Antero Resources’ capital structure spiked this morning after the E&P disclosed debt reduction and cash flow generation strategies for 2020 and onward, according to three sources familiar with the matter.

Sources are cautiously optimistic about the company’s new strategy, deeming it a step in the right direction. Still, aspects of the plan could be a reach considering the current environment for natural gas – especially an asset sale program targeting up to USD 1bn in proceeds.

For starters, Antero renegotiated midstream fees with Antero Midstream and other third-party providers. As a result, Antero Resources expects USD 350m of midstream fee reductions between 2020 and 2023, with the potential of more from the other providers. The company also expects USD 1bn-USD 1.1bn of reduced costs through G&A savings, increased blending operations and reduced trucking costs for flowback and produced water.

Meanwhile, Antero Resources bought back USD 215m of its outstanding 2021 and 2022 notes at an average price of 83 cents on the dollar, using proceeds from selling Antero Midstream shares back to the midstream entity.

As of 30 September, Antero Resources had USD 1bn of its 5.375% notes due 2021 and USD 1.1bn of its 5.125% notes due 2022. After those two maturities the company has a USD 750m 5.625% senior note due 2023 and a USD 600m 5% senior notes due 2025.

The 5.375% notes due 2021 traded today at 94.5 to yield 8.585%, up from trades at 91.875 to yield 10.199% on Friday. The 5.125% notes due 2022 trade more than 250bps wider, changing hands today at 84.9 to yield 11.237%, up from trades at 79.625 to yield 13.69%, according to MarketAxess.

Also today, Antero Resources announced an asset sale program target of USD 750m-USD 1bn for 2020 to go toward reducing debt. Management said asset sales could include lease acreage, minerals, producing properties, hedge restructuring or sale of AM shares to Antero Midstream.

The target is ambitious, especially considering the company’s assumptions for natural gas prices, two of the sources said.

“There are too many variables. Nat gas prices are lower today and predicted to stay at these levels in 2020. So valuations could be affected by those prices. Also, it depends on who’s buying these assets: strategics or private equity firms,” one of the sources said.

Natural gas prices fell today to USD 2.23 MMBtu, down 4.67% on the day, while the company’s assumptions for strip pricing are around USD 2.35 MMBtu. The market forecast for natural gas prices in 2020 is USD 2.25 MMBtu, two of the sources said.

Antero could sell some of its royalty interests like other E&Ps such as Range Resources, two of the sources said. Range has conducted several overriding royalty asset sales since October 2018.

“It’s their easiest option, but it depends on the valuation they get,” one of the sources said.

Sources still expect the company to burn roughly USD 270m of cash in 2020, based on USD 1.1bn of EBITDA, USD 1.2bn of capex and USD 170m of interest expense.

Its pro forma liquidity estimate for 31 December is USD 1.435bn consisting of availability under credit lines. The company reported that it had no cash balance as of 30 September.

Antero did not respond to a request for comment.

2019 Debtwire