Investors rewarded Antero Resources Corp.'s asset sale announcement and the renegotiation of Antero Midstream Corp.'s gathering fees, boosting both companies' equity even as Appalachian gas prices stayed low.
Antero Resources said Dec. 9 that it plans to unload a combination of lease acreage, minerals, producing properties, hedge restructuring or Antero Midstream shares in 2020 that will shore up the independent driller's credit, which was downgraded by S&P Global Ratings to BB from BB+ in August.
The proceeds, which Antero Resources expects to range from $750 million to $1 billion, will be used to pay down the debt the producer acquired during its recent senior note repurchases. The program's first transaction was a $100 million sale of Antero Midstream units back to the pipeline company.
Antero Resources shares spiked as much as 20% in morning trading on Dec. 9, while Antero Midstream followed suit with a 14% gain.
Antero Resources also entered into several agreements that would cut its midstream-related costs by approximately $350 million over the next four years, including a growth incentive fee program with Antero Midstream, which should help the producer target a $375 million reduction in capital and operating costs for 2020.
"With these cost savings we now project being free cash flow neutral in 2020 and 2021 combined, and sustained positive free cash flow in 2022 and thereafter, assuming current strip pricing," Antero Resources Chairman and CEO Paul Rady said in a statement.
Scotiabank analysts wrote in a Dec. 9 note to clients that both companies' actions feel "like a win-win as the outlook improves in 2020 for both entities," and that the share repurchases would save Antero Midstream over $20 million in dividends next year.
The news comes as shrinking oil and gas production growth puts gathering and processing-focused pipeline firms in credit rating agencies' crosshairs going into 2020.
As of Dec. 6, Antero Resources had a mark-to-market hedge value of $780 million. The corporation also holds 584,000 net acres in the Appalachian Basin, along with 5,000 net mineral acres.
Goldman Sachs and Co. LLC along with Richards Layton & Finger served as the financial and legal advisers to Antero Midstream. Baird and Potter Anderson & Corroon served as the financial and legal advisers to Antero Resources.
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