Table of Contents
PartnersCapitalAbstract
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-38075
ANTERO MIDSTREAM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
61-1748605
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
1615 Wynkoop Street Denver, Colorado
80202
(Address of principal executive offices)
(Zip Code)
(303) 357-7310
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01
AM
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒
Accelerated Filer ☐
Non-accelerated Filer ☐
Smaller Reporting Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ Yes ☒ No
The registrant had 479,678,273 shares of common stock outstanding as of July 21, 2023.
TABLE OF CONTENTS
Page
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
1
PART I—FINANCIAL INFORMATION
3
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
26
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
38
Item 4.
Controls and Procedures
39
PART II—OTHER INFORMATION
40
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
41
SIGNATURES
42
Some of the information in this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. Words such as “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking statements, although not all forward-looking statements contain such identifying words. When considering these forward-looking statements, investors should keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q. These forward-looking statements are based on management’s current beliefs, based on currently available information, as to the outcome and timing of future events. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:
We caution investors that these forward-looking statements are subject to all of the risks and uncertainties incidental to our business, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, commodity price volatility, inflation, supply chain or other disruptions, environmental risks, Antero Resources’ drilling and completion and other operating risks, regulatory changes or changes in law, the uncertainty inherent in projecting Antero Resources’ future rates of production, cash flows and access to capital, the timing of development expenditures, impacts of world health events, cybersecurity risks, the state of markets for, and availability of, verified quality carbon offsets and the other risks described or referenced under the heading “1A. Risk Factors” herein, including the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”), which is on file with the Securities and Exchange Commission (“SEC”).
Should one or more of the risks or uncertainties described or referenced in this Quarterly Report on Form 10-Q occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
All forward-looking statements, expressed or implied, included in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.
2
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
December 31,
June 30,
2022
2023
Assets
Current assets:
Accounts receivable–Antero Resources
$
86,152
91,621
Accounts receivable–third party
575
550
Income tax receivable
940
Other current assets
1,326
795
Total current assets
88,993
93,906
Property and equipment, net
3,751,431
3,756,496
Investments in unconsolidated affiliates
652,767
639,887
Customer relationships
1,286,103
1,250,767
Other assets, net
12,026
11,827
Total assets
5,791,320
5,752,883
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable–Antero Resources
5,436
2,921
Accounts payable–third party
22,865
17,947
Accrued liabilities
72,715
74,924
Other current liabilities
1,061
817
Total current liabilities
102,077
96,609
Long-term liabilities:
Long-term debt
3,361,282
3,306,667
Deferred income tax liability
131,215
191,979
Other
4,428
4,589
Total liabilities
3,599,002
3,599,844
Stockholders' equity:
Preferred stock, $0.01 par value: 100,000 authorized as of December 31, 2022 and June 30, 2023
Series A non-voting perpetual preferred stock; 12 designated and 10 issued and outstanding as of December 31, 2022 and June 30, 2023
—
Common stock, $0.01 par value; 2,000,000 authorized; 478,497 and 479,656 issued and outstanding as of December 31, 2022 and June 30, 2023, respectively
4,785
4,797
Additional paid-in capital
2,104,740
2,061,230
Retained earnings
82,793
87,012
Total stockholders' equity
2,192,318
2,153,039
Total liabilities and stockholders' equity
See accompanying notes to unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)
Three Months Ended June 30,
Revenue:
Gathering and compression–Antero Resources
184,071
211,068
Water handling–Antero Resources
62,262
64,613
Water handling–third party
242
274
Amortization of customer relationships
(17,668)
Total revenue
228,907
258,287
Operating expenses:
Direct operating
43,299
52,595
General and administrative (including $5,641 and $8,499 of equity-based compensation in 2022 and 2023, respectively)
16,079
18,162
Facility idling
1,185
637
Depreciation
35,675
35,233
Impairment of property and equipment
3,702
Accretion of asset retirement obligations
64
44
Loss on settlement of asset retirement obligations
539
279
Loss (gain) on asset sale
(32)
5,814
Total operating expenses
100,511
112,764
Operating income
128,396
145,523
Other income (expense):
Interest expense, net
(45,426)
(55,388)
Equity in earnings of unconsolidated affiliates
22,824
25,972
Total other expense
(22,602)
(29,416)
Income before income taxes
105,794
116,107
Income tax expense
(26,399)
(29,095)
Net income and comprehensive income
79,395
Net income per share–basic
0.17
0.18
Net income per share–diluted
Weighted average common shares outstanding:
Basic
478,317
479,502
Diluted
480,270
481,512
4
Six Months Ended June 30,
366,514
410,644
115,583
141,908
546
(35,336)
447,398
517,762
85,311
110,468
General and administrative (including $8,473 and $14,826 of equity-based compensation in 2022 and 2023, respectively)
34,010
35,509
2,333
1,211
63,975
70,429
128
88
620
(150)
5,569
189,848
223,894
257,550
293,868
(89,705)
(110,012)
46,056
50,428
(43,649)
(59,584)
213,901
234,284
(54,466)
(60,765)
159,435
173,519
0.33
0.36
477,983
479,059
480,329
481,420
5
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands)
Retained
Additional
Earnings
Preferred
Common Stock
Paid-In
(Accumulated
Total
Stock
Shares
Amount
Capital
Deficit)
Equity
Balance at December 31, 2021
477,495
4,775
2,414,398
(132,475)
2,286,698
Dividends to stockholders
(108,287)
Equity-based compensation
2,832
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes
188
(1,331)
(1,329)
80,040
Balance at March 31, 2022
477,683
4,777
2,307,612
(52,435)
2,259,954
(109,433)
5,641
754
7
(5,445)
(5,438)
Balance at June 30, 2022
478,437
4,784
2,198,375
26,960
2,230,119
Balance at December 31, 2022
478,497
(25,709)
(82,793)
(108,502)
6,327
148
(1,167)
(1,166)
86,507
Balance at March 31, 2023
478,645
4,786
2,084,191
2,175,484
(24,267)
(86,507)
(110,774)
8,499
1,011
11
(7,193)
(7,182)
Balance at June 30, 2023
479,656
6
Condensed Consolidated Statements of Cash Flows (Unaudited)
Cash flows provided by (used in) operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax expense
54,466
60,765
8,473
14,826
(46,056)
(50,428)
Distributions from unconsolidated affiliates
60,505
63,570
35,336
Amortization of deferred financing costs
2,828
2,957
Settlement of asset retirement obligations
(916)
(695)
Changes in assets and liabilities:
6,099
(5,470)
517
481
158
(800)
(2,427)
(2,515)
9,480
(889)
(1,911)
942
Net cash provided by operating activities
354,181
368,305
Cash flows provided by (used in) investing activities:
Additions to gathering systems and facilities
(131,665)
(59,156)
Additions to water handling systems
(30,369)
(25,583)
(262)
Acquisition of gathering systems and facilities
(266)
Cash received in asset sales
147
1,071
Change in other assets
(15)
Change in other liabilities
(805)
Net cash used in investing activities
(162,692)
(84,211)
Cash flows provided by (used in) financing activities:
Dividends to common stockholders
(217,445)
(218,971)
Dividends to preferred stockholders
(275)
Payments of deferred financing costs
(302)
Borrowings (repayments) on bank credit facilities, net
33,300
(56,500)
Employee tax withholding for settlement of equity compensation awards
(6,767)
(8,348)
Net cash used in financing activities
(191,489)
(284,094)
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
86,688
107,607
Increase (decrease) in accrued capital expenditures and accounts payable for property and equipment
2,822
(2,814)
Notes to Unaudited Condensed Consolidated Financial Statements
(1) Organization
Antero Midstream Corporation together with its consolidated subsidiaries (the “Company” or “Antero Midstream”) is a growth-oriented midstream company formed to own, operate and develop midstream energy infrastructure primarily to service Antero Resources and its production and completion activity in the Appalachian Basin. The Company’s assets consist of gathering pipelines, compressor stations, interests in processing and fractionation plants and water handling assets. Antero Midstream provides midstream services to Antero Resources under long-term contracts. The Company’s corporate headquarters is located in Denver, Colorado.
(2) Summary of Significant Accounting Policies
(a)
Basis of Presentation
These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information and should be read in the context of the Company’s December 31, 2022 consolidated financial statements and notes thereto for a more complete understanding of the Company’s operations, financial position, and accounting policies. The Company’s December 31, 2022 consolidated financial statements were included in the Company’s 2022 Annual Report on Form 10-K, which was filed with the SEC.
These unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, and, accordingly, do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments (consisting of normal and recurring accruals) considered necessary to present fairly the Company’s financial position as of December 31, 2022 and June 30, 2023, the results of the Company’s operations for the three and six months ended June 30, 2022 and 2023, and the Company’s cash flows for the six months ended June 30, 2022 and 2023. The Company has no items of other comprehensive income; therefore, net income is equal to comprehensive income.
Certain costs of doing business incurred and charged to the Company by Antero Resources have been reflected in the accompanying unaudited condensed consolidated financial statements. These costs include general and administrative expenses provided to the Company by Antero Resources in exchange for:
Transactions between the Company and Antero Resources have been identified in the unaudited condensed consolidated financial statements (see Note 4—Transactions with Affiliates).
(b)
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Antero Midstream Corporation and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated in the Company’s unaudited condensed consolidated financial statements.
