(c) | Transaction Price Allocated to Remaining Performance Obligations |
The majority of the Company’s service contracts have a term greater than one year. As such, 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 the Company’s service contracts, 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 remainder of the Company’s service contracts, which relate to contracts with third parties, 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.
Under the Company’s service contracts, the Company invoices customers after its performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s service contracts do not give rise to contract assets or liabilities. At December 31, 20162020 and SeptemberJune 30, 20172021, the Company’s receivables with customers were $74 million and $90 million, respectively.
(6) Property and Equipment
The Company’s investment in property and equipment for the periods presented is as follows:
| | | | | | | | | |
| | | | | | (Unaudited) | |
| | Estimated | | December 31, | | June 30, | |
(in thousands) | | Useful Lives | | 2020 | | 2021 | |
Land | | n/a | | $ | 23,582 | | | 23,369 | |
Gathering systems and facilities | | 40-50 years (1) | | | 2,643,927 | | | 2,672,545 | |
Permanent buried pipelines and equipment | | 7-20 years | | | 545,419 | | | 565,472 | |
Surface pipelines and equipment | | 1-7 years | | | 50,916 | | | 52,569 | |
Heavy trucks and equipment | | 3-5 years | | | 5,919 | | | 5,919 | |
Above ground storage tanks | | 5-10 years | | | 2,483 | | | 2,483 | |
Construction-in-progress | | n/a | | | 139,506 | | | 182,611 | |
Total property and equipment | | | | | 3,411,752 | | | 3,504,968 | |
Less accumulated depreciation | | | | | (157,708) | | | (211,177) | |
Property and equipment, net | | | | $ | 3,254,044 | | | 3,293,791 | |
| (1) | Gathering systems and facilities are recognized as a single-leased asset with 0 residual value. |
resources
Due to servicing Antero Resources’ operations and revenues from Antero Resources will provide substantially all of Antero Midstream’s financial support and therefore its ability to finance its operations. Because of the long term contractual commitment to support Antero Resources’ substantial growth plans, Antero Midstream will be practically and physically constrained from providing any significant amount of services to third parties.
Our ownership ofdecline in the non-economic general partner interest in Antero Midstream provides us with significant influence over Antero Midstream, but not control over the decisions that most significantly impact the economic performance of Antero Midstream. Our ownership of IDRs of Antero Midstream entitles us to receive cash distributions from Antero Midstream when distributions exceed certain target amounts. The ownership of these interests and IDRs do not require us to provide financial support to Antero Midstream. We obtained these interests upon our formation for no consideration. Therefore, they have no cost basis and are classified as long term investments. Our share of Antero Midstream’s earningsindustry environment as a result of our ownershiplow commodity prices, the Company evaluated its assets for impairment during the first quarter of IDRs is accounted2020. As a result of this evaluation, the Company recorded an impairment expense of $89 million, which included an $83 million impairment expense to its permanent buried pipelines and equipment and a $6 million impairment expense to its surface pipelines and equipment.
Additionally, the Company incurred facility idling costs for using the equity methodcare and maintenance of accounting. We recognize distributions earned from its wastewater treatment facility and related landfill (collectively, the “Clearwater Facility”) of $2 million and $1 million during the three months ended June 30, 2020 and 2021, respectively, and $11 million and $2 million during the six months ended June 30, 2020 and 2021, respectively. The Clearwater Facility was fully impaired when it was idled in September 2019.
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ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
to the extent of the value of the collateral securing the Credit Facility. The 2024 Notes were 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 2024 Notes was payable on March 15 and September 15 of each year.
(c) | 7.875% Senior Notes Due 2026 |
On November 10, 2020, 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, 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% on or after May 15, 2023 to 100.00% on or after May 15, 2025. In addition, prior to May 15, 2023, Antero Midstream Partners may redeem up to 35% of the aggregate principal amount of the 2026 Notes with an amount of cash not provide usgreater than the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 107.875% of the principal amount of the 2026 Notes, plus accrued and unpaid interest. At any time prior to May 15, 2023, Antero Midstream Partners may also redeem the 2026 Notes, in whole or in part, at a price equal to 100% of the principal amount of the 2026 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 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.
(d) | 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 contractual 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 102.875% on or after March 1, 2022 to 100.00% on or after March 1, 2025. In addition, prior to March 1, 2022, Antero Midstream Partners may redeem up to 35% of the aggregate principal amount of the 2027 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 105.75% of the principal amount of the 2027 Notes, plus accrued and unpaid interest. At any time prior to March 1, 2022, Antero Midstream Partners may also redeem the 2027 Notes, in whole or in part, at a price equal to 100% of the principal amount of the 2027 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 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.
(e) | 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% on or after January 15, 2023 to 100.00% on or after January 15, 2026. In addition, prior to January 15, 2023, Antero Midstream Partners may redeem up to 35% of the aggregate principal amount of the 2028 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 105.75% of the principal
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ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
amount of the 2028 Notes, plus accrued and unpaid interest. At any time prior to January 15, 2023, Antero Midstream Partners may also redeem the 2028 Notes, in whole or in part, at a price equal to 100% of the principal amount of the 2028 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 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.
(f) | 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, 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.
(g) | Senior Notes Guarantors |
The Company and each of the Company’s wholly owned subsidiaries (except for the Issuers) fully and unconditionally guaranteed the 2024 Notes, 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 claimcovenant defeasance, legal defeasance or satisfaction and discharge of the applicable Senior Notes.
During the three and six months ended June 30, 2020 and 2021, all of the Company’s assets and operations are attributable to the assetsIssuers and its guarantors.
(8) Accrued Liabilities
Accrued liabilities as of December 31, 2020 and June 30, 2021 consisted of the following items:
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ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
The Board also declared a cash dividend of $138 thousand on the shares of Series A Preferred Stock of Antero Midstream other thanto be paid on August 16, 2021 in accordance with the balance in our Antero Midstream capital account. IDRs are recognized as earned and increase our capital account and equity investment. When these distributions are paid to us they reduce our capital accounts and our equity investment in Antero Midstream. See Note 4—Distributions from Antero Midstream.
(d)Use of Estimates
The preparationterms of the condensed consolidated financial statementsSeries A Preferred Stock, which are discussed in Note 11—Equity and notes in conformity with GAAP requires that management formulate estimates and assumptions that affect the amounts reportedEarnings Per Common Share. As of June 30, 2021, there were dividends in the condensed consolidated financial statementsamount of $69 thousand accumulated in arrears on the Company’s Series A Preferred Stock.
(11) Equity and accompanying notes. Actual results could differEarnings Per Common Share
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 those estimates.
(e)Income Taxes
We regularly review our tax positionsthe date of original issue and payable in cash on the 45th day following the end of each significant taxing jurisdiction duringfiscal quarter, or such other dates as the processBoard will approve, at a rate of evaluating our tax provision. We make adjustments to our tax provision when:5.5% per annum on (i) factsthe liquidation preference per share of Series A Preferred Stock (as described below) and circumstances regarding a tax position change, causing(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 in management’s judgment regarding that tax position; and/of control, or (ii) a tax position is effectively settled with a tax authorityat any time on or after March 12, 2029, the Company may redeem the Series A Preferred Stock at a differing amount.
Equity-based compensation expenseprice equal to $1,000 per share, plus any accrued and unpaid dividends, payable in cash; provided that if any shares of $26.3 millionthe 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 IPO costs(ii) the fair market value of $5.1 million arethe 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 and will not be deductible for federal income tax purposes. Our inability to deduct those expenses and costs, along withhave any voting rights in the effect of state taxes, account for the difference between the federal tax rate of 35% and effective rate of income tax expense for financial reporting purposes for the nine months ended September 30, 2017.
