Author Topic: AR - Antero Resources  (Read 7782 times)

samwise

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Re: AR - Antero Resources
« Reply #20 on: July 09, 2019, 08:10:27 PM »
Samwise, you mentioned previously that you took a bigger position in AM. Does this mean that you believe that there is a good chance that AR will go bankrupt? I am just trying to figure out why you would buy AM instead of AR.
No I donít think AR has a good chance of bankruptcy, although with commodities anything is possible.
I just think AM does well in almost any scenario and itís income doesnít depend on commodity prices directly. Management owns more dollars in it than AR. ARís commitment to growth benefits AM. So it is  safer bet.

AM has only one client, so instead of comparing to other mid streams, itís best to think of it as a sort of preferred equity of AR. But with growth, management alignment, and bankruptcy protections by contract (hard to reject contracts depending on state law) and business needs (Who else will lay pipe where it already exists).

The rejection of gathering systems contracts seems to be a hot legal topic, but I am out of my depth. Anyone curious can start with this link: https://www.gibsondunn.com/in-the-pipeline-understanding-post-sabine-midstream-contract-rejection-risk/

Contract renegotiation risk without bankruptcy is minimal while the same management runs both companies and has more dollars invested in AM.

The worst case I can construct is this: I buy AM at a 10% earnings yield, it grows at 18% for at least a couple of years to 13.5%. Note this is earnings yield, but dividend yield will be lower. Then assume AR goes bankrupt in 2021 when itís senior notes are due. The debtors are able to reject the contract in Pennsylvania law (can they? uncertain since the link above says it depends on state laws), and uses that leverage to bargain for a lower rate which lowers earnings from the 13.5% level to a lower level. But it would not make business sense to lay pipes again, so they would not be able to lower rates too much. (ARq would need AM to sell their gas). Dividends get cut along the way. As I said this scenario seems pretty unlikely, and you still do ok. Most other cases you get a growing 10% dividend yield with possible upside in price. Happy to hear any feedback.



given2invest

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Re: AR - Antero Resources
« Reply #21 on: July 10, 2019, 07:34:46 AM »
As someone who understands none of this stuff, I think you looking at it right way and understand the incentives. 

I prefer to own both though AR just goes down every day.

mwtorock

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Re: AR - Antero Resources
« Reply #22 on: July 10, 2019, 10:33:15 AM »
what if there is enough pressure from AR shareholders to amend contracts with AM? no doubt of management conflict of interests as they hold AM more than AR.

samwise

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Re: AR - Antero Resources
« Reply #23 on: July 11, 2019, 04:02:08 AM »
what if there is enough pressure from AR shareholders to amend contracts with AM? no doubt of management conflict of interests as they hold AM more than AR.

AM has different shareholders who would want the contracts to be kept. AR cannot unilaterally amend them except possibly reject in bankruptcy and force a renegotiation.

Btw itís not clear that the contracts are above market rates.

mwtorock

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Re: AR - Antero Resources
« Reply #24 on: July 31, 2019, 07:19:37 AM »
« Last Edit: July 31, 2019, 07:21:51 AM by mwtorock »