8
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(3) Intangibles
All customer relationships are subject to amortization and are amortized over a weighted average period of 19 years, which reflects the remaining economic life of the relationships as of June 30, 2023. The changes in the carrying amount of customer relationships were as follows (in thousands):
Customer relationships as of December 31, 2022
Customer relationships as of June 30, 2023
Future amortization expense is as follows (in thousands):
Remainder of year ending December 31, 2023
Year ending December 31, 2024
70,672
Year ending December 31, 2025
Year ending December 31, 2026
Year ending December 31, 2027
Thereafter
932,743
(4) Transactions with Affiliates
Revenues
Substantially all revenues earned in the three and six months ended June 30, 2022 and 2023 were earned from Antero Resources, under various agreements for gathering and compression and water handling services. Revenues earned from gathering and compression services consist of lease income.
Accounts receivable—Antero Resources and Accounts payable—Antero Resources
Accounts receivable—Antero Resources represents amounts due from Antero Resources, primarily related to gathering and compression services and water handling services. Accounts payable—Antero Resources represents amounts due to Antero Resources for general and administrative and other costs.
(c)
Allocation of Costs Charged by Antero Resources
The employees supporting the Company’s operations are concurrently employed by Antero Resources and the Company. Direct operating expense includes costs charged to the Company of $3 million and $4 million during the three months ended June 30, 2022 and 2023, respectively and $7 million and $9 million during the six months ended June 30, 2022 and 2023, respectively. These costs were for services provided by employees associated with the operation of the Company’s gathering lines, compressor stations and water handling assets. General and administrative expense includes costs charged to the Company by Antero Resources of $8 million and $7 million during the three months ended June 30, 2022 and 2023, respectively, and $16 million and $15 million during the six months ended June 30, 2022 and 2023, respectively. These costs relate to (i) various business services, including payroll processing, accounts payable processing and facilities management, (ii) various corporate services, including legal, accounting, treasury, information technology and human resources and (iii) compensation, including certain equity-based compensation. These expenses are charged to the Company based on the nature of the expenses and are apportioned based on a combination of the Company’s proportionate share of gross property and equipment, capital expenditures and labor costs, as applicable. The Company reimburses Antero Resources directly for all general and administrative costs charged to it, except costs attributable to noncash equity-based compensation. For further information on equity-based compensation, see Note 9—Equity-Based Compensation and Cash Awards.
9
(5) Revenue
All of the Company’s gathering and compression revenues are derived from operating lease agreements, and all of the Company’s water handling revenues are derived from service contracts with customers. The Company currently earns substantially all of its revenues from Antero Resources.
Gathering and Compression
The Company’s gathering and compression service agreements with Antero Resources include: (i) the second amended and restated gathering and compression agreement dated December 8, 2019 (the “2019 gathering and compression agreement”), (ii) the gathering and compression agreements acquired with the Crestwood Equity Partners LP (NYSE: CEQP) (“Crestwood”) assets (the “Marcellus gathering and compression agreements”) and (iii) a compression agreement acquired with the EnLink Midstream LLC (NYSE: ENLC) (“EnLink”) assets (the “Utica compression agreement,” and together with the 2019 gathering and compression agreement and the Marcellus gathering and compression agreements, the “gathering and compression agreements”). See Note 6—Property and Equipment for additional information. The 2019 gathering and compression agreement has an initial term through 2038, the Marcellus gathering and compression agreements expire between 2023 and 2031, and the Utica compression agreement has two dedicated areas that expire in 2024 and 2030. Upon expiration of each of the Marcellus gathering and compression service agreements and the Utica compression agreement, the Company will continue to provide gathering and compression services under the 2019 gathering and compression agreement. Pursuant to the gathering and compression agreements, Antero Resources has dedicated substantially all of its current and future acreage in West Virginia, Ohio and Pennsylvania to the Company for gathering and compression services. The Company also has an option to gather and compress natural gas produced by Antero Resources on any additional acreage it acquires during the term of the 2019 gathering and compression agreement outside of West Virginia, Ohio and Pennsylvania on the same terms and conditions as the 2019 gathering and compression agreement.
The 2019 gathering and compression agreement includes a growth incentive fee program whereby low pressure gathering fees will be reduced from 2020 through 2023 to the extent Antero Resources achieves certain quarterly volumetric targets during such time. Antero Resources’ throughput gathered under the Marcellus gathering and compression agreements is not considered in low pressure gathering volume targets. Antero Resources achieved the first level volumetric target during each of the first and second quarters of 2022 and 2023. Accordingly, Antero Resources earned rebates of $12 million for each of the three months ended June 30, 2022 and 2023 and $24 million for each of the six months ended June 30, 2022 and 2023. Upon completion of the initial contract term in 2038, the 2019 gathering and compression agreement will continue in effect from year to year until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the Company or Antero Resources on or before the 180th day prior to the anniversary of such effective date.
Under the gathering and compression agreements, the Company receives, where applicable, a low pressure gathering fee, a high pressure gathering fee and a compression fee, substantially all of which are subject to annual Consumer Price Index (“CPI”)-based adjustments (or, in the case of the 2019 gathering and compression agreement, the option in certain cases to elect a cost of service fee when such assets are placed in-service). In addition, under the 2019 gathering and compression agreement, the Company receives a reimbursement for certain variable costs, such as electricity and operating expenses.
The Company determined that its gathering and compression agreements are operating leases as Antero Resources obtains substantially all of the economic benefit of the assets and has the right to direct the use of the assets. Each gathering and compression system is an identifiable asset, and consists of a network of assets that may include underground low pressure pipelines that connect and deliver gas from specific well pads to compressor stations to compress the gas before delivery to underground high pressure pipelines that transport the gas to a third-party pipeline, third-party processing plant or a Joint Venture processing plant. Each compression system is an identifiable asset, and consists of a network of assets that include compressor stations that connect to underground high pressure pipelines that transport the gas to a third-party pipeline, third-party processing plant or a Joint Venture processing plant. Each set of assets in an agreement is considered to be a single lease due to the interrelated network of the assets required to provide services under each respective agreement. When a modification to an agreement occurs, the Company reassesses the classification of the lease. The Company accounts for its lease and non-lease components as a single lease component as the lease component is the predominant component. The non-lease components consist of operating, oversight and maintenance of the gathering systems, which are performed on time-elapsed measures.
10
The 2019 gathering and compression agreement and certain of the Marcellus gathering and compression agreements include fixed fee provisions. If and to the extent Antero Resources requests that the Company construct new low pressure lines, high pressure lines and/or compressor stations, the 2019 gathering and compression agreement contains options at the Company’s election for either (i) minimum volume commitments that require Antero Resources to utilize or pay for 75% of the high pressure gathering capacity and 70% of the compression capacity of such new construction for 10 years or (ii) a cost of service fee that allows the Company to earn a 13% rate of return on such new construction over seven years, which election is made individually for each piece of equipment placed in service. In addition, certain of the Marcellus gathering and compression agreements provide for a minimum volume commitment that requires Antero Resources to utilize or pay for 25% of the capacity of new compressor station construction for 10 years. All lease payments under the minimum volume commitments and cost of service fees are considered to be in-substance fixed lease payments under the gathering and compression agreements.
The Company recognizes lease income from its minimum volume commitments and cost of service fees under its gathering and compression agreements on a straight-line basis. Additional variable operating lease income is earned when volumes in excess of the minimum commitments are delivered under the contract. The Company recognizes variable lease income when low pressure volumes are delivered to a compressor station, compression volumes are delivered to a high pressure line and high pressure volumes are delivered to a processing plant or transmission pipeline, as applicable. Minimum volume commitments are aggregated such that there is a single minimum volume commitment for the respective service each year for each agreement. The Company invoices the customer the month after each service is performed, and payment is due in the same month. The Company is not party to any leases that have not commenced.
Minimum future lease cash flows to be received by the Company under the gathering and compression agreements as of June 30, 2023 are as follows (in thousands):
144,632
316,492
298,143
284,327
224,150
382,434
1,650,178
Water Handling
The Company is party to a water services agreement with Antero Resources, whereby the Company provides certain water handling services to Antero Resources within an area of dedication in defined service areas in West Virginia and Ohio. The initial term of the water services agreement runs to 2035. Upon completion of the initial term in 2035, the water services agreement will continue in effect from year to year until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the Company or Antero Resources on or before the 180th day prior to the anniversary of such effective date. Under the agreement, the Company receives a fixed fee for fresh water deliveries by pipeline directly to the well site, subject to annual CPI-based adjustments. In addition, the Company also provides other fluid handling services. These operations, along with the Company’s fresh water delivery systems, support well completion and production operations for Antero Resources. These services are provided by the Company directly or through third-parties with which the Company contracts. For these other fluid handling services provided by third-parties, Antero Resources reimburses the Company’s third-party out-of-pocket costs plus 3%. For these other fluid handling services provided by the Company, the Company charges Antero Resources a cost of service fee.
The Company satisfies its performance obligations and recognizes revenue when (i) the fresh water volumes have been delivered to the hydration unit of a specified well pad or (ii) other fluid handling services have been completed. The Company invoices the customer the month after water services are performed, and payment is due in the same month. For services contracted through third-party providers, the Company’s performance obligation is satisfied when the service to be performed by the third-party provider has been completed. The Company invoices the customer after the third-party provider billing is received, and payment is due in the same month.
Transaction Price Allocated to Remaining Performance Obligations
The Company’s water service agreement with Antero Resources has a term greater than one year. The Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under this contract, each unit of product delivered to the customer represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.