(f)General and Administrative Expenses
General and administrative costs incurred during 2016 and pre-IPO in 2017 primarily relate to legal and other costs incurred in connection with our IPO. Post-IPO general and administrative expense consists primarily of management fees paid to Antero Resources, and other legal and administrative expenses.
(g) Fair Value Measures
The Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures , clarifies the definition of fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance also relates to all nonfinancial assets andCompany, except as required by law, or any preemptive rights.
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ANTERO MIDSTREAM GP LPCORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements
December 31, 2016 and September 30, 2017
(Continued)
(b) | Weighted Average Shares Outstanding |
liabilities that are not recognized or disclosed onThe following is a recurring basis (e.g., the initial recognition of asset retirement obligations and impairments of long ‑lived assets). The fair value is the price that we estimate would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is used to prioritize inputs to valuation techniques used to estimate fair value. An asset or liability subject to the fair value requirements is categorized within the hierarchy based on the lowest level of input that is significant to the fair value measurement. Our assessmentreconciliation of the significance of a particular inputCompany’s basic weighted average shares outstanding to diluted weighted average shares outstanding during the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The highest priority (Level 1) is given to unadjusted quoted market prices in active markets for identical assets or liabilities, and the lowest priority (Level 3) is given to unobservable inputs. Level 2 inputs are data, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly.periods presented:
| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | |
| | June 30, | | June 30, | |
(in thousands) | | 2020 | | 2021 | | 2020 | | 2021 | |
Basic weighted average number of shares outstanding | | | 476,836 | | | 477,290 | | | 479,969 | | | 477,071 | |
Add: Dilutive effect of RSUs | | | 40 | | | 1,063 | | | — | | | 1,109 | |
Add: Dilutive effect of PSUs | | | — | | | 215 | | | — | | | 240 | |
Add: Dilutive effect of Series A Preferred Stock | | | 1,961 | | | 962 | | | — | | | 962 | |
Diluted weighted average number of shares outstanding | | | 478,837 | | | 479,530 | | | 479,969 | | | 479,382 | |
| | | | | | | | | | | | | |
Weighted average number of outstanding equity awards excluded from calculation of diluted earnings per common share (1): | | | | | | | | | | | | | |
RSUs | | | 1,734 | | | 341 | | | 1,712 | | | 310 | |
Series A Preferred Shares | | | — | | | — | | | 1,961 | | | — | |
(1) | The potential dilutive effects of these awards were excluded from the computation of earnings (loss) per common shares—assuming dilution because the inclusion of these awards would have been anti-dilutive. |
(c) | Earnings Per Common Share |
(h) Net Income (Loss)Earnings per Common Share
Net income (loss) per common share – share—basic for each period is computed by dividing netnet income (loss) attributable to AMGP subsequent to IPOthe Company by the basic weighted average number of shares of AM common sharesstock outstanding during the period. Net income (loss)Earnings per common share – dilutedshare—assuming dilution for each period is computed after giving consideration to the potential dilution from outstanding equity awards, calculated using the treasury stock method. During the periods in which AMGPthe Company incurs a net loss, diluted weighted average shares outstanding are equal to basic weighted average common shares outstanding because the effect of all equity awards is anti-dilutive.
| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | |
| | June 30, | | June 30, | |
(in thousands, except per share amounts) | | 2020 | | 2021 | | 2020 | | 2021 | |
Net income (loss) | | $ | 88,441 | | | 80,223 | | | (304,492) | | | 163,664 | |
Less preferred stock dividends | | | (137) | | | (137) | | | (275) | | | (275) | |
Net income (loss) available to common shareholders | | $ | 88,304 | | | 80,086 | | | (304,767) | | | 163,389 | |
| | | | | | | | | | | | | |
Net income (loss) per share–basic | | $ | 0.19 | | | 0.17 | | | (0.63) | | | 0.34 | |
Net income (loss) per share–diluted | | $ | 0.18 | | | 0.17 | | | (0.63) | | | 0.34 | |
| | | | | | | | | | | | | |
Weighted average common shares outstanding–basic | | | 476,836 | | | 477,290 | | | 479,969 | | | 477,071 | |
Weighted average common shares outstanding–diluted | | | 478,837 | | | 479,530 | | | 479,969 | | | 479,382 | |
(12) Fair Value Measurement
Goodwill
The following is a reconciliation of AMGP's basic weighted average common shares outstanding to diluted weighted average common shares outstanding duringCompany estimated the periods presented (in thousands):
| | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2017 |
Basic weighted average number of common shares outstanding | | 186,173 | | 186,172 |
Add: Dilutive effect of Series B units | | 5,002 | | 5,019 |
Diluted weighted average number of common shares outstanding | | 191,175 | | 191,191 |
(3)Long-Term Incentive Plans
As of September 30, 2017, IDR LLC had 98,600 Series B Units authorized and outstanding that entitle the holders to receive up to 6% of the amount of the distributions that Antero Midstream makes on its IDRs in excess of $7.5 million per quarter, subject to certain vesting conditions. Series B Units issued to common law employees of AMGP, including officers of AMGP and Antero Resources employees who provide services directly to AMGP, are classified as equity awards. Series B Units issued to Antero Resources employees who are not common law employees of AMGP are classified as liability awards. IDR LLC granted 92,000 Series B Units that are equity classified awards and 8,000 Series B Units that are liability classified awards. During the nine months ending September 30, 2017, 500 Series B Units that were equity classified awards were forfeited, and 900 Series B units that were liability classified awards were forfeited. The Series B Units vest ratably over a three year period. The holders of vested Series B Units have the right to convert the units to common shares with a value equal to their pro rata share of up to 6% of any increase in our equity value in excess of $2.0 billion. In no event will the aggregate number of newly issued common shares exceed 6% of the total number of our issued and outstanding common shares.
For equity classified awards, we recognize expense for the grant date fair value of its assets in performing its goodwill impairment analysis in the awards overfirst quarter of 2020. The Company utilized a combination of approaches to discounted cash flow approach, comparable company method and the vesting period of the awards. Forfeitures are accounted for as they occur by reversing expense previously recognized for awards that were forfeited during the period. The grant date fair value of the Series B Unit awards was estimated using a Monte Carlo simulation using various assumptions including a floor equity value of $2.0 billion, expected volatility of 43% based onmarket
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ANTERO MIDSTREAM GP LPCORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements
December 31, 2016 and September 30, 2017
(Continued)
historical volatility of a peer group of publicly traded partnerships, a risk free rate of 2.45%, and expected IDR distributions based on internal estimates discounted based onvalue approach. The Company used a weighted average cost of capital assumption of 7.25%. Based on these assumptions, the estimated value18.0% as of each Series B Unit was $999 when they were issued.
For liability classified awards, we recognize expense for the fair value of the awards over the vesting period of the awards. Forfeitures are accounted for as they occur by reversing expense previously recognized for awards that were forfeited during the period. We update our assumptions each reporting period based on new developments and adjust such amounts to fair value based on revised assumptions, if applicable, over the vesting period. At September 30, 2017, the fair value of the Series B Unit awards was estimated using a Monte Carlo simulation using various assumptions including an equity value of $4.0 billion, expected volatility of 41% based on historical volatility of a peer group of publicly traded partnerships, a risk free rate of 2.28%, and expected IDR distributions based on internal estimates discounted based on a weighted average cost of capital assumption of 7.25%. Based on these assumptions, the estimated value of each Series B Unit at September 30, 2017 was $1,884. The fair value measurementMarch 31, 2020, which is based on significant inputs not observable in the market, and thus represents a Level 3 measurement within the fair value hierarchy.
