Reuters reported earlier this month that privately held Haynesville producer Aethon Energy Management LLC may be exploring a sale, having a value of some $6 billion.

Fitch Ratings took a look inside Aethon Energy's Aethon United BR LP this month as part of its decision to affirm the business unit's issuer default rating at B and upgrade its senior unsecured notes to B+/RR3 from B/RR4, the agency announced Jan. 25.

Here’s a look inside Fitch’s affirmation and upgrade of Aethon United:

Leasehold. Aethon has two largely contiguous Haynesville leasehold positions, totaling 200,000 net acres, half in Louisiana and half in East Texas. “Fitch expects Aethon to continue to develop and manage its inventory of Northwest Louisiana drilling locations, which are in the more established portion of the Haynesville, and balance this with its East Texas acreage, which is in a more developing area of the Haynesville.”

Production. Third-quarter production was 765 MMcfe/d. Meanwhile, Haynesville pure-play Comstock Resources Inc.’s was 1.4 Bcfe/d; multi-basin Southwestern Energy Co., including Indigo Natural Resources and GEP Haynesville, 4.7 Bcfe/d; and multi-basin Chesapeake Energy Corp., including Vine Energy Inc., 3.4 Bcfe/d.

Hedge book. “Over 90% of Fitch estimated 2022 production is hedged as well as approximately two-thirds of 2023 production.”

Cash netbacks. “Aethon’s core position in the Haynesville produces competitive 3Q21 cash netbacks of $3.10/Mcfe,” Fitch reported. Netback for Comstock was $2.87 Mcf; for Southwestern, $2.38.

Free cash flow (FCF). Aethon was near FCF at year-end 2021 and is expected to operate within FCF this year. The determination is based on an average of $2.75 gas in 2023 and $2.50 thereafter (The 12-month strip early Jan. 26 was $4.05.)

“FCF is supported by an active [completion] program, which provides capital efficiencies and a compressed timeline to cash generation.”

Low debt. Aethon’s debt-equity over EBITDA forecast is 1.6x by year-end, then 1.5x. Undrawn capacity on its $850 million bank revolver at the end of 3Q21 was $312 million. Cash on hand is $83 million. Debt, otherwise, is $750 million of senior secured notes due 2026.

Fitch expects Aethon’s total debt leverage was 1.9x at year-end 2021, “which compares well with higher-rated peers at Southwestern (at) 2.8x, CNX at 2.0x and also favorably with B-rated peers Comstock and Ascent at 2.6x and 2.7x respectively at fiscal 2021.”

Infrastructure. Aethon has more than 1,100 miles of pipe and more than 80,000 HP of compression. Its new Thorn Lake pipeline and plant and its Bland Lake plant mean “Aethon can reduce its midstream capex spend going forward to largely maintenance capex of approximately $50 million annually.”

Valuation. Fitch used an enterprise value multiple of 3.5x EBITDA in rating Aethon. It’s based on “Southwestern Energy’s acquisition of Indigo Natural Resources at an approximated 3.85x forward multiple;” Southwestern for GEP Haynesville, 2.9x; and Chesapeake for Vine, 4.0x.

 (Editor's Note: An earlier version of this article did not clarify the Fitch rating is of Aethon United rather than the full company, Aethon Energy Management LLC.)  

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