The Company also performs water services for third-party customers and such contracts are short-term in nature with a contract term of one year or less. Accordingly, the Company is exempt from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
Contract Balances
Under the Company’s water service contracts, the Company invoices customers after the performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s water service contracts do not give rise to contract assets or liabilities.
Disaggregation of Revenue
In the following table, revenue is disaggregated by type of service and type of fee and is identified by the reportable segment to which such revenues relate. For additional information on reportable segments, see Note 15—Reportable Segments.
Three Months Ended
Six Months Ended
(in thousands)
Reportable Segment
Type of service
Gathering—low pressure
91,660
105,042
181,097
204,679
Gathering and Processing (1)
Gathering—low pressure fee rebate
(12,000)
(24,000)
Compression
51,486
61,565
103,098
119,955
Gathering—high pressure
52,925
56,461
106,319
110,010
Fresh water delivery
41,120
40,399
73,164
87,225
Other fluid handling
21,384
24,488
43,056
55,229
(9,272)
(18,543)
Gathering and Processing
(8,396)
(16,793)
Type of contract
Per Unit Fixed Fee
196,071
223,068
390,514
434,644
41,362
40,673
73,801
87,772
Cost plus 3%
16,400
18,797
32,038
43,242
Cost of service fee
4,742
5,417
10,381
11,440
12
The Company’s receivables from its contracts with customers and operating leases as of December 31, 2022 and June 30, 2023, were $86 million and $92 million, respectively.
(6) Property and Equipment
Summary of Property and Equipment
Property and equipment, net consisted of the following items:
Estimated
Useful Lives
Land
n/a
31,668
Gathering systems and facilities
40-50 years (1)
3,281,872
3,317,470
Permanent buried pipelines and equipment
7-20 years
601,347
632,748
Surface pipelines and equipment
1-7 years
66,726
77,858
Heavy trucks and equipment
3-5 years
5,157
Above ground storage tanks
5-10 years
2,953
5,130
Construction-in-progress
158,977
153,412
Total property and equipment
4,148,700
4,223,443
Less accumulated depreciation
(397,269)
(466,947)
Asset Acquisitions
On October 25, 2022, the Company acquired certain Marcellus gas gathering and compression assets from Crestwood for $205 million in cash, before closing adjustments. These assets included 72 miles of dry gas gathering pipelines and nine compressor stations with 700 MMcf/d of compression capacity. The cash consideration for this asset acquisition was allocated to land and gathering systems and facilities, included in Property and equipment in the condensed consolidated balance sheets, for $3 million and $202 million, respectively.
Additionally, on December 21, 2022, the Company acquired certain Utica compression assets from EnLink for $10 million in cash, before closing adjustments. These assets included four compressor stations with 380 MMcf/d of compression capacity. The acquired compression assets are interconnected with the Company’s existing low pressure and high pressure gathering systems and service Antero Resources’ production. The cash consideration for this asset acquisition was allocated to gathering systems and facilities included in Property and equipment in the condensed consolidated balance sheets.
13
(7) Long-Term Debt
Long-term debt consisted of the following items:
Credit Facility (a)
782,000
725,500
7.875% senior notes due 2026 (b)
550,000
5.75% senior notes due 2027 (c)
650,000
5.75% senior notes due 2028 (d)
5.375% senior notes due 2029 (e)
750,000
Total principal
3,382,000
3,325,500
Unamortized debt premiums
1,698
1,496
Unamortized debt issuance costs
(22,416)
(20,329)
Total long-term debt
Credit Facility
Antero Midstream Partners LP (“Antero Midstream Partners”), an indirect, wholly owned subsidiary of Antero Midstream Corporation, as borrower (the “Borrower”), has a senior secured revolving credit facility (the “Credit Facility”) with a consortium of banks. Lender commitments under the Credit Facility were $1.25 billion as of December 31, 2022 and June 30, 2023. The Credit Facility matures on October 26, 2026; provided that if on November 17, 2025 any of the 2026 Notes (as defined below) are outstanding, the Credit Facility will mature on such date. As of June 30, 2023, the Credit Facility had an available borrowing capacity of $524 million.
The Credit Facility contains certain covenants including restrictions on indebtedness, and requirements with respect to leverage and interest coverage ratios. The Credit Facility permits distributions to the holders of the Borrower’s equity interests in accordance with the cash distribution policy, provided that no event of default exists or would be caused thereby, and only to the extent permitted by the Borrower’s organizational documents. The Borrower was in compliance with all of the financial covenants under the Credit Facility as of December 31, 2022 and June 30, 2023.
The Credit Facility provides for borrowing under either the Adjusted Term Secured Overnight Financing Rate (“SOFR”) or the Base Rate (as each term is defined in the Credit Facility). Principal amounts borrowed are payable on the maturity date with such borrowings bearing interest that is payable with respect to (i) Base Rate loans, quarterly and (ii) SOFR Loans at the end of the applicable interest period if three months (or shorter, if applicable), or every three months if the applicable interest period is longer than three months. Interest is payable at a variable rate based on SOFR or the Base Rate, determined by election at the time of borrowing, plus an applicable margin rate under the Credit Facility. Interest at the time of borrowing is determined with reference to the Borrower’s then-current leverage ratio subject to certain exceptions. Commitment fees on the unused portion of the Credit Facility are due quarterly at rates ranging from 0.25% to 0.375% subject to certain exceptions based on the leverage ratio then in effect.
As of December 31, 2022, the Borrower had outstanding borrowings under the Credit Facility of $782 million with a weighted average interest rate of 6.17%. As of June 30, 2023, the Borrower had outstanding borrowings under the Credit Facility of $726 million with a weighted average interest rate of 6.96%. No letters of credit under the Credit Facility were outstanding as of December 31, 2022 or June 30, 2023.
14
7.875% Senior Notes Due 2026
On November 10, 2020, Antero Midstream Partners and its wholly owned subsidiary, Antero Midstream Finance Corp (“Finance Corp,” and together with Antero Midstream Partners, the “Issuers”) issued $550 million in aggregate principal amount of 7.875% senior notes due May 15, 2026 (the “2026 Notes”) at par. The 2026 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2026 Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by Antero Midstream Corporation, Antero Midstream Partners’ wholly owned subsidiaries (other than Finance Corp) and certain of its future restricted subsidiaries. Interest on the 2026 Notes is payable on May 15 and November 15 of each year. Antero Midstream Partners may redeem all or part of the 2026 Notes at any time on or after May 15, 2023 at redemption prices ranging from 103.938% currently to 100.00% on or after May 15, 2025. If Antero Midstream Partners undergoes a change of control followed by a rating decline, the holders of the 2026 Notes will have the right to require Antero Midstream Partners to repurchase all or a portion of the 2026 Notes at a price equal to 101% of the principal amount of the 2026 Notes, plus accrued and unpaid interest.
5.75% Senior Notes Due 2027
On February 25, 2019, the Issuers issued $650 million in aggregate principal amount of 5.75% senior notes due March 1, 2027 (the “2027 Notes”) at par. The 2027 Notes were recorded at their fair value of $653.3 million as of March 12, 2019, and the related premium of $3.3 million will be amortized into interest expense over the life of the 2027 Notes. The 2027 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2027 Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by Antero Midstream Corporation, Antero Midstream Partners’ wholly owned subsidiaries (other than Finance Corp) and certain of its future restricted subsidiaries. Interest on the 2027 Notes is payable on March 1 and September 1 of each year. Antero Midstream Partners may redeem all or part of the 2027 Notes at any time on or after March 1, 2022 at redemption prices ranging from 101.917% currently to 100.00% on or after March 1, 2025. If Antero Midstream Partners undergoes a change of control followed by a rating decline, the holders of the 2027 Notes will have the right to require Antero Midstream Partners to repurchase all or a portion of the 2027 Notes at a price equal to 101% of the principal amount of the 2027 Notes, plus accrued and unpaid interest.
(d)
5.75% Senior Notes Due 2028
On June 28, 2019, the Issuers issued $650 million in aggregate principal amount of 5.75% senior notes due January 15, 2028 (the “2028 Notes”) at par. The 2028 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2028 Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by Antero Midstream Corporation, Antero Midstream Partners’ wholly owned subsidiaries (other than Finance Corp) and certain of its future restricted subsidiaries. Interest on the 2028 Notes is payable on January 15 and July 15 of each year. Antero Midstream Partners may redeem all or part of the 2028 Notes at any time on or after January 15, 2023 at redemption prices ranging from 102.875% currently to 100.00% on or after January 15, 2026. If Antero Midstream Partners undergoes a change of control followed by a rating decline, the holders of the 2028 Notes will have the right to require Antero Midstream Partners to repurchase all or a portion of the 2028 Notes at a price equal to 101% of the principal amount of the 2028 Notes, plus accrued and unpaid interest.
