minerals, producing properties, hedge restructuring or Antero Midstream Corp. shares, alongside a renegotiation of Antero Midstream's gathering and processing fees. While investors rewarded both companies on the stock market, however, Moody's downgraded Antero to Ba3 from Ba2.

"Despite putting forward a concrete plan to comprehensively address its cost structure and balance sheet issues, there are risks that the continuation of poor natural gas prices, depressed asset valuations, and a challenged capital market environment could delay and potentially limit Antero's ability to close these transactions as planned," Moody's senior analyst Sajjad Alam said.

Warren, on the other hand, said the strategy keeps pace with a production environment mired in slower volume growth forecasts and depressed prices.

"There's no silver bullet in these markets," he said. "It's incremental moves."

When it comes to renegotiating third-party midstream contracts, meanwhile, Antero said it is cautiously optimistic about further cost reductions.

"I think each of these midstream providers understand that … [Antero Resources] wants to keep them healthy for the long term," Paul Rady, who serves as chairman and CEO for both Antero and Antero Midstream, said during the call. "I would risk it at fifty-fifty that some of these discussions might lead to more agreements. … We're hopeful, but no promises."

Even if no more agreements are reached, Antero management is still comfortable with how much cash Antero Midstream is funneling to investors, Warren added.

"You have EBITDA and [distributable cash flow] that continue to grow, your leverage is in the mid-threes and your coverage is increasing from 1.1x up to 1.3x, so that's definitely not a profile that you'd expect a dividend to be reduced under," he said.

Some industry analysts and investors, however, have criticized pipeline companies for basing their financial earnings on those metrics instead of GAAP measures like return on invested capital, earnings per share and free cash flow. This means that results often indicate solid financial performance even if stock prices are low.