Investors were unforgiving of Antero Resources Corp.'s second-quarter earnings miss Aug. 3, while analysts on the company's earnings call worried about the impact of Rover Pipeline LLC's construction delays on Antero's plans to sell gas and liquids from new wells in Ohio's Utica Shale.
Antero reported a slight loss for the second quarter, 4 cents per share after stripping out one-time items, while Wall Street was expecting 3 cents in adjusted profits, according to the analyst consensus compiled by S&P Capital IQ. On an all-in basis, Antero said it lost $5.1 million in the quarter, a sharp reduction from the $569 million loss it posted in the same quarter a year ago.
Antero's shares dropped 4% to $19.02, near a 52-week low, at the opening bell, and by mid-afternoon, shares were trading at $19.03. "Given the merciless selling on earnings misses and lowered guidance, this earnings season, we anticipate significant weakness in shares today," Stifel Nicolaus & Co. Inc. gas analyst Derrick Whitfield warned his clients.
"Negative quarter with an improved outlook," Capital One Securities Inc. analyst Brian Velie told his clients. "The second quarter missed Street estimates with weaker realized pricing and net marketing expenses of 14 cents/Mcfe which exceeded the high end of the company's guided range of 7.5c-12.5c per Mcfe."
Although Antero was able to increase its guidance for future production by 3%, to 2.3 MMcfe/d, without saying it would spend any more capital than planned, the new number was well within analysts' expectations for growth, according to S&P Capital IQ.
While the bulk of future production gains is expected to come from better West Virginia Marcellus wells and recoveries, some of the new gas is slated to come from new wells in Ohio's Utica shale, and analysts worried that the product might have trouble getting to market without the completion of Energy Transfer Partners LP's delayed Rover Pipeline project. Rover runs through the heart of Ohio's Utica Shale and is the hoped-for path out of the play for Antero's gas. Antero is drilling six new wells in Monroe County, according to the Ohio Department of Natural Resource's database, and has permits for five more there.
"Those Utica wells and pads are being drilled now, and so we're timing the completion to dovetail with Rover phase one as it arrives at Seneca [lateral in Ohio]," CEO Paul Rady told analysts. "Our latest estimate — obviously we're in contact with Energy Transfer on the Rover project, as well as with regulatory people on the other side — you see that the project is moving forward. We expect Rover phase one to get to Seneca in September, October. So we'll time the completion of our pads there in the Utica to that. And then we would expect Rover phase two — it's probably a month or two behind that, so we're thinking October, November for phase two to come to Sherwood [W.Va.]."
"Certainly, we'll have plenty of production that will be moving through Phase two Rover when it arrives in the third and fourth quarters," Rady said. Seneca is affiliated with Antero Midstream Partners LP's gas processing complex in southeast Ohio. Sherwood is Antero Midstream's West Virginia processing complex. The affiliate handles upstream Antero Resource's and other customers' gathering and processing needs in West Virginia and Ohio.
Rover construction missteps, FERC's responses and the project's expanding timeline are at the center of gas market discussions from Texas to New York and Ontario. Gas producers and traders are making financial plans based on the 3.25 Bcf/d of gas that are to be shipped out of the Appalachian shales to Midwest and Canadian markets, while financial analysts are keen to see the $4.2 billion project start generating the promised hundreds of millions of dollars in annual EBITDA. Other project developers are also closely monitoring FERC's process and environmental groups' backlash to the 511-mile project's issues. (FERC docket CP15-93)