15
(e)
5.375% Senior Notes Due 2029
On June 8, 2021, the Issuers issued $750 million in aggregate principal amount of 5.375% senior notes due June 15, 2029 (the “2029 Notes”) at par. The 2029 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2029 Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by Antero Midstream Corporation, Antero Midstream Partners’ wholly owned subsidiaries (other than Finance Corp) and certain of its future restricted subsidiaries. Interest on the 2029 Notes is payable on June 15 and December 15 of each year. Antero Midstream Partners may redeem all or part of the 2029 Notes at any time on or after June 15, 2024 at redemption prices ranging from 102.688% on or after June 15, 2024 to 100.00% on or after June 15, 2026. In addition, prior to June 15, 2024, Antero Midstream Partners may redeem up to 35% of the aggregate principal amount of the 2029 Notes with an amount of cash not greater than the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 105.375% of the principal amount of the 2029 Notes, plus accrued and unpaid interest. At any time prior to June 15, 2024, Antero Midstream Partners may also redeem the 2029 Notes, in whole or in part, at a price equal to 100% of the principal amount of the 2029 Notes plus a “make-whole” premium and accrued and unpaid interest. If Antero Midstream Partners undergoes a change of control followed by a rating decline, the holders of the 2029 Notes will have the right to require Antero Midstream Partners to repurchase all or a portion of the 2029 Notes at a price equal to 101% of the principal amount of the 2029 Notes, plus accrued and unpaid interest.
(f)
Senior Notes Guarantors
The Company and each of the Company’s wholly owned subsidiaries (except for the Issuers) has fully and unconditionally guaranteed the 2026 Notes, 2027 Notes, 2028 Notes and 2029 Notes (collectively the “Senior Notes”). In the event a guarantor is sold or disposed of (whether by merger, consolidation, the sale of a sufficient amount of its capital stock so that it no longer qualifies as a Restricted Subsidiary (as defined in the applicable indenture governing the series of Senior Notes) of the Issuer or the sale of all or substantially all of its assets) and whether or not the guarantor is the surviving entity in such transaction to a person that is not an Issuer or a Restricted Subsidiary of an Issuer, such guarantor will be released from its obligations under its guarantee if the sale or other disposition does not violate the covenants set forth in the indentures governing the applicable Senior Notes.
In addition, a guarantor will be released from its obligations under the applicable indenture and its guarantee, upon the release or discharge of the guarantee of other indebtedness under a credit facility that resulted in the creation of such guarantee, except a release or discharge by or as a result of payment under such guarantee; if the Issuers designate such subsidiary as an unrestricted subsidiary and such designation complies with the other applicable provisions of the indenture governing the applicable Senior Notes or in connection with any covenant defeasance, legal defeasance or satisfaction and discharge of the applicable Senior Notes.
During the three and six months ended June 30, 2022 and 2023, all of the Company’s assets and operations are attributable to the Issuers and its guarantors.
(8) Accrued Liabilities
Accrued liabilities consisted of the following items:
Capital expenditures
16,597
17,811
Operating expenses
11,118
10,764
Interest expense
37,947
37,395
Ad valorem taxes
5,661
6,918
1,392
2,036
Total accrued liabilities
16
(9) Equity-Based Compensation and Cash Awards
Summary of Equity-Based Compensation
The Company’s equity-based compensation includes (i) costs allocated to Antero Midstream by Antero Resources for grants made prior to March 12, 2019 pursuant to the Antero Resources Corporation Long-Term Incentive Plan (the “AR LTIP”) and (ii) costs related to the Antero Midstream Corporation Long-Term Incentive Plan (the “AM LTIP”). Antero Midstream’s equity-based compensation expense is included in general and administrative expenses, and recorded as a credit to the applicable classes of equity.
AR LTIP
Equity-based compensation expense allocated to Antero Midstream from Antero Resources, which includes expense related to the Converted AM RSU Awards (as defined below), for the three and six months ended June 30, 2022 was $0.1 million and $0.3 million, respectively, and for the three and six months ended June 30, 2023 was zero and less than $0.1 million, respectively. All grants made prior to March 12, 2019 were fully amortized during the first quarter of 2023. Therefore, there will be no further allocation of equity-based compensation expense from Antero Resources to the Company. The Company does not reimburse Antero Resources for noncash equity compensation allocated to it for awards issued under the AR LTIP.
AM LTIP
Effective March 12, 2019, the Board of Directors of Antero Midstream Corporation (the “Board”) adopted the AM LTIP under which awards may be granted to employees, directors, and other service providers of the Company and its affiliates. The Company is authorized to grant up to 15,398,901 shares of AM common stock to employees and directors under the AM LTIP. The AM LTIP provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), dividend equivalents, other stock-based awards, cash awards and substitute awards. The terms and conditions of the awards granted are established by the compensation committee of the Board of Directors (the “Board”). As of June 30, 2023, a total of 4,620,235 shares were available for future grant under the AM LTIP.
The Company’s equity-based compensation expense, by type of award, is as follows:
Restricted stock units (1)
4,425
6,549
6,913
11,610
Performance share units (1)
988
1,723
1,105
2,784
Equity awards issued to directors
228
227
455
432
Total expense
Restricted Stock Unit Awards
The Company’s RSU awards included the unvested outstanding phantom units granted under the Antero Midstream Partners Long Term Incentive Plan which were assumed by the Company on March 12, 2019, and converted into 1.8926 RSUs under the AM LTIP representing a right to receive shares of the Company’s common stock for each converted phantom unit (all such RSUs, the “Converted AM RSU Awards”). The Converted AM RSU Awards were accounted for as if they were distributed by Antero Midstream Partners to Antero Resources. Therefore, the expense related to the Converted AM RSU Awards was subject to allocation by Antero Resources. All remaining Converted AM RSU Awards vested during the first quarter of 2023.
17
A summary of the RSU awards activity, which included the Converted AM RSU Awards, is as follows:
Weighted Average
Number
Grant Date
of Units
Fair Value
Total AM LTIP RSUs awarded and unvested—December 31, 2022
4,877,258
9.79
Granted
3,103,722
10.59
Vested
(1,900,773)
9.59
Forfeited
(74,520)
10.21
Total AM LTIP RSUs awarded and unvested—June 30, 2023
6,005,687
10.26
As of June 30, 2023, unamortized equity-based compensation expense of $55 million related to the unvested RSUs is expected to be recognized over a weighted average period of 2.2 years.
Performance Share Unit Awards
2023 Performance Share Unit Awards
In March 2023, the Company granted PSUs to certain of its executive officers that vest based on the Company’s actual ROIC (as defined in the award agreement) over a three-year period concluding on December 31, 2025 as compared to a targeted ROIC (“2023 ROIC PSUs”). The number of shares of the Company’s common stock that can be earned with respect to the 2023 ROIC PSUs ranges from zero to 200% of the target number of 2023 ROIC PSUs originally granted. The grant date fair value of these awards was based on the closing price of the Company’s common stock on the date of the grant, assuming target achievement of the performance condition. Expense related to the 2023 ROIC PSUs is recognized based on the number of shares of the Company’s common stock that are expected to be issued at the end of the measurement period, and such expense is reversed if the likelihood of achieving the performance condition decreases. The likelihood of achieving the performance conditions related to 2023 ROIC PSU awards was probable as of June 30, 2023.
Summary Information for Performance Share Unit Awards
A summary of the PSU awards activity is as follows:
Total AM LTIP PSUs awarded and unvested—December 31, 2022
439,935
11.28
512,166
10.58
Total AM LTIP PSUs awarded and unvested—June 30, 2023
952,101
10.90
As of June 30, 2023, unamortized equity-based compensation expense of $16 million related to the unvested PSUs is expected to be recognized over a weighted average period of 2.3 years.
Cash Awards
In January 2020, the Company granted cash awards of $2.2 million to certain executives under the AM LTIP that vested ratably over a period of up to three years. In July 2020, the Company granted additional cash awards of $0.7 million to certain non-executive employees under the AM LTIP that vest ratably over a period of four years. The compensation expense for these awards is recognized ratably over the applicable vesting period. As of December 31, 2022 and June 30, 2023, the Company has accrued $0.5 million and $0.1 million, respectively, in other liabilities in the unaudited condensed consolidated balance sheets related to unvested cash awards.
18
(10) Cash Dividends
The Company paid cash dividends for the quarter indicated as follows (in thousands, except per share data):
Dividends
Period
Record Date
Dividend Date
per Share
Q4 2021
January 26, 2022
February 9, 2022
108,149
0.2250
*
February 14, 2022
138
Q1 2022
April 27, 2022
May 11, 2022
109,296
May 16, 2022
137
Q2 2022
July 27, 2022
August 10, 2022
107,675
August 15, 2022
Q3 2022
October 26, 2022
November 9, 2022
107,705
November 14, 2022
Total 2022
433,375
Q4 2022
January 25, 2023
February 8, 2023
108,364
February 14, 2023
Q1 2023
April 26, 2023
May 10, 2023
110,607
May 15, 2023
Total 2023
219,246
Dividends are paid in accordance with the terms of the Series A Preferred Stock (as defined below) as discussed in Note 11—Equity and Earnings Per Common Share.
On July 12, 2023, the Board announced the declaration of a cash dividend on the shares of AM common stock of $0.2250 per share for the quarter ended June 30, 2023. The dividend is payable on August 9, 2023 to stockholders of record as of July 26, 2023. The Company pays dividends (i) out of surplus or (ii) if there is no surplus, out of the net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year, as provided under Delaware law.
The Board also declared a cash dividend of $138 thousand on the shares of Series A Preferred Stock of Antero Midstream that is payable on August 14, 2023 in accordance with the terms of the Series A Preferred Stock, which are discussed in Note 11—Equity and Earnings Per Common Share. As of June 30, 2023, there were dividends in the amount of $69 thousand accumulated in arrears on the Company’s Series A Preferred Stock.