Property and equipment
We recognized expenseThe Company estimated the undiscounted future cash flow projections to assess its property and equipment for impairment. The carrying values of $8.2certain freshwater permanent buried pipelines and equipment and fresh water surface pipelines and equipment were deemed not recoverable. As a result, the carrying values have been reduced to the estimated fair values, which are based on discounted future cash flows using assumptions as to revenues, costs, and a discount rate typical of third-party market participants of 19.0% as of March 31, 2020, which is a Level 3 fair value measurement within the fair value hierarchy.
Contingent Acquisition Consideration
In connection with Antero Resources’ contribution of Antero Water and certain water handling assets to Antero Midstream Partners in September 2015 (the “Water Acquisition”), Antero Midstream Partners agreed to pay Antero Resources (a) $125 million in cash if Antero Midstream Partners delivered 176,295,000 barrels or more of which $7.6 million was for equity classified awards and $0.6 million was for liability classified awards,fresh water during the three months ended September 30, 2017. We recognized expenseperiod between January 1, 2017 and December 31, 2019 and (b) an additional $125 million in cash if Antero Midstream Partners delivered 219,200,000 barrels or more of $26.2 million, of which $22.9 million was for equity classified awards and $3.3 million was for liability classified awards,fresh water during the nine months ended September 30, 2017. period between January 1, 2018 and December 31, 2020. This contingent consideration liability is valued based on Level 3 inputs related to expected average volumes and weighted average cost of capital.
In January 2020, Antero Midstream Partners paid Antero Resources $125 million and, as of December 31, 2020, no additional contingent acquisition consideration was earned.
Senior Unsecured Notes
As of SeptemberDecember 31, 2020 and June 30, 2017, there was $78.6 million2021, the fair value and carrying value of unamortized compensation expense related to nonvested Series B Units that is expected to be recognized over the next 2.25 years.Company’s Senior Notes were as follows:
| | | | | | | | | | | | | |
| | | | | | | | (Unaudited) | |
| | December 31, 2020 | | June 30, 2021 | |
(in thousands) | | Fair Value (1) | | Carrying Value (2) | | Fair Value (1) | | Carrying Value (2) | |
2024 Notes | | $ | 633,750 | | | 646,391 | | | — | | | — | |
2026 Notes | | | 569,250 | | | 543,267 | | | 614,680 | | | 543,766 | |
2027 Notes | | | 637,000 | | | 645,390 | | | 674,375 | | | 645,675 | |
2028 Notes | | | 624,000 | | | 643,078 | | | 681,655 | | | 643,484 | |
2029 Notes | | | — | | | — | | | 781,875 | | | 741,109 | |
Total | | $ | 2,464,000 | | | 2,478,126 | | | 2,752,585 | | | 2,574,034 | |
| (1) | Fair values are based on Level 2 market data inputs. |
| (2) | Carrying values are presented net of unamortized debt issuance costs and debt premiums. |
Other Assets and Liabilities
On April 17, 2017, we also adoptedThe carrying values of accounts receivable and accounts payable at December 31, 2020 and June 30, 2021 approximated fair value because of their short-term nature. The carrying value of the Antero Midstream GP LP Long-Term Incentive Planamounts under the Credit Facility at December 31, 2020 and June 30, 2021 approximated fair value because the variable interest rates are reflective of current market conditions.
(13) Investments in Unconsolidated Affiliates
The Company has a 15% equity interest in a gathering system of Stonewall Gas Gathering LLC (“2017 LTIP”Stonewall”), pursuant to which certain non-employee directors of our general partner and certain officers, employees and consultants ofoperates a 67-mile pipeline on which Antero Resources are eligible to receive awards representing equity interests in AMGP. An aggregate of 930,851 common shares may be delivered pursuant to awards under the 2017 LTIP, subject to customary adjustments. As of September 30, 2017, 3,850 common shares have been granted and we have recognized related expense of $0.1 million. As of September 30, 2017, 927,001 common shares remain available for grant under the 2017 LTIP.
(4)Distributions from Antero Midstream
Antero Midstream’s partnership agreement provides for a target minimum quarterly distribution of $0.17 per unit for each quarter, or $0.68 per unit onis an annualized basis. The partnership agreement generally provides that Antero Midstream distribute cash each quarter to the holders of the common units pro rata until each unit has received a distribution of $0.1955.
If cash distributions to Antero Midstream’s unitholders exceed $0.1955 per common unit in any quarter, IDR LLC, as the holder of Antero Midstream’s IDRs, will receive distributions according to the following percentage allocations:
| | | | | | |
| | Marginal Percentage Interest in Distributions |
Total Quarterly Distribution
Target Amount | | Antero Midstream Common Unitholders | | Holder of IDRs |
above $0.1955 up to $0.2125 | | 85 | % | | 15 | % |
above $0.2125 up to $0.2550 | | 75 | % | | 25 | % |
above $0.2550 | | 50 | % | | 50 | % |
anchor shipper.
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ANTERO MIDSTREAM GP LPCORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements
December 31, 2016 and September 30, 2017
(Continued)
From the initial public offering of Antero MidstreamThe Company has a 50% equity interest in the fourth quarterjoint venture to develop processing and fractionation assets with MarkWest Energy Partners, L.P. (“MarkWest”), a wholly owned subsidiary of 2014 through September 30, 2017,MPLX, LP (the “Joint Venture”). The Joint Venture was formed to develop processing and fractionation assets in Appalachia. MarkWest operates the Joint Venture assets, which consist of processing plants in West Virginia and a one-third interest in 2 MarkWest fractionators in Ohio.
The Company’s net income (loss) includes its proportionate share of the net income of the Joint Venture and Stonewall. When the Company records its proportionate share of net income, it increases equity income in the unaudited condensed consolidated statements of operations and comprehensive income and the carrying value of that investment on its balance sheet. When distributions per common unit and distributions relatedon the Company’s proportionate share of net income are received, they are recorded as reductions to the IDRs were as follows:
| | | | | | | | |
Quarter
and
Year | | Distribution Date | | Antero Midstream Distribution Amount
per Common Unit | | Income Attributable to IDRs
($ thousands) |
Q4 2014 | | February 27, 2015 | | $ | 0.0943 | | $ | — |
Q1 2015 | | May 27, 2015 | | $ | 0.1800 | | $ | — |
Q2 2015 | | August 27, 2015 | | $ | 0.1900 | | $ | — |
Q3 2015 | | November 30, 2015 | | $ | 0.2050 | | $ | 295 |
Q4 2015 | | February 29, 2016 | | $ | 0.2200 | | $ | 969 |
Q1 2016 | | May 25, 2016 | | $ | 0.2350 | | $ | 1,850 |
Q2 2016 | | August 24, 2016 | | $ | 0.2500 | | $ | 2,731 |
Q3 2016 | | November 24, 2016 | | $ | 0.2650 | | $ | 4,820 |
Q4 2016 | | February 8, 2017 | | $ | 0.2800 | | $ | 7,543 |
Q1 2017 | | May 10, 2017 | | $ | 0.3000 | | $ | 11,553 |
Q2 2017 | | August 16, 2017 | | $ | 0.3200 | | $ | 15,328 |
The board of directors of Antero Midstream’s general partner has declared a cash distribution of $0.34 per unit for the quarter ended September 30, 2017. The distribution will be payable on November 16, 2017 to shareholders of record as of November 1, 2017.
