NEW YORK (TheStreet) -- Very few energy companies have managed to consistently grow their production at over 50% over the last couple of years. Fewer still have given production growth forecast that exceeds 50%. A little-known shale gas producer which debuted on the stock market less than a year ago, Antero Resources (AR - Get Report), has managed to do both.
But is it a buy?
The shale gas boom in the U.S. is responsible for the creation of several energy companies. The biggest among them has been Chesapeake Energy (CHK), the nation’s second-largest natural gas producer, which holds nearly 13 million acres of land spread across eight states. However, the markets have rewarded companies that focus on producing from fewer but higher-quality assets, as Antero does.
Antero holds just 493,000 net acres in the Marcellus Shale in northern West Virginia and southwestern Pennsylvania and the Utica Shale in eastern Ohio, which makes it more than 20 times smaller than Chesapeake. However, in terms of market cap, Antero is valued at $14.8 billion, a full 84% of the valuation of Chesapeake, worth $17.6 billion.
That said, Antero’s shares have performed poorly this year, falling by 12.4% for the year to date. As of 11:45 a.m. on Wednesday, shares were trading for $55.52.
Despite the drop, Antero’s stock is priced 22 times its consensus earnings estimate for 2015, as per data compiled by Thomson Reuters. On the other hand, its peers CONSOL Energy (CNX), Chesapeake, Cabot Oil and Gas (COG), Gulfport Energy (GPOR), EQT (EQT) and Range Resources (RRC) are trading at an average of 28 times their 2015 earnings estimates.
Moreover, some of Antero’s growth has been fueled by debt. Consequently, the company’s long-term debt has climbed 62% from the end of last year to $3.37 billion, or 95% of its equity by the end of June. By this metric, the company is significantly more leveraged than any of its competitors.
According to the U.S. Energy Information Administration, the Marcellus shale is responsible for producing more shale gas than any other region in the country, while Utica is one of the fastest-growing natural gas production areas. Antero’s acreage at both of these regions lies at the sweet spot, or the most promising part, of the plays. Antero’s proven reserves now stand at 9.1 trillion cubic feet of gas equivalents, of which 93% are located in Marcellus while 6% are in Utica.
The market has rewarded Antero partly because the company has been able to grow its production and reserve base at an average annual rate of 58% and 33%, respectively, between 2010 and 2013, largely due to an increase in output from Marcellus. Consequently, Antero reported a 48.6% per year increase in its earnings before interest, taxes, depreciation, amortization and exploration expenses, or EBITDAX, in the corresponding period. Moreover, the company has shown in its latest quarterly results that it isn’t slowing down.
Antero announced its second quarter results last Wednesday. Revenue, excluding the impact of derivatives, more than doubled from the same quarter last year to $436 million, as its output climbed 94% to 891 million cubic feet of gas equivalents a day. During July, the company also touched a milestone of producing at an average of 1 billion cubic feet of gas equivalents a day.