(11) Equity and Earnings Per Common Share
Preferred Stock
The Board authorized 100,000,000 shares of preferred stock on March 12, 2019, and issued 10,000 shares of preferred stock designated as "5.5% Series A Non-Voting Perpetual Preferred Stock" (the "Series A Preferred Stock"), to The Antero Foundation on that date. Dividends on the Series A Preferred Stock are cumulative from the date of original issue and payable in cash on the 45th day following the end of each fiscal quarter, or such other dates as the Board will approve, at a rate of 5.5% per annum on (i) the liquidation preference per share of Series A Preferred Stock (as described below) and (ii) the amount of accrued and unpaid dividends for any prior dividend period on such share of Series A Preferred Stock, if any. At any time following the date of issue, in the event of a change of control, or at any time on or after March 12, 2029, the Company may redeem the Series A Preferred Stock at a price equal to $1,000 per share, plus any accrued and unpaid dividends, payable in cash; provided that if any shares of the Series A Preferred Stock are held by The Antero Foundation at the time of such redemption, the price for redemption of each share of Series A Preferred Stock will be the greater of (i) $1,000 per share, plus any accrued but unpaid dividends, and (ii) the fair market value of the Series A Preferred Stock. On or after March 12, 2029, the holder of each share of Series A Preferred Stock (other than The Antero Foundation) may convert such shares, at any time and from time to time, at the option of the holder into a number of shares of AM common stock equal to the conversion ratio in effect on the applicable conversion date, subject to certain limitations. The Series A Preferred Stock ranks senior to the AM common stock as to dividend rights, as well as with respect to rights upon liquidation, winding-up or dissolution of the Company. Holders of the Series A Preferred Stock do not have any voting rights in the Company, except as required by law, or any preemptive rights.
19
Weighted Average Shares Outstanding
The following is a reconciliation of the Company’s basic weighted average shares outstanding to diluted weighted average shares outstanding:
Basic weighted average number of shares outstanding
Add: Dilutive effect of RSUs
794
797
1,081
1,225
Add: Dilutive effect of PSUs
54
351
160
Add: Dilutive effect of Series A Preferred Stock
862
Diluted weighted average number of shares outstanding
Weighted average number of outstanding equity awards excluded from calculation of net income per share—diluted (1):
RSUs
2,457
1,170
PSUs
744
375
(1)
The potential dilutive effects of these awards were excluded from the computation of net income per share—diluted because the inclusion of these awards would have been anti-dilutive.
Net Income Per Share
Net income per share—basic for each period is computed by dividing the net income or loss attributable to the Company by the basic weighted average number of shares outstanding during the period. Net income per share—diluted for each period is computed after giving consideration to the potential dilution from outstanding equity awards, calculated using the treasury stock method. During periods in which the Company incurs a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the effect of all equity awards is anti-dilutive.
(in thousands, except per share amounts)
Less preferred stock dividends
(137)
Net income available to common shareholders
79,258
86,875
159,160
173,244
Weighted average common shares outstanding–basic
Weighted average common shares outstanding–diluted
20
(12) Fair Value Measurement
Senior Unsecured Notes
The fair value and carrying value of the Company’s Senior Notes is as follows:
December 31, 2022
June 30, 2023
Fair Value (1)
Carrying Value (2)
2026 Notes
556,985
545,416
555,500
546,012
2027 Notes
612,365
646,610
624,065
646,955
2028 Notes
601,575
644,776
615,875
645,232
2029 Notes
685,650
742,480
696,600
742,968
2,456,575
2,579,282
2,492,040
2,581,167
Other Assets and Liabilities
The carrying values of accounts receivable and accounts payable as of December 31, 2022 and June 30, 2023 approximated fair value because of their short-term nature. The carrying value of the amounts under the Credit Facility as of December 31, 2022 and June 30, 2023 approximated fair value because the variable interest rates are reflective of current market conditions.
(13) Investments in Unconsolidated Affiliates
The Company has a 50% equity interest in the joint venture to develop processing and fractionation assets with MarkWest Energy Partners, L.P. (“MarkWest”), a wholly owned subsidiary of MPLX, LP (the “Joint Venture”). The Joint Venture was formed to develop processing and fractionation assets in Appalachia. MarkWest operates the Joint Venture assets, which consist of processing plants in West Virginia and a one-third interest in two MarkWest fractionators in Ohio.
The Company also has a 15% equity interest in a gathering system of Stonewall Gas Gathering LLC (“Stonewall”), which operates a 67-mile pipeline on which Antero Resources is an anchor shipper.
The Company’s net income includes its proportionate share of the net income of the Joint Venture and Stonewall. When the Company records its proportionate share of net income, it increases equity income in the unaudited condensed consolidated statements of operations and comprehensive income and the carrying value of that investment on its condensed consolidated balance sheet. When distributions on the Company’s proportionate share of net income are received, they are recorded as reductions to the carrying value of the investment on the unaudited condensed consolidated balance sheet and are classified as cash inflows from operating activities in accordance with the nature of the distribution approach under FASB ASC Topic 230, Statement of Cash Flows. The Company uses the equity method of accounting to account for its investments in the Joint Venture and Stonewall because it exercises significant influence, but not control, over the entities. The Company’s judgment regarding the level of influence over its equity investments includes considering key factors such as its ownership interest, representation on the applicable Board of Directors and participation in policy-making decisions of the Joint Venture and Stonewall.
21
The following table is a reconciliation of the Company’s investments in these unconsolidated affiliates:
Total Investment
in Unconsolidated
Joint Venture
Stonewall
Affiliates
Balance as of December 31, 2022
526,652
126,115
Additional investments
262
Equity in earnings of unconsolidated affiliates (1)
46,754
3,674
(54,345)
(9,225)
(63,570)
Balance as of June 30, 2023
519,061
120,826
(14) Contingencies
The Company is currently involved in a consolidated lawsuit with Veolia Water Technologies, Inc. (“Veolia”) relating to the Clearwater Facility.
On March 13, 2020, Antero Treatment LLC (“Antero Treatment”), a wholly owned subsidiary of the Company, filed suit against Veolia in the district court of Denver County, Colorado (the “Court”), asserting claims of fraud, breach of contract and other related claims. Antero Treatment alleges that Veolia failed to meet its contractual obligations to design and build a “turnkey” wastewater disposal facility under a Design/Build Agreement dated August 18, 2015 (the “DBA”), and that Veolia fraudulently concealed certain miscalculations and design flaws during contract negotiations and continued to conceal and fraudulently misrepresent the impact of certain design changes post-execution of the DBA. On March 13, 2020, Veolia filed a separate suit against the Company, Antero Resources, and certain of the Company’s wholly owned subsidiaries (collectively, the “Antero Defendants”) in Denver County, Colorado. In its lawsuit, Veolia asserted breach of contract and equitable claims against the Antero Defendants for alleged failures under the DBA. Veolia’s suit was consolidated into the action filed by Antero Treatment.
Veolia and the Antero Defendants each filed partial motions to dismiss and motions for summary judgment directed at certain claims asserted by the opposing party. A bench trial on the remaining claims was held from January 24 through February 10, 2022 and concluded on February 24, 2022. At trial, Antero Treatment sought damages from Veolia of $450 million, which represents the Company’s out-of-pocket costs associated with the Clearwater Facility project. In the alternative, Antero Treatment sought damages related to multiple breaches of the DBA, totaling $370 million. Also at trial, Veolia sought monetary damages of $118 million, including alleged delay and extra-contractual costs and a contract balance relating to an allegation that Antero Defendants improperly terminated the DBA.
On January 3, 2023, the Court found that Antero Treatment had prevailed on its claims for breach of contract and fraud, and awarded $242 million in damages to Antero Treatment, plus pre- and post-judgment interest and reasonable costs and attorneys’ fees. The Court also found in Antero Defendants’ favor on all of Veolia’s affirmative claims. On January 27, 2023, the Court entered judgment in favor of Antero Treatment in the amount of $309 million in damages, which includes pre-judgment interest. On April 10, 2023, the Court issued an order identifying an error in its previously entered judgment, and on May 3, 2023, the Court entered an amended final judgment in favor of Antero Treatment in the amount of $280 million in damages, which includes pre-judgment interest through April 30, 2023. Antero Treatment was also awarded costs and attorneys’ fees, the amount of which will be determined in separate proceedings. On May 26, 2023, Veolia filed a notice of appeal of the final judgment. On June 9, 2023, Antero Treatment filed a notice of cross-appeal.
22
(15) Reportable Segments
Summary of Reportable Segments
The Company’s operations, which are located in the United States, are organized into two reportable segments: (i) gathering and processing and (ii) water handling. These segments are monitored separately by management for performance and are consistent with internal financial reporting. These segments have been identified based on the differing products and services, regulatory environment and the expertise required for these operations. Management evaluates the performance of the Company’s business segments based on operating income. Interest expense is primarily managed and evaluated on a consolidated basis.
The gathering and processing segment includes a network of gathering pipelines and compressor stations that collect and process production from Antero Resources’ wells in West Virginia and Ohio. The gathering and processing segment also includes equity in earnings from the Company’s investments in the Joint Venture and Stonewall.
The Company’s water handling segment includes two independent systems that deliver water from sources including the Ohio River, local reservoirs and several regional waterways. Portions of these water handling systems are also utilized to transport flowback and produced water. The water handling systems consist of permanent buried pipelines, surface pipelines and water storage facilities, as well as pumping stations, blending facilities and impoundments to transport water throughout the systems used to deliver water for Antero Resources’ well completions.