IDR distributions paid by Antero Midstream relating to periods prior to May 9, 2017, the closing of our IPO, were distributed to Antero Investment prior to its liquidation.
(5)Cash Distributions
The following table details the amount of quarterly distributions AMGP paid with respect to the quarter indicated (in thousands, except per unit data):
| | | | | | | | | | | | | | | | |
| | | | | | Distributions | | | |
Quarter
and
Year | | Record Date | | Distribution Date | | Common
shareholders | | Antero Resources Investment | | Total | | Distributions
per common share |
* | | May 9, 2017 | | September 13, 2017 | | $ | — | | | 15,907 | | $ | 15,907 | | | * |
Q2 2017 | | August 3, 2017 | | August 23, 2017 | | | 5,027 | | | — | | $ | 5,027 | | $ | 0.0270 |
| | Total 2017 | | | | $ | 5,027 | | | 15,907 | | $ | 20,934 | | | |
* Income relating to periods prior to May 9, 2017, the closing of our IPO, was distributed to Antero Investment prior to its liquidation.
The board of directors of our general partner has declared a cash distribution of $0.059 per share for the quarter ended September 30, 2017. The distribution will be payable on November 23, 2017 to shareholders of record as of November 1, 2017.
Table of Contents
ANTERO MIDSTREAM GP LP
Notes to Condensed Consolidated Financial Statements
December 31, 2016 and September 30, 2017
(6)Related Party Transactions
Certain of AMGP’s shareholders, including members of its executive management group, own a significant interest in AMGP and, either through their representatives or directly, serve as memberscarrying value of the Board of Directors of Antero Resourcesinvestment on the condensed consolidated balance sheet and are classified as cash inflows from operating activities in accordance with the Boards of Directorsnature of the general partnersdistribution approach under FASB ASC Topic 230, Statement of Antero Midstream and AMGP. These same groups or individuals own common stock in Antero Resources and limited partner interests in Antero Midstream. AMGP’s executive management group also manages the operations and business affairs of Antero Resources and Antero Midstream.
(a) Accounts receivable – related party
Accounts receivable at December 31, 2016 and September 30, 2017 includes general and administrative expenses of $0.2 million and $0, respectively, paid by AMGP on behalf of Antero Investment prior to its liquidation. In the nine months ended September 30, 2017, a $0.4 million receivable was settled as part of the Antero Investment liquidation distribution.
(b) Accounts payable
Accounts payable at December 31, 2016 and September 30, 2017 includes $0.3 million and $0, respectively, payable to Antero Resources for general and administrative expenses.
(7)Summarized Financial Information for Antero Midstream
Summarized financial information for Antero Midstream, our investee accounted for usingCash Flows. The Company uses the equity method of accounting is includedto account for its investments in this note. Stonewall and the Joint Venture 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 Stonewall and the Joint Venture.
The following tables present summarized income statementtable is a reconciliation of the Company’s investments in these unconsolidated affiliates:
| | | | | | | | | | |
| | | | | | Total Investment | |
| | | | MarkWest | | in Unconsolidated | |
(in thousands) | | Stonewall | | | Joint Venture | | Affiliates | |
Balance at December 31, 2020 | | $ | 137,632 | | | 584,846 | | | 722,478 | |
Additional investments | | | — | | | 966 | | | 966 | |
Equity in earnings of unconsolidated affiliates | | | 3,168 | | | 39,091 | | | 42,259 | |
Distributions from unconsolidated affiliates | | | (7,095) | | | (51,090) | | | (58,185) | |
Balance at June 30, 2021 | | $ | 133,705 | | | 573,813 | | | 707,518 | |
(14)Reportable Segments
The Company’s operations, which are located in the United States, are organized into 2 reportable segments: (i) gathering and balance sheet informationprocessing and (ii) water handling.
Gathering and Processing
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.
Water Handling
The Company’s water handling segment includes 2 independent systems that deliver fresh water from sources including the Ohio River, local reservoirs and several regional waterways. The water handling segment also includes the Clearwater Facility that was placed in service in 2018 and idled in September 2019, as well as other fluid handling services, which includes high rate transfer, wastewater transportation, disposal and blending. See Note 6—Property and Equipment.
These segments are monitored separately by management for Antero Midstream (in thousands).
| | | | | | | | | | | | |
Summarized Antero Midstream Income Statement Information |
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2016 | | 2017 | | 2016 | | 2017 |
| | (in thousands) |
Revenues | | $ | 150,475 | | | 193,629 | | | 423,357 | | | 562,165 |
Operating expenses | | | 76,192 | | | 110,458 | | | 249,147 | | | 304,730 |
Operating income | | $ | 74,283 | | | 83,171 | | | 174,210 | | | 257,435 |
Net income | | | 70,524 | | | 80,893 | | | 163,352 | | | 243,160 |
Net income attributable to incentive distribution rights | | | (4,807) | | | (19,067) | | | (9,387) | | | (45,948) |
Limited partners' interest in net income | | $ | 65,717 | | | 61,826 | | | 153,965 | | | 197,212 |
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.
Table of Contents
ANTERO MIDSTREAM GP LPCORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
The summarized operating results and assets of the Company’s reportable segments were as follows for the three and six months ended June 30, 2020 and 2021:
December 31, 2016 and September 30, 2017
| | | | | | | | | | | | | |
| | Three Months Ended June 30, 2020 | |
| | Gathering and | | Water | | | | Consolidated | |
(in thousands) | | Processing | | Handling | | Unallocated (1) | | Total | |
Revenues: | | | | | | | | | | | | | |
Revenue–Antero Resources | | $ | 173,991 | | | 63,351 | | | — | | | 237,342 | |
Amortization of customer relationships | | | (9,239) | | | (8,367) | | | — | | | (17,606) | |
Total revenues | | | 164,752 | | | 54,984 | | | — | | | 219,736 | |
Operating expenses: | | | | | | | | | | | | | |
Direct operating | | | 14,059 | | | 28,008 | | | — | | | 42,067 | |
General and administrative | | | 7,706 | | | 3,125 | | | 1,591 | | | 12,422 | |
Facility idling | | | — | | | 2,475 | | | — | | | 2,475 | |
Depreciation | | | 14,406 | | | 13,339 | | | — | | | 27,745 | |
Accretion of asset retirement obligations | | | — | | | 61 | | | — | | | 61 | |
Loss on asset sale | | | — | | | 240 | | | — | | | 240 | |
Total operating expenses | | | 36,171 | | | 47,248 | | | 1,591 | | | 85,010 | |
Operating income | | $ | 128,581 | | | 7,736 | | | (1,591) | | | 134,726 | |
| | | | | | | | | | | | | |
Equity in earnings of unconsolidated affiliates | | $ | 20,947 | | | — | | | — | | | 20,947 | |
Total assets | | $ | 4,387,102 | | | 1,149,355 | | | 178,598 | | | 5,715,055 | |
Additions to property and equipment | | $ | 49,278 | | | 6,153 | | | — | | | 55,431 | |
| (1) | Certain expenses that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis. |
| | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | |
| | Gathering and | | Water | | | | Consolidated | |
(in thousands) | | Processing | | Handling | | Unallocated (1) | | Total | |
Revenues: | | | | | | | | | | | | | |
Revenue–Antero Resources | | $ | 192,667 | | | 57,718 | | | — | | | 250,385 | |
Revenue–third-party | | | — | | | 70 | | | — | | | 70 | |
Amortization of customer relationships | | | (9,271) | | | (8,397) | | | — | | | (17,668) | |
