By the time Antero Resources Corp. (NYSE: AR) closes its new $450 million Marcellus acquisition, the company will control more than half of the shale’s undeveloped southern rich gas.

It will have added 55,000 net acres from seller Southwestern Energy Co. (NYSE: SWN). It will likely have another rig in the field. And it could pick up a third party’s interests associated with the Marcellus acquisition, which include 13,000 net acres with 19% working interest.

“Overall, we think the transaction should be well received by investors and underscores Antero’s ambition to be a consolidator in the Marcellus-Utica,” said Pearce Hammond, senior research analyst for Piper Jaffray & Co.

Antero has said it plans a public offering of 26.7 million common shares for proceeds of about $750 million to pay for the transaction, development and other potential opportunities.

“This acquisition enables us to take a somewhat scattered position from the seller’s perspective and combine it with our current acreage position and blocks up the core areas,” Antero President and CFO Glen C. Warren Jr. said on a June 10 conference call.

For Southwestern, the deal marks a capitulation to market forces and debt. The 55,000 net acres Southwestern sold were characterized by Barclays as the “second-best” in Southwestern’s Appalachia portfolio.

Southwestern bought a portion of the acreage from Chesapeake Energy Corp. (NYSE: CHK) in December 2014 in a $4.9 billion deal. In its announcement of the Antero deal, Southwestern said it had no plans to drill on the properties “before 2023.”

“Southwestern will receive roughly $8,000 an acre on the deal for a portion of the properties it purchased from Chesapeake Energy. The average price per acre paid to CHK was about $13,000/acre in October 2014,” said Thomas R. Driscoll an analyst at Barclays.

Southwestern, under pressure to restructure its unsecured liabilities as it faces a “$1.7 billion maturity wall” in 2018, is severely diluting its per-share value, said Jonathan D. Wolff, analyst at Jeffries LLC.

Southwestern will use the $450 million in deal proceeds to repay a portion of its $750 million outstanding term loan, as required by the bank group. The company will continue suffering from high debt and restructuring challenges, which will lead to additional asset sales, Wolff said.

Southwestern recently said it was marketing 235,000 acres of its 425,000 net acreage in southwestern Pennsylvania.

“The remainder of the 235,000 acres that SWN has been marketing is generally in less prospective dry gas areas to the south and east with more than half of it in Marion, Randolph and Upshur counties, W.Va.” Driscoll said.

The acreage, which is 95% free of third-party dedications or commitments, will be fully dedicated to Antero Midstream (NYSE: AM) for gathering, compression, processing and water infrastructure. The transaction will increases Antero Midstream’s footprint and five-year investment opportunity set by 15%, to about $3.5 billion.

Antero’s Plans

Antero’s deal adds 41,000 net liquids-rich acres and 14,000 net dry gas acres to its West Virginia Marcellus position.

The assets currently produce about 14 million cubic feet equivalent per day (MMcfe/d) from the Marcellus Shale with 75% of the acreage holding Utica rights.

Antero said it will increase its 2017 production growth target to a range of 20% to 25%, up from 20%. The company also said that its gross undeveloped acreage in the high-graded core areas of the Marcellus is nearly double that of it next-closest peer.

In particular, Wetzel County, W.Va., is seen by Antero as a new platform for development and consolidation.

The county offers:

  • 22,000 core Marcellus liquids-rich net acres;
  • 11,000 high-graded dry net acres;
  • 18,000 highly prospective dry Utica acres;
  • 435 undeveloped Marcellus locations;
  • 300 high-graded liquids-rich locations;
  • 135 high-graded dry gas locations; and
  • 2.5 Tcfe of Marcellus unaudited 3P reserves.

“It is important to point out that a portion of those reserve estimates assume a 1.7 Bcfe type curve,” Antero Chairman and CEO Paul M. Rady said on a conference call.

More recent and advanced completions in Wetzel County have averaged 2.1 Bcf per 1,000 ft of lateral length, and third-party well results have exceeded those production levels, Rady said.

Antero also plans to add an additional rig which will focus primarily on Tyler County, W.Va. The company said it will see a small increase to its 2017 drilling and completion capital budget compared with 2016’s.

“The net present value of the additional acreage and well locations is much higher for Antero and its 7-rig drilling program [which is substantially secured by its hedge book] than it is for Southwestern’s zero-rig program,” said Brian Velie, an analyst at Capital One Securities.

Darren Barbee can be reached at dbarbee@hartenergy.com.