Reportable Segments Financial Information
The summarized operating results of the Company’s reportable segments are as follows:
Three Months Ended June 30, 2022
Gathering and
Water
Consolidated
Processing
Handling
Unallocated (1)
Revenues:
Revenue–Antero Resources
246,333
Revenue–third-party
Total revenues
174,799
54,108
19,343
23,956
General and administrative
10,490
3,849
1,740
22,854
12,821
1,130
2,572
Gain on asset sale
53,785
44,986
121,014
9,122
(1,740)
Additions to property and equipment
60,931
16,836
77,767
23
Three Months Ended June 30, 2023
275,681
201,796
56,491
25,154
27,441
11,370
4,861
1,931
22,196
13,037
Loss on asset sale
64,534
46,299
137,262
10,192
(1,931)
Additions to property and equipment, net
29,959
11,823
41,782
Six Months Ended June 30, 2022
482,097
347,971
99,427
36,525
48,786
20,191
10,590
3,229
38,661
25,314
(63)
(87)
96,444
90,175
251,527
9,252
(3,229)
131,665
30,369
162,034
24
Six Months Ended June 30, 2023
552,552
392,101
125,661
49,272
61,196
21,550
11,069
2,890
44,259
26,170
5,572
(3)
120,653
100,351
271,448
25,310
(2,890)
59,156
25,583
84,739
The summarized total assets of the Company’s reportable segments are as follows:
4,711,069
4,686,552
1,079,297
1,065,123
954
1,208
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. The information provided below supplements, but does not form part of, our unaudited condensed consolidated financial statements. This discussion contains forward-looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on items that could impact our future operating performance or financial condition, see “Item 1A. Risk Factors” and the section entitled “Cautionary Statement Regarding Forward-Looking Statements.” We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law. In this section, references to “Antero Midstream,” “AM,” the “Company,” “we,” “us,” and “our” refer to Antero Midstream Corporation and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.
Overview
We are a growth-oriented midstream energy company formed to own, operate and develop midstream energy assets to primarily service Antero Resources’ production and completion activity. We believe that our strategically located assets and our relationship with Antero Resources have allowed us to become a leading midstream energy company serving the Appalachian Basin and present opportunities to expand our midstream services to other operators in the Appalachian Basin. Our assets consist of gathering pipelines, compressor stations and interests in processing and fractionation plants that collect and process production from Antero Resources’ wells in the Appalachian Basin in West Virginia and Ohio. Our assets also include two independent water handling systems that deliver water from the Ohio River and several regional waterways. These water handling systems consist of permanent buried pipelines, surface pipelines and water storage facilities, as well as pumping stations, blending facilities and impoundments. Portions of these water handling systems are also utilized to transport flowback and produced water. These services are provided by us directly or through third-parties with which we contract.
Market Conditions and Business Trends
Commodity Markets
Prices for natural gas, NGLs and oil have decreased during the three and six months ended June 30, 2023 as compared to the same periods of 2022. While substantially all of our revenues are based on fixed-fee contracts that are not directly impacted by changes in commodity prices, commodity price changes do impact the revenues and cash flows of Antero Resources, and Antero Resources’ drilling and development plan does have a direct impact on our gathering, compression and water handling services, revenues and cash flows. In the current economic environment, we expect that commodity prices for some or all of the commodities produced by Antero Resources could remain volatile. However, due to Antero Resources’ improved liquidity and leverage position as compared to past levels, Antero Resources is pursuing a maintenance capital program. Therefore, we do not expect to experience significant variability in our throughput volumes resulting from volatile commodity prices.
Growth Incentive Fee Program with Antero Resources
Our 2019 gathering and compression agreement with Antero Resources includes a growth incentive fee program whereby we agreed to provide quarterly fee rebates to Antero Resources through December 31, 2023, contingent upon Antero Resources achieving volumetric growth targets on low pressure gathering. Antero Resources’ throughput gathered under the Marcellus gathering and compression agreements is not considered in the low pressure gathering volume targets. If actual low pressure volumes are below the lowest threshold for the respective period, Antero Resources will not earn a reduction in low pressure gathering fees.
The growth incentive fee rebate program expires December 31, 2023, and the following table summarizes the remaining low pressure gathering growth incentive targets through the remainder of 2023:
Low Pressure Gathering
Quarterly Fee
Volume Growth Incentive
Reduction
Targets (MMcf/d)
(in millions)
Calendar Year 2023
Threshold 1
>2,900 and <3,150
$12.0
Threshold 2
>3,150 and <3,400
$15.5
Threshold 3
>3,400
$19.0
During the three months ended June 30, 2022 and 2023, Antero Resources delivered low pressure gathering volumes under the 2019 gathering and compression agreement of 2,970 MMcf/d and 3,118 MMcf/d, respectively, and as a result, earned a quarterly fee reduction of $12 million during both periods. During the six months ended June 30, 2022 and 2023, Antero Resources earned $24 million in fee reductions during both periods.
Economic Indicators
The economy experienced elevated inflation levels as a result of global supply and demand imbalances, where global demand outpaced supplies beginning in 2021 and continuing through the first half of 2023. For example, the Consumer Price Index (“CPI”) for all urban consumers increased 9% from June 2021 to June 2022 and an additional 3% from June 2022 to June 2023 as compared to the Federal Reserve’s stated goal of 2%. In order to manage the inflation risk present in the United States’ economy, the Federal Reserve utilized monetary policy in the form of interest rate increases beginning in March 2022 in an effort to bring the inflation rate in line with its stated goal of 2% on a long-term basis. Between March 2022 and May 2023, the Federal Reserve increased the federal funds interest rate by 5.0%. While inflationary pressures in the United States’ economy have begun to subside, we continue to be impacted by the increased federal funds interest rate. See “—Results of Operations” for additional information.
The economy also continues to be impacted by global events. These events have often caused global supply chain disruptions with additional pressure due to trade sanctions on Russia and other global trade restrictions, among others. However, neither our nor Antero Resources’ supply chain has experienced any significant interruptions due to such events.
Inflationary pressures and supply chain disruptions could result in further increases to our operating and capital costs that are not fixed. However, our gathering and compression and water agreements provide for annual CPI-based adjustments that mitigate a portion of such inflationary pressures.
These economic variables are beyond our control and may adversely impact our business, financial condition, results of operations and future cash flows.
Results of Operations
We have two operating segments: (i) gathering and processing and (ii) water handling. The gathering and processing segment includes a network of gathering pipelines and compressor stations that collect and process production from Antero Resources’ wells in the Appalachian Basin, as well as equity in earnings from our investments in the Joint Venture and Stonewall. The Joint Venture and Stonewall provide processing and fractionation services and high-pressure gas gathering services, respectively, in the Appalachian Basin. The water handling segment includes (i) two independent systems that deliver water from sources including the Ohio River, local reservoirs and several regional waterways, and (ii) other fluid handling services, which include high rate transfer, wastewater transportation, disposal and blending.
27
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2023
The operating results of our reportable segments are as follows:
258,333
General and administrative (excluding equity-based compensation)
6,268
2,658
1,512
10,438
4,222
1,191
Total other income (expense)
143,838
(47,166)
(73,565)
Adjusted EBITDA (2)
221,028
28
287,681
5,126
1,705
9,663
6,244
2,029
226
163,234
(57,319)
(86,414)
242,525
29
The operating data for Antero Midstream is as follows:
Amount of
Increase
Percentage
or Decrease
Change
Operating Data:
Gathering—low pressure (MMcf)
270,302
300,706
30,404
%
Compression (MMcf)
252,644
295,801
43,157
Gathering—high pressure (MMcf)
256,537
265,890
9,353
Fresh water delivery (MBbl)
10,048
9,585
(463)
(5)
Other fluid handling (MBbl)
4,128
4,953
825
Wells serviced by fresh water delivery
53
Gathering—low pressure (MMcf/d)
2,970
3,304
334
Compression (MMcf/d)
2,776
3,251
475
Gathering—high pressure (MMcf/d)
2,819
2,922
103
Fresh water delivery (MBbl/d)
110
105
Other fluid handling (MBbl/d)
45
Average Realized Fees:
Average gathering—low pressure fee ($/Mcf)
0.34
0.35
0.01
Average compression fee ($/Mcf)
0.21
Average gathering—high pressure fee ($/Mcf)
Average fresh water delivery fee ($/Bbl)
4.09
4.21
0.12
Joint Venture Operating Data:
Processing—Joint Venture (MMcf)
132,664
145,645
12,981
Fractionation—Joint Venture (MBbl)
3,368
3,553
185
Processing—Joint Venture (MMcf/d)
1,458
1,600
142
Fractionation—Joint Venture (MBbl/d)
37
Revenues. Total revenues increased by 13%, from $229 million for the three months ended June 30, 2022 to $258 million for the three months ended June 30, 2023. Total revenues included amortization of customer relationships of $18 million for the three months ended June 30, 2022 and 2023. Gathering and processing revenues increased by 15%, from $175 million for the three months ended June 30, 2022 to $202 million for the three months ended June 30, 2023. Water handling revenues increased by 4%, from $54 million for the three months ended June 30, 2022 to $56 million for the three months ended June 30, 2023. These fluctuations primarily resulted from the following:
30
Direct operating expenses. Direct operating expenses increased by 21%, from $43 million for the three months ended June 30, 2022 to $53 million for the three months ended June 30, 2023. Gathering and processing direct operating expenses increased by 30%, from $19 million for the three months ended June 30, 2022 to $25 million for the three months ended June 30, 2023 primarily due to 12 compressor stations that were acquired during the fourth quarter of 2022 and increased heavy maintenance expense between periods. Water handling direct operating expenses increased by 15%, from $24 million for the three months ended June 30, 2022 to $28 million for the three months ended June 30, 2023 primarily due to higher wastewater trucking volumes and rates, and higher fresh water expense between periods due to maintenance and repairs.