Total revenues | | | 183,396 | | | 49,391 | | | — | | | 232,787 | |
Operating expenses: | | | | | | | | | | | | | |
Direct operating | | | 17,012 | | | 22,543 | | | — | | | 39,555 | |
General and administrative | | | 8,734 | | | 4,873 | | | 644 | | | 14,251 | |
Facility idling | | | — | | | 984 | | | — | | | 984 | |
Depreciation | | | 14,404 | | | 12,215 | | | — | | | 26,619 | |
Accretion of asset retirement obligations | | | — | | | 114 | | | — | | | 114 | |
Gain on asset sale | | | (135) | | | — | | | — | | | (135) | |
Total operating expenses | | | 40,015 | | | 40,729 | | | 644 | | | 81,388 | |
Operating income | | $ | 143,381 | | | 8,662 | | | (644) | | | 151,399 | |
| | | | | | | | | | | | | |
Equity in earnings of unconsolidated affiliates | | $ | 21,515 | | | — | | | — | | | 21,515 | |
Total assets | | $ | 4,380,817 | | | 1,111,733 | | | 48,192 | | | 5,540,742 | |
Additions to property and equipment, net | | $ | 36,599 | | | 9,377 | | | — | | | 45,976 | |
| (1) | Certain expenses that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis. |
| | | | | | |
Summarized Antero Midstream Balance Sheet Information |
| | | | | | |
| | December 31, 2016 | | September 30, 2017 |
| | (in thousands) |
Current assets | | $ | 79,950 | | | 88,797 |
Non-current assets | | $ | 2,269,945 | | | 2,806,594 |
Current liabilities | | $ | 82,013 | | | 88,608 |
Non-current liabilities | | $ | 1,045,072 | | | 1,272,397 |
Partners' capital | | $ | 1,222,810 | | | 1,534,386 |
Table of Contents
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | |
| | Six Months Ended June 30, 2020 | |
| | Gathering and | | Water | | | | Consolidated | |
(in thousands) | | Processing | | Handling | | Unallocated (1) | | Total | |
Revenues: | | | | | | | | | | | | | |
Revenue–Antero Resources | | $ | 337,120 | | | 161,535 | | | — | | | 498,655 | |
Amortization of customer relationships | | | (18,477) | | | (16,734) | | | — | | | (35,211) | |
Total revenues | | | 318,643 | | | 144,801 | | | — | | | 463,444 | |
Operating expenses: | | | | | | | | | | | | | |
Direct operating | | | 27,450 | | | 63,345 | | | — | | | 90,795 | |
General and administrative | | | 15,283 | | | 6,585 | | | 4,091 | | | 25,959 | |
Facility idling | | | — | | | 11,153 | | | — | | | 11,153 | |
Impairment of goodwill | | | 575,461 | | | — | | | — | | | 575,461 | |
Impairment of property and equipment | | | — | | | 89,083 | | | — | | | 89,083 | |
Depreciation | | | 27,456 | | | 27,632 | | | — | | | 55,088 | |
Accretion of asset retirement obligations | | | — | | | 103 | | | — | | | 103 | |
Loss on asset sale | | | — | | | 240 | | | — | | | 240 | |
Total operating expenses | | | 645,650 | | | 198,141 | | | 4,091 | | | 847,882 | |
Operating loss | | $ | (327,007) | | | (53,340) | | | (4,091) | | | (384,438) | |
| | | | | | | | | | | | | |
Equity in earnings of unconsolidated affiliates | | $ | 40,024 | | | — | | | — | | | 40,024 | |
Total assets | | $ | 4,387,102 | | | 1,149,355 | | | 178,598 | | | 5,715,055 | |
Additions to property and equipment | | $ | 103,937 | | | 19,477 | | | — | | | 123,414 | |
| (1) | Certain expenses that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis. |
| | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 | |
| | Gathering and | | Water | | | | Consolidated | |
(in thousands) | | Processing | | Handling | | Unallocated (1) | | Total | |
Revenues: | | | | | | | | | | | | | |
Revenue–Antero Resources | | $ | 377,828 | | | 114,321 | | | — | | | 492,149 | |
Revenue–third-party | | | — | | | 95 | | | — | | | 95 | |
Amortization of customer relationships | | | (18,542) | | | (16,794) | | | — | | | (35,336) | |
Total revenues | | | 359,286 | | | 97,622 | | | — | | | 456,908 | |
Operating expenses: | | | | | | | | | | | | | |
Direct operating | | | 34,248 | | | 44,621 | | | — | | | 78,869 | |
General and administrative | | | 17,383 | | | 12,553 | | | 2,245 | | | 32,181 | |
Facility idling | | | — | | | 2,163 | | | — | | | 2,163 | |
Impairment of property and equipment | | | 1,218 | | | 161 | | | — | | | 1,379 | |
Depreciation | | | 29,117 | | | 24,352 | | | — | | | 53,469 | |
Accretion of asset retirement obligations | | | — | | | 233 | | | — | | | 233 | |
Loss on asset sale | | | 3,628 | | | — | | | — | | | 3,628 | |
Total operating expenses | | | 85,594 | | | 84,083 | | | 2,245 | | | 171,922 | |
Operating income | | $ | 273,692 | | | 13,539 | | | (2,245) | | | 284,986 | |
| | | | | | | | | | | | | |
Equity in earnings of unconsolidated affiliates | | $ | 42,259 | | | — | | | — | | | 42,259 | |
Total assets | | $ | 4,380,817 | | | 1,111,733 | | | 48,192 | | | 5,540,742 | |
Additions to property and equipment, net | | $ | 51,658 | | | 22,707 | | | — | | | 74,365 | |
| (1) | Certain expenses that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read theThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with theour unaudited condensed consolidated financial statements and related notes thereto, 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 lookingforward-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 lookingforward-looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on these items that could impact our future operating performance or financial condition, please see “Item 1A. Risk Factors” and the section entitled “Cautionary Statement Regarding Forward LookingForward-Looking Statements.” We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law. For more information please 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 final prospectus dated May 3, 2017, filed with the SEC on May 5, 2017, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 and Antero Midstream’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017.context otherwise requires.
Overview
Overview
We are a Delaware limited partnership that is taxed as a corporation for U.S. federal income tax purposes. We own 100% of the membership interests in Antero Midstream Partners GP LLC, which owns the non-economic general partner interest in Antero Midstream Partners LP (NYSE: AM) (“Antero Midstream”) and we own all of the Series A capital interests (“Series A Units”) in Antero IDR Holdings LLC (“IDR LLC”), which owns the incentive distribution rights (“IDRs”) in Antero Midstream. IDR LLC also has Series B profits interests (“Series B Units”) outstanding that entitle the holders to receive up to 6% of the distributions that Antero Midstream makes on the IDRs in excess of $7.5 million per quarter, subject to certain vesting conditions. Antero Midstream is a growth-oriented master limited partnership 53.0% owned by Antero Resources Corporation (NYSE: AR) (“Antero Resources”) andmidstream energy company formed to own, operate and develop midstream energy infrastructureassets to primarily to service Antero Resources’ rapidly increasing production and completion activityactivity. 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. 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’s Marcellus Shale and Utica Shale locatedBasin in West Virginia and Ohio. Our assets also include two independent fresh water delivery systems that deliver fresh water from the Ohio River and several regional waterways. These fresh water delivery systems consist of permanent buried pipelines, surface pipelines and fresh water storage facilitates, as well as pumping stations and impoundments to transport the fresh water throughout the pipelines. These services are provided by us directly or through third-parties with which we contract. Our assets also include other flowback and produced water treatment facilities that we use to provide water treatment services to Antero Resources.
