This Growth Stock Is Keeping Its Foot on the Gas (Which Could Fuel Big-Time Returns for Investors)

Antero Resources (NYSE: AR) is one of the fastest growing natural gas producers in the country. Last year, it increased production 18% even though gas prices slumped for most of the year before spiking as temperatures plunged at the end. That said, while natural gas prices were mostly down, Antero Resources' profitability grew because it's among the lowest-cost producers in the country.

In fact, its costs are so low that the company is on pace to continue expanding production at a healthy clip through 2022. That fast-paced growth positions the company to produce a gusher of free cash flow in the coming years -- assuming relatively modest oil and gas prices -- which makes it a top natural gas stock.

Drilling down into Antero's plans

Antero Resources recently unveiled its five-year plan. For 2018, the natural gas driller said it expects to spend $1.3 billion on new wells, which puts it flat with last year. Further, the company noted that it could fund this spending level with internally generated cash flow even if oil and gas prices slip a bit from their current levels. That's enough money to increase its output another 20% over last year's level.

However, that's just the start. The company believes it can maintain that 20% annual production growth pace through 2020 while spending at its current level, and that it can increase output another 15% per year in 2021 and 2022. Given that outlook, the company's plan would produce a whopping $1.6 billion in free cash flow through 2020, assuming current oil and gas pricing, and $2.8 billion if oil averages $60 a barrel and natural gas is at $2.85 per Mcf. For an industry that had a history of spending everything that came in, and then some, this expectation that it will start generating excess cash flow is excellent news for investors.

From a mad dash to creating value

Despite its fast-paced growth since going public in 2013, Antero Resources has yet to create any value for investors given that its stock has plunged more than 60% over that timeframe. That's due to several factors, including slumping oil and gas prices, and the weight from the debt and new shares Antero took on to expand its resource base and production. For example, in 2016, the company issued $762 million in new shares to help fund the acquisition of 55,000 net acres in the Marcellus Shale from Southwestern Energy (NYSE: SWN) for $450 million and to drill more wells. That deal helped Southwestern Energy pay down debt while bolstering Antero's already extensive position in the Marcellus.

However, those days of spending money just to grow appear to be in the rearview mirror given Antero's plan to generate significant excess cash in the coming years. The company has several options for that money, including returning it to investors. If it goes that route, it could provide a big-time boost to shareholder value. For perspective, with just a $6.24 billion market cap, Antero could repurchase nearly half its stock over the next five years if it's successful in generating $2.8 billion in free cash flow and the stock price doesn't budge from here. That said, it seems highly unlikely that shares won't move higher once it starts generating excess cash and returning that value to investors through share repurchases, and maybe even a dividend.

That's apparent given what happened with fellow fast-growing gas producer Cabot Oil & Gas (NYSE: COG) after it started sending more money back to investors last year. In May, the company announced a 150% increase in its dividend, which CEO Dan Dinges called "a first step" in the company's plan to return its growing free cash flow to investors. The company followed that up by repurchasing $68.3 million of its stock in the second quarter. Those two fuels helped drive Cabot's stock up 28.9% last year, making it one of the best-performing energy stocks of 2017. Meanwhile, Cabot announced another 20% dividend increase for 2018 and is on pace to generate about $2.5 billion in free cash flow over the next three years -- even as it increases production by a double-digit annual rate -- giving it a war chest to repurchase more shares. The combination of production growth and growing cash returns should provide Cabot with the fuel to continue increasing shareholder value in the coming years.

Hitting the accelerator

Antero Resources spent its first five years as a public company spending heavily to build out its resource base. However, it plans on using the next five years to extract as much value out of those resources as possible, with its current strategy putting it in the position to generate more than $1.6 billion in free cash flow, which it can use to gobble up a significant chunk of its lower-priced shares. It's a plan that has the potential to create tremendous value for investors in the coming years as long as natural gas prices cooperate.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.