General and administrative (excluding equity-based compensation) expenses. General and administrative expenses (excluding equity-based compensation expense) remained consistent at $10 million for the three months ended June 30, 2022 and 2023.
Equity-based compensation expenses. Equity-based compensation expenses increased from $6 million for the three months ended June 30, 2022 to $8 million for the three months ended June 30, 2023 primarily due to an increase in the annual equity awards granted during the first quarter of 2023 as compared to prior years, which were temporarily and significantly reduced during 2020 and supplemented by our cash awards program. Our equity awards vest over three or four year service periods, and our equity incentive program began returning to normal levels in 2021. See Note 9—Equity-Based Compensation and Cash Awards to the unaudited condensed consolidated financial statements for additional information.
Depreciation expense. Depreciation expense remained relatively consistent at $36 million and $35 million for the three months ended June 30, 2022 and 2023, respectively.
Impairment of property and equipment expense. Impairment of property and equipment expense of $4 million during the three months ended June 30, 2022 was primarily due to (i) a write-down of the Clearwater Facility related to the retirement obligation for the facility and (ii) cancelled projects. There were no impairments of property and equipment during the three months ended June 30, 2023.
Loss (gain) on asset sale. Loss on asset sale of $6 million for the three months ended June 30, 2023 is primarily due to sales of miscellaneous equipment.
Interest expense. Interest expense increased by 22%, from $45 million for the three months ended June 30, 2022 to $55 million for the three months ended June 30, 2023 primarily due to the increased interest rates on our Credit Facility as a result of higher benchmark rates during the three months ended June 30, 2023 and higher Credit Facility borrowings between periods primarily as a result of our asset acquisitions in the fourth quarter of 2022.
Equity in earnings of unconsolidated affiliates. Equity in earnings of unconsolidated affiliates increased by 14%, from $23 million for the three months ended June 30, 2022 to $26 million for the three months ended June 30, 2023 primarily due to higher processing and fractionation fees as a result of annual CPI-based adjustments and increased volumes between periods.
Income tax expense. Income tax expense for the three months ended June 30, 2022 and 2023 was $26 million and $29 million, respectively, which reflects effective tax rates of 25.0% and 25.1%, respectively.
Net income. Net income increased by 10%, from $79 million for the three months ended June 30, 2022 to $87 million for the three months ended June 30, 2023. The increase was primarily due to higher gathering, compression and other fluid handling revenues and higher equity in earnings from unconsolidated affiliates, partially offset by higher direct operating expenses, interest expense and equity-based compensation expense between periods.
31
Adjusted EBITDA. Adjusted EBITDA increased by 10%, from $221 million for the three months ended June 30, 2022 to $243 million for the three months ended June 30, 2023. The increase between periods was primarily due to higher gathering, compression and other fluid handling revenues, partially offset by higher direct operating expenses. For a discussion of the non-GAAP financial measure Adjusted EBITDA, including a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, read “—Non-GAAP Financial Measures” below.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2023
506,097
13,833
8,930
2,774
25,537
6,358
1,660
297,583
(92,934)
(147,400)
430,058
32
576,552
10,898
7,326
2,459
20,683
10,652
3,743
431
321,876
(112,902)
(173,667)
484,306
33
534,029
586,129
52,100
506,118
578,163
72,045
515,579
518,019
2,440
17,922
20,695
2,773
8,331
9,918
1,587
36
46
2,950
3,238
288
2,796
3,194
398
2,849
2,862
99
114
55
4.08
0.13
268,906
281,386
12,480
6,445
6,775
330
1,486
1,555
69
Revenues. Total revenues increased by 16%, from $447 million for the six months ended June 30, 2022 to $518 million for the six months ended June 30, 2023. Total revenues included amortization of customer relationships of $35 million for the six months ended June 30, 2022 and 2023. Gathering and processing revenues increased by 13%, from $348 million for the six months ended June 30, 2022 to $392 million for the six months ended June 30, 2023. Water handling revenues increased by 26%, from $99 million for the six months ended June 30, 2022 to $126 million for the six months ended June 30, 2023. These fluctuations primarily resulted from the following:
34
Direct operating expenses. Direct operating expenses increased by 29%, from $85 million for the six months ended June 30, 2022 to $110 million for the six months ended June 30, 2023. Gathering and processing direct operating expenses increased by 35%, from $36 million for the six months ended June 30, 2022 to $49 million for the six months ended June 30, 2023 primarily due to 12 compressor stations that were acquired during the fourth quarter of 2022 and increased heavy maintenance expense between periods. Water handling direct operating expenses increased by 25%, from $49 million for the six months ended June 30, 2022 to $61 million for the six months ended June 30, 2023 primarily due to higher wastewater trucking volumes and rates, and an increased number of locations connected to our water blending system between periods.
General and administrative (excluding equity-based compensation) expenses. General and administrative expenses (excluding equity-based compensation expense) decreased by 19%, from $26 million for the six months ended June 30, 2022 to $21 million for six months ended June 30, 2023 primarily due to lower legal costs associated with the Veolia legal matter between periods and lower costs allocated to us from Antero Resources. See Note 14—Contingencies to the unaudited condensed consolidated financial statements for additional information.
Equity-based compensation expenses. Equity-based compensation expenses increased from $8 million for the six months ended June 30, 2022 to $15 million for the six months ended June 30, 2023 primarily due to an increase in the annual equity awards granted during the first half of 2023 as compared to prior years, which were temporarily and significantly reduced during 2020 and supplemented by our cash awards program. Our equity awards vest over three or four year service periods, and our equity incentive program began returning to normal levels in 2021. See Note 9—Equity-Based Compensation and Cash Awards to the unaudited condensed consolidated financial statements for additional information.
Depreciation expense. Depreciation expense increased by 10%, from $64 million for the six months ended June 30, 2022 to $70 million for the six months ended June 30, 2023. This increase is primarily due to (i) $3 million for our assets acquired during the fourth quarter of 2022, (ii) $2 million of higher expense on the phased early retirement of an underutilized compressor station and (iii) $1 million related to assets placed in service between periods. The phased early retirement of the underutilized compressor station began in the second quarter of 2022 and was completed during the first half of 2023, and allowed us to relocate and reuse the compressor units and equipment to (i) expand an existing compressor station and/or (ii) contribute to a new compressor station. There were certain costs associated with the underutilized compressor station that could not be relocated or reused, and such costs were fully depreciated during the first half of 2023.
Impairment of property and equipment expense. Impairment of property and equipment expense of $4 million during the six months ended June 30, 2022 was primarily due to (i) a write-down of the Clearwater Facility related to the retirement obligation for the facility and (ii) cancelled projects. There were no impairments of property and equipment during the six months ended June 30, 2023.
Loss (gain) on asset sale. Loss on asset sale of $6 million for the six months ended June 30, 2023 is primarily due to sales of miscellaneous equipment.
Interest expense. Interest expense increased by 23%, from $90 million for the six months ended June 30, 2022 to $110 million for the six months ended June 30, 2023 primarily due to increased interest rates on our Credit Facility due to higher benchmark rates during the six months ended June 30, 2023 and higher borrowings on our Credit Facility between periods primarily as a result of our asset acquisitions in the fourth quarter of 2022.
Equity in earnings of unconsolidated affiliates. Equity in earnings of unconsolidated affiliates increased by 9%, from $46 million for the six months ended June 30, 2022 to $50 million for the six months ended June 30, 2023 primarily due to higher processing and fractionation fees as a result of annual CPI-based adjustments and increased volumes between periods.
35
Income tax expense. Income tax expense increased by 12%, from $54 million for the six months ended June 30, 2022 to $61 million for the six months ended June 30, 2023, which reflects effective tax rates of 25.5% and 25.9%, respectively. This income tax expense increase was primarily due to higher pre-tax income between periods.
Net income. Net income increased by 9%, from $159 million for the six months ended June 30, 2022 to $174 million for the six months ended June 30, 2023 primarily due to higher gathering, compression and water handling revenues and lower general and administrative costs, excluding equity-based compensation expense between periods, partially offset by higher direct operating expenses, interest expense, depreciation expense and equity-based compensation expense between periods.
Adjusted EBITDA. Adjusted EBITDA increased by 13%, from $430 million for the six months ended June 30, 2022 to $484 million for the six months ended June 30, 2023. The increase between periods was primarily due to higher gathering, compression and water handling revenues, lower general and administrative costs, excluding equity-based compensation expense, and higher distributions from unconsolidated affiliates, partially offset by higher direct operating expenses. For a discussion of the non-GAAP financial measure Adjusted EBITDA, including a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, see “—Non-GAAP Financial Measures” below.
Capital Resources and Liquidity
Sources and Uses of Cash
Capital resources and liquidity are provided by operating cash flows and available borrowings under our Credit Facility and capital market transactions. See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements. We expect that the combination of these capital resources will be adequate to meet our working capital requirements, capital expenditures program and expected quarterly cash dividends for at least the next 12 months.