COVID-19 Pandemic
In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Governments tried to slow the spread of the virus by imposing social distancing guidelines, travel restrictions and stay-at-home orders, among other actions, which have caused reduced activity in the global economy and the demand for oil, and to a lesser extent, natural gas and NGLs. As vaccines have become widely available, social distancing guidelines, travel restrictions and stay-at-home orders have eased, activity in the global economy has increased and demand for oil, natural gas and NGLs, and related commodity pricing, has improved. However, new variants of the virus could cause further commodity market volatility and resulting financial market instability, and these are variables beyond our control that may adversely impact our generation of funds from operating cash flows, distributions from unconsolidated affiliates, available borrowings under our Credit Facility (defined below) and our ability to access the capital markets.
As a midstream energy company, we are recognized as an essential business under various federal, state and local regulations related to the COVID-19 pandemic. As such, we have continued to operate throughout the pandemic as permitted under these regulations while taking steps to protect the health and safety of our workers. We believe thathave implemented protocols to reduce the risk of an outbreak within our field operations and corporate offices, and these protocols have not reduced Antero Midstream’s strategically located assetsResources’ production and integrated relationship withour throughput in a significant manner. While a substantial portion of our non-field level employees operated in remote work from home arrangements through June 30, 2021, we expect to be transitioning to full-time in-office arrangements during the third quarter of 2021. We have been able to maintain a consistent level of effectiveness through these arrangements, including maintaining our day-to-day operations, our financial reporting systems and our internal control over financial reporting.
Neither our nor Antero Resources’ supply chain has experienced any significant interruptions. Prior to the COVID-19 pandemic, Antero Resources positionhad developed a diverse set of buyers and destinations, as well as in-field and off-site storage capacity for its condensate volumes, and as a result of the pandemic, Antero Resources has expanded its customer base and its condensate storage capacity within the Appalachian Basin. However, if Antero Resources or out other customers were to experience any production curtailments or shut-ins it would reduce throughput for our gathering and processing systems. In addition, if our customers were to be delay or discontinue drilling or completion activities, it would reduce the volumes of water that we handle and therefore revenues for our water distribution and handling business.
Growth Incentive Fee Program With Antero Resources
On December 8, 2019, we and Antero Resources amended the existing gathering and compression agreement to establish a leading Appalachian midstream provider acrossgrowth incentive fee program whereby we agreed to provide quarterly fee reductions to Antero Resources from 2020 through 2023, contingent upon Antero Resources achieving volumetric growth targets on low pressure gathering. The compression, high pressure gathering and fresh water delivery fees payable to us were unchanged. In addition, we and Antero Resources agreed to extend the full midstream value chain.primary term of such agreement by an additional four years to November 10, 2038. The following table summarizes the low pressure gathering growth incentive targets through 2023. If actual low pressure volumes are below the lowest threshold for the respective period, Antero Resources will not receive a reduction in low pressure gathering fees.
| | | | | |
| | Low Pressure Gathering | | Quarterly Fee | |
| | Volume Growth Incentive | | Reduction | |
| | Targets (MMcf/d) | | (in millions) | |
Calendar Years 2021-2023 | | | | | |
Threshold 1 | | >2,900 and <3,150 | | $12.0 | |
Threshold 2 | | >3,150 and <3,400 | | $15.5 | |
Threshold 3 | | >3,400 | | $19.0 | |
For the three months ended June 30, 2021, Antero Resources delivered low pressure gathering volumes of 2,897 MMcf/d, and as a result, no quarterly fee reduction was earned during the period. During the six months ended June 30, 2021, Antero Resources did not earn any fee reductions.
Our revenues are generated solely from the cash distributions we receiveResults 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 Midstream throughResources’ wells in the Appalachian Basin, as well as equity in earnings from our interestsinvestments in IDRthe joint venture to develop processing and fractionation assets with MarkWest Energy Partners, L.P., a wholly owned subsidiary of MPLX, LP (the “Joint Venture”) and Stonewall Gas Gathering LLC. Because our success is dependent uponThe water handling segment includes (i) two independent systems that deliver fresh water from sources including the operationsOhio River, local reservoirs and management of Antero Midstreamseveral regional waterways, (ii) the wastewater treatment facility and its resulting performance, Antero Midstream’s Quarterly Report on Form 10-Q forrelated landfill (collectively, the quarter ended“Clearwater Facility”) that was idled in September 2019 and (iii) other fluid handling services, which include high rate transfer, wastewater transportation, disposal and blending.
Three Months Ended June 30, 2017, has been included in this filing as Exhibit 99.1 and incorporated herein by reference.2020 Compared to Three Months Ended June 30, 2021
Address, Internet Website and Availability of Public Filings
Our principal executive offices are at 1615 Wynkoop Street, Denver, Colorado 80202. Our telephone number is (303) 357‑7310. Our website is located at www.anteromidstreamgp.com.
We make available free of charge our Annual Reports on Form 10‑K, our Quarterly Reports on Form 10‑Q and our Current Reports on Form 8‑K as soon as reasonably practicable after we file such material with, or furnish it to, the SEC. These documents are located on our website under the “Investors Relations” link.
Information on our website is not incorporated into this Quarterly Report on Form 10‑Q or our other filings with the SEC and is not a part of them.