Our Board of Directors (the “Board”) declared a cash dividend on the shares of our common stock of $0.2250 per share for the quarter ended June 30, 2023. The dividend is payable on August 9, 2023 to stockholders of record as of July 26, 2023. Our Board also declared a cash dividend of $138 thousand on the shares of Series A Preferred Stock that is payable on August 14, 2023 in accordance with their terms as discussed in Note 11—Equity and Earnings Per Common Share. As of June 30, 2023, there were dividends in the amount of $69 thousand accumulated in arrears on our Series A Preferred Stock.
We expect our future cash requirements relating to working capital, capital expenditures, acquisitions and quarterly cash dividends to our stockholders will be funded from cash flows internally generated from our operations or borrowings under the Credit Facility.
As of June 30, 2023, we did not have any off-balance sheet arrangements.
Cash Flows
The following table summarizes our cash flows for the six months ended June 30, 2022 and 2023:
Operating activities. Net cash provided by operating activities was $354 million and $368 million for the six months ended June 30, 2022 and 2023, respectively. The increase in cash flows provided by operations between periods was primarily the result of higher gathering, compression and water handling revenues as well as higher distributions from unconsolidated affiliates between periods, partially offset by changes in working capital, higher direct operating expenses and higher interest expense.
Investing activities. Net cash flows used in investing activities was $163 million and $84 million for the six months ended June 30, 2022 and 2023, respectively. The decrease in cash flows used in investing activities between periods was primarily due to decreased capital spending for our gathering systems and facilities and water handling systems of $73 million and $5 million, respectively, primarily as a result of fewer capital projects between periods.
Financing activities. Net cash used in financing activities was $191 million and $284 million for the six months ended June 30, 2022 and 2023, respectively. The increase in cash flows used in financing activities between periods was primarily due to net repayments on our Credit Facility of $57 million during the six months ended June 30, 2023, as compared to net borrowings on our Credit Facility of $33 million during the six months ended June 30, 2022.
2023 Capital Investment
On April 26, 2023, we announced a revised capital budget with a range of $180 million to $200 million, which includes growth capital supporting the increased volumes expected from Antero Resources’ drilling partnership in addition to its maintenance capital program for 2023. Our capital budgets may be adjusted as business conditions warrant. Additionally, we monitor our existing assets and look for opportunities to reuse or otherwise repurpose assets in an effort to maintain our capital efficiency.
Our capital expenditures were as follows:
34,475
55,724
Water handling systems
13,847
26,201
Total capital expenditures
48,584
82,187
Debt Agreements
See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements and to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2022 Form 10-K for information on our debt agreements.
Non-GAAP Financial Measures
We use Adjusted EBITDA as an important indicator of our performance. We define Adjusted EBITDA as net income before net interest expense, income tax expense, depreciation, impairment of property and equipment, accretion of asset retirement obligations, equity-based compensation, excluding equity in earnings of unconsolidated affiliates, amortization of customer relationships, loss on early extinguishment of debt, loss on settlement of asset retirement obligations, loss (gain) on asset sale and including distributions from unconsolidated affiliates.
We use Adjusted EBITDA to assess:
●the financial performance of our assets, without regard to financing methods, capital structure or historical cost basis;
●our operating performance and return on capital as compared to other publicly traded companies in the midstream energy sector, without regard to financing or capital structure; and
●the viability of acquisitions and other capital expenditure projects.
Adjusted EBITDA is a non-GAAP financial measure. The GAAP measure most directly comparable to Adjusted EBITDA is net income. The non-GAAP financial measure of Adjusted EBITDA should not be considered as an alternative to the GAAP measure of net income. Adjusted EBITDA presentations are not made in accordance with GAAP and have important limitations as an analytical tool because they include some, but not all, items that affect net income. You should not consider Adjusted EBITDA in isolation or as a substitute for analyses of results as reported under GAAP. Our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other corporations.
The following table represents a reconciliation of our Adjusted EBITDA to the most directly comparable GAAP financial measure for the periods presented:
45,426
55,388
89,705
110,012
26,399
29,095
Depreciation expense
17,668
(22,824)
(25,972)
29,375
29,465
Adjusted EBITDA
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our financial statements. We provide expanded discussion of our more significant accounting policies, estimates and judgments in the 2022 Form 10-K. We believe these accounting policies reflect our more significant estimates and assumptions used in preparation of our financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risk. The term “market risk” refers to the risk of loss arising from adverse changes in commodity prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures.
Commodity Price Risk
Our gathering and compression and water services agreements with Antero Resources provide for fixed-fee and cost of service fee structures, and we intend to continue to pursue additional fixed-fee or cost of service fee opportunities with Antero Resources and third parties in order to avoid direct commodity price exposure. However, to the extent that our future contractual arrangements with Antero Resources or third parties do not provide for fixed-fee or cost of service fee structures, we may become subject to commodity price risk. We are subject to commodity price risks to the extent that they impact Antero Resources’ development program and production and therefore our gathering, compression, and water handling volumes. We cannot predict to what extent our business would be impacted by lower commodity prices and any resulting impact on Antero Resources’ operations.
Interest Rate Risk
Our primary exposure to interest rate risk results from outstanding borrowings under the Credit Facility, which has a floating interest rate. We do not currently, but may in the future, hedge the interest on portions of our borrowings under the Credit Facility from time-to-time in order to manage risks associated with floating interest rates. At June 30, 2023, we had $726 million of borrowings and no letters of credit outstanding under the Credit Facility. A 1.0% increase in the Credit Facility interest rate would have resulted in an estimated $4 million increase in interest expense for the six months ended June 30, 2023.
Credit Risk
We are dependent on Antero Resources as our primary customer, and we expect to derive substantially all of our revenues from Antero Resources for the foreseeable future. As a result, any event, whether in our area of operations or otherwise, that adversely affects Antero Resources’ production, drilling schedule, financial condition, leverage, market reputation, liquidity, results of operations or cash flows may adversely affect our revenues and operating results.
Further, we are subject to the risk of non-payment or non-performance by Antero Resources, including with respect to our gathering and compression and water handling services agreements. We cannot predict the extent to which Antero Resources’ business would be impacted if conditions in the energy industry were to deteriorate, nor can we estimate the impact such conditions would have on Antero Resources’ ability to execute its drilling and development program or to perform under our agreements. Any material non-payment or non-performance by Antero Resources could adversely affect our revenues and operating results and our ability to return capital to stockholders.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2023 at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings.
Our operations are subject to a variety of risks and disputes normally incident to our business. As a result, we may, at any given time, be a defendant in various legal proceedings and litigation arising in the ordinary course of business.
We maintain insurance policies with insurers in amounts and with coverage and deductibles that we, with the advice of our insurance advisors and brokers, believe are reasonable and prudent. We cannot, however, assure you that this insurance will be adequate to protect us from all material expenses related to potential future claims for personal and property damage or that these levels of insurance will be available in the future at economical prices.
See Note 14—Contingencies to the unaudited condensed consolidated financial statements for additional information.
Item 1A. Risk Factors.
We are subject to certain risks and hazards due to the nature of the business activities we conduct. For a discussion of these risks, see “Item 1A. Risk Factors” in the 2022 Form 10-K. There have been no material changes to the risks described in such report. We may experience additional risks and uncertainties not currently known to us. Furthermore, as a result of developments occurring in the future, conditions that we currently deem to be immaterial may also materially and adversely affect us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following table sets forth our common stock share purchase activity for each period presented:
Approximate
Total Number of
Dollar Value of
Total Number
Average Price
Shares Purchased
Shares that May
of Shares
Paid per
as Part of Publicly
Yet be Purchased
Purchased (1)
Share
Announced Plans (2)
Under the Plan (2)
April 1, 2023 – April 30, 2023
676,220
10.62
149,767,409
May 1, 2023 – May 31, 2023
N/A
June 1, 2023 – June 30, 2023
Item 6. Exhibits
Exhibit Number
Description of Exhibit
3.1
Certificate of Conversion of Antero Midstream Corporation, dated March 12, 2019 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (Commission File No. 001-38075) filed on March 12, 2019).
3.2
Certificate of Incorporation of Antero Midstream Corporation, dated March 12, 2019 (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K (Commission File No. 001-38075) filed on March 12, 2019).
3.3
Certificate of Amendment to Certificate of Incorporation of Antero Midstream Corporation, dated June 8, 2023 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (Commission File No. 001-38075) filed on June 8, 2023).
3.4
Amended and Restated Bylaws of Antero Midstream Corporation, dated February 14, 2023 (incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K (Commission File No. 001-38075) filed on February 15, 2023).
3.5
Certificate of Designations of Antero Midstream Corporation, dated March 12, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (Commission File No. 001-38075) filed on March 12, 2019).
31.1
Certification of the Company’s Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241).
31.2
Certification of the Company’s Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241).
32.1
Certification of the Company’s Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2
Certification of the Company’s Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
101
The following financial information from this Quarterly Report on Form 10-Q of Antero Midstream Corporation for the quarter ended June 30, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
The exhibits marked with the asterisk symbol (*) are filed or furnished with this Quarterly Report on Form 10-Q.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
By:
/s/ BRENDAN E. KRUEGER
Brendan E. Krueger
Chief Financial Officer, Vice President – Finance and Treasurer
Date:
July 26, 2023