Third Quarter 2017 Developments and Highlights
Cash Distributions
We distribute cash available for distribution to our shareholders. Cash available for distribution is the cash distribution received from Antero Midstream reduced by reserves for estimated federal and state income taxes, general and
administrative expenses, and reserves for other purposes deemed necessary by the board of directorsThe operating results of our general partner. Distributable cashreportable segments were as follows for the three months ended SeptemberJune 30, 2017 was as follows (in thousands):2020 and 2021:
| | | |
| | Three Months Ended September 30, 2017 |
Cash distributions from Antero Midstream Partners LP | | $ | 19,067 |
Cash reserved for distributions to Series B units of IDR LLC | | | (684) |
Cash distributions to Antero Midstream GP LP | | | 18,383 |
General and administrative expenses | | | (615) |
Provision for income taxes | | | (7,157) |
Reserve for tax benefit on Series B Unit distributions | | | 272 |
Distributable cash | | $ | 10,883 |
| | | |
| | | | | | | | | | | | | |
| | Three Months Ended June 30, 2020 | |
| | Gathering and | | Water | | | | Consolidated | |
(in thousands) | | Processing | | Handling | | Unallocated (1) | | Total | |
Revenues: | | | | | | | | | | | | | |
Revenue–Antero Resources | | $ | 185,991 | | | 63,351 | | | — | | | 249,342 | |
Gathering—low pressure rebate | | | (12,000) | | | — | | | — | | | (12,000) | |
Amortization of customer relationships | | | (9,239) | | | (8,367) | | | — | | | (17,606) | |
Total revenues | | | 164,752 | | | 54,984 | | | — | | | 219,736 | |
Operating expenses: | | | | | | | | | | | | | |
Direct operating | | | 14,059 | | | 28,008 | | | — | | | 42,067 | |
General and administrative (excluding equity-based compensation) | | | 5,440 | | | 2,694 | | | 1,591 | | | 9,725 | |
Equity-based compensation | | | 2,266 | | | 431 | | | — | | | 2,697 | |
Facility idling | | | — | | | 2,475 | | | — | | | 2,475 | |
Depreciation | | | 14,406 | | | 13,339 | | | — | | | 27,745 | |
Accretion of asset retirement obligations | | | — | | | 61 | | | — | | | 61 | |
Loss on asset sale | | | — | | | 240 | | | — | | | 240 | |
Total operating expenses | | | 36,171 | | | 47,248 | | | 1,591 | | | 85,010 | |
Operating income | | | 128,581 | | | 7,736 | | | (1,591) | | | 134,726 | |
Other income (expense): | | | | | | | | | | | | | |
Interest expense, net | | | — | | | — | | | (35,311) | | | (35,311) | |
Equity in earnings of unconsolidated affiliates | | | 20,947 | | | — | | | — | | | 20,947 | |
Total other income (expense) | | | 20,947 | | | — | | | (35,311) | | | (14,364) | |
Income before taxes | | | 149,528 | | | 7,736 | | | (36,902) | | | 120,362 | |
Provision for income tax expense | | | — | | | — | | | (31,921) | | | (31,921) | |
Net income and comprehensive income | | $ | 149,528 | | | 7,736 | | | (68,823) | | | 88,441 | |
| | | | | | | | | | | | | |
Adjusted EBITDA(2) | | | | | | | | | | | $ | 201,275 | |
| (1) | Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments. |
| (2) | Adjusted EBITDA is a non-GAAP financial measure. For a discussion of this measure, including a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, see “—Non-GAAP Financial Measures.” |
| | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | |
| | Gathering and | | Water | | | | Consolidated | |
(in thousands) | | Processing | | Handling | | Unallocated (1) | | Total | |
Revenues: | | | | | | | | | | | | | |
Revenue–Antero Resources | | $ | 192,667 | | | 57,718 | | | — | | | 250,385 | |
Revenue–third-party | | | — | | | 70 | | | — | | | 70 | |
Amortization of customer relationships | | | (9,271) | | | (8,397) | | | — | | | (17,668) | |
Total revenues | | | 183,396 | | | 49,391 | | | — | | | 232,787 | |
Operating expenses: | | | | | | | | | | | | | |
Direct operating | | | 17,012 | | | 22,543 | | | — | | | 39,555 | |
General and administrative (excluding equity-based compensation) | | | 6,412 | | | 4,364 | | | 416 | | | 11,192 | |
Equity-based compensation | | | 2,322 | | | 509 | | | 228 | | | 3,059 | |
Facility idling | | | — | | | 984 | | | — | | | 984 | |
Depreciation | | | 14,404 | | | 12,215 | | | — | | | 26,619 | |
Accretion of asset retirement obligations | | | — | | | 114 | | | — | | | 114 | |
Gain on asset sale | | | (135) | | | — | | | — | | | (135) | |
Total operating expenses | | | 40,015 | | | 40,729 | | | 644 | | | 81,388 | |
Operating income | | | 143,381 | | | 8,662 | | | (644) | | | 151,399 | |
Other income (expense): | | | | | | | | | | | | | |
Interest expense, net | | | — | | | — | | | (43,505) | | | (43,505) | |
Equity in earnings of unconsolidated affiliates | | | 21,515 | | | — | | | — | | | 21,515 | |
Loss on early extinguishment of debt | | | — | | | — | | | (20,701) | | | (20,701) | |
Total other income (expense) | | | 21,515 | | | — | | | (64,206) | | | (42,691) | |
Income before taxes | | | 164,896 | | | 8,662 | | | (64,850) | | | 108,708 | |
Provision for income tax expense | | | — | | | — | | | (28,485) | | | (28,485) | |
Net income and comprehensive income | | $ | 164,896 | | | 8,662 | | | (93,335) | | | 80,223 | |
| | | | | | | | | | | | | |
Adjusted EBITDA(2) | | | | | | | | | | | $ | 224,999 | |
| (1) | Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments. |
| (2) | Adjusted EBITDA is a non-GAAP financial measure. For a discussion of this measure, including a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, see “—Non-GAAP Financial Measures.” |
The board of directors of our general partner has declared a cash distribution of $0.059 per sharefollowing table sets forth the operating data for Antero Midstream and its subsidiaries for the quarterthree months ended SeptemberJune 30, 2017. The distribution will be payable on November 23, 2017 to shareholders2020 and 2021:
| | | | | | | | | | | | | |
| | Three Months Ended | | Amount of | | | | |
| | June 30, | | Increase | | Percentage |
| | 2020 | | 2021 | | or Decrease | | Change |
Operating Data: | | | | | | | | | | | | | |
Gathering—low pressure (MMcf) | | | 261,039 | | | 263,640 | | | 2,601 | | | 1 | % |
Gathering—high pressure (MMcf) | | | 258,380 | | | 257,193 | | | (1,187) | | | * | |
Compression (MMcf) | | | 246,790 | | | 249,681 | | | 2,891 | | | 1 | % |
Fresh water delivery (MBbl) | | | 9,318 | | | 9,499 | | | 181 | | | 2 | % |
Other fluid handling (MBbl) | | | 5,433 | | | 4,381 | | | (1,052) | | | (19) | % |
Wells serviced by fresh water delivery | | | 22 | | | 17 | | | (5) | | | (23) | % |
Gathering—low pressure (MMcf/d) | | | 2,869 | | | 2,897 | | | 28 | | | 1 | % |
Gathering—high pressure (MMcf/d) | | | 2,839 | | | 2,826 | | | (13) | | | * | |
Compression (MMcf/d) | | | 2,712 | | | 2,744 | | | 32 | | | 1 | % |
Fresh water delivery (MBbl/d) | | | 102 | | | 104 | | | 2 | | | 2 | % |
Other fluid handling (MBbl/d) | | | 60 | | | 48 | | | (12) | | | (20) | % |
Average Realized Fees: | | | | | | | | | | | | | |
Average gathering—low pressure fee ($/Mcf) (1) | | $ | 0.33 | | | 0.33 | | | — | | | * | |
Average gathering—high pressure fee ($/Mcf) | | $ | 0.20 | | | 0.20 | | | — | | | * | |
Average compression fee ($/Mcf) | | $ | 0.20 | | | 0.20 | | | — | | | * | |
Average fresh water delivery fee ($/Bbl) | | $ | 3.96 | | | 3.97 | | | 0.01 | | | * | |
Joint Venture Operating Data: | | | | | | | | | | | | | |
Processing—Joint Venture (MMcf) | | | 127,791 | | | 131,912 | | | 4,121 | | | 3 | % |
Fractionation—Joint Venture (MBbl) | | | 3,014 | | | 3,417 | | | 403 | | | 13 | % |
Processing—Joint Venture (MMcf/d) | | | 1,404 | | | 1,450 | | | 46 | | | 3 | % |
Fractionation—Joint Venture (MBbl/d) | | | 33 | | | 38 | | | 5 | | | 15 | % |
| * | Not meaningful or applicable. |
| (1) | The three months ended June 30, 2021 average realized fee does not include $3.3 million of low pressure gathering fee revenues which volumes relate to prior periods. |
Revenues. Total revenues increased by 6%, from $220 million, including amortization of record ascustomer relationships of November 1, 2017.
Items Affecting Comparability of Our Financial Results
Certain of the historical financial results discussed below may not be comparable to future financial results primarily as a result of the significant increase in the scope of Antero Midstream’s operations over the last several years. Antero Midstream’s gathering and compression and water handling and treatment systems are relatively new, as a substantial portion of these assets have built within the last four years. Accordingly, Antero Midstream’s revenues and expenses over that time reflect the significant increase in operations. Similarly, Antero Resources has experienced significant changes in its production and drilling and completion schedule over that same period. As our revenue is predicated on Antero Midstream’s cash available for distribution, any change in Antero Midstream’s revenue and expenses could have a direct impact on us. Accordingly, it may be difficult to project trends from our historical financial data going forward. In addition, our historical results of operations do not reflect the incremental expenses we expect to incur as a result of being a publicly traded company.
Results of Operations
Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2017 (in thousands):
| | | | | | | | | |
| | | | | | | Amount of | |
| Three Months Ended September 30, | | Increase | |
| 2016 | | 2017 | | (Decrease) | |
Equity in earnings of Antero Midstream Partners LP | $ | 4,807 | | | 19,067 | | | 14,260 | |
Total income | | 4,807 | | | 19,067 | | | 14,260 | |
General and administrative expense | | 205 | | | 615 | | | 410 | |
Equity-based compensation | | — | | | 8,317 | | | 8,317 | |
Total expenses | | 205 | | | 8,932 | | | 8,727 | |
Income before income taxes | | 4,602 | | | 10,135 | | | 5,533 | |
Provision for income taxes | | (1,825) | | | (7,157) | | | (5,332) | |
Net income and comprehensive income | $ | 2,777 | | | 2,978 | | | 201 | |
Equity in earnings of Antero Midstream Partners LP. Equity in earnings of Antero Midstream increased from $4.8$18 million, for the three months ended SeptemberJune 30, 20162020, to $19.1$233 million, including amortization of customer relationships of $18 million, for the three months ended SeptemberJune 30, 2017. Antero Midstream’s per-unit distribution2021. Gathering and processing revenues increased by 11%, from $0.265 per unit in the third quarter of 2016 to $0.34 in the third quarter of 2017, resulting in the increase in distributions on the IDRs and resulting increase in our equity in earnings of Antero Midstream.
General and administrative expenses. General and administrative expenses increased from $0.2$165 million for the three months ended SeptemberJune 30, 20162020 to $0.6$183 million for the three months ended SeptemberJune 30, 2017. In the third quarter of 2016, we did not incur any significant general and administrative costs; however, in the third quarter of 2017, we incurred general and administrative costs related to being a publicly-traded entity.
Equity-based compensation expenses. Equity-based compensation expenses increased2021. Water handling revenues decreased by 10%, from zero for the three months ended September 30, 2016 to $8.3$55 million for the three months ended SeptemberJune 30, 2017. The increase was due2020 to the issuance of equity-based compensation in the form of Series B Units. See Note 3 to the condensed consolidated financial statements.
Income tax expense. Income tax expense increased from $1.8$49 million for the three months ended SeptemberJune 30, 2016 to $7.22021. These fluctuations primarily resulted from the following:
Gathering and Processing
| ● | Low pressure gathering revenue increased $18 million period over period due to $12 million in lower rebates to Antero Resources during the three months ended June 30, 2021, and increased throughput volumes of 3 Bcf, or 28 MMcf/d. Low pressure gathering volumes increased due to 75 additional wells connected to our system since June 30, 2020. |
| ● | High pressure gathering revenue remained consistent at $52million for the three months ended June 30, 2020 and 2021. Throughput volumes decreased period over period by 1 Bcf, or 13 MMcf/d, primarily as a result of natural production decline, which was almost fully offset by the additional wells connected to our system since June 30, 2020. |
| ● | Compression revenue remained consistent at $49 million for the three months ended June 30, 2020 and 2021. Throughput volumes increased period over period by 3 Bcf, or 32 MMcf/d, due to the additional wells connected to our system since June 30, 2020. |
Water Handling
| ● | Fresh water delivery revenue remained relatively consistent at $37 million and $38 million for the three months ended June 30, 2020 and 2021. |
| ● | Other fluid handling services revenue decreased $6 million primarily due to a $7 million decrease in services that are billed at cost plus 3% as a result of operational efficiencies associated with our flowback and produced water blending services and cost reductions, partially offset by a $1 million increase in water blending services. |
Direct operating expenses. Total direct operating expenses decreased by 6%, from $42 million for the three months ended SeptemberJune 30, 2017. The increase is primarily due2020 to higher taxable income as a result of the increase in equity in earnings of Antero Midstream related to the IDRs.
The difference between income tax expense and expected income tax expense for financial statement purposes computed by applying the federal statutory rate of 35% to pre-tax income is caused by nondeductible equity-based compensation and IPO expenses, and the effect of state income taxes.
Net income and comprehensive income. Net income and comprehensive income increased from net income of $2.8$40 million for the three months ended SeptemberJune 30, 2016 to net income of $3.02021. Gathering and processing direct operating expenses increased 21% from $14 million for the three months ended June 30, 2020 to $17 million for the three months ended June 30, 2021 primarily due to higher maintenance expense and ad valorem taxes between periods, as well as increased expense from one new compressor station that came online in the summer of 2020. Water handling direct operating expenses decreased by 20%, from $28 million for the three months ended June 30, 2020 to $23 million for the three months ended June 30, 2021. The decrease was primarily due to operational efficiencies associated with flowback and produced wastewater services.
General and administrative (excluding equity-based compensation) expenses. General and administrative expenses (excluding equity-based compensation expense) increased 15%, from $10 million for the three months ended June 30, 2020 to $11 million for three months ended June 30, 2021 primarily due to (i) higher costs allocated to us from Antero Resources as a result of increased capital expenditures during the second quarter of 2021 and (ii) increased legal costs associated with the Clearwater Facility, partially offset by cost reduction efforts between periods.
Equity-based compensation expenses. Equity-based compensation expenses remained consistent at $3 million for the three months ended June 30, 2020 and 2021.
Facility idling expenses. Facility idling expenses decreased 60%, from $2 million for the three months ended June 30, 2020 to $1 million for the three months ended June 30, 2021 primarily due to reduced Clearwater Facility decommissioning costs between periods.
Depreciation expense. Total depreciation expense remained relatively consistent at $28 million and $27 million for the three months ended June 30, 2020 and 2021, respectively.
Interest expense. Interest expense increased by 23%, from $35 million for the three months ended June 30, 2020 to $44 million for the three months ended June 30, 2021 due to the issuance of (i) $550 million of 7.875% senior unsecured notes due May 15, 2026 (the “2026 Notes”) on November 10, 2020 and (ii) $750 million of 5.375% senior notes due June 15, 2029 (the “2029 Notes”) on June 8, 2021, partially offset by lower borrowings under the Credit Facility during the three months ended June 30, 2021 and the redemption of all $650 million of 5.375% senior notes due September 15, 2024 (“2024 Notes”) on June 8, 2021.
Equity in earnings of unconsolidated affiliates. Equity in earnings in unconsolidated affiliates increased by 3%, from $21 million for the three months ended June 30, 2017.2020 to $22 million for the three months ended June 30, 2021 primarily attributable to an increase in the level of volume throughput at the Joint Venture between periods.
Loss on early extinguishment of debt. Loss on early extinguishment of debt for the three months ended June 30, 2021 of $21 million relates to the redemption of all $650 million principal amount of the 2024 Notes at a premium to par of $17 million as well as the write-off of $6 million of unamortized deferred financing costs, partially offset by $2 million of unamortized premium.
Provision for income tax expense. Income tax expense for the three months ended June 30, 2020 and 2021 was $32 million and $28 million, respectively, which reflects an effective tax rates of 26.5% and 26.2%, respectively.
Net income. Net income decreased by 9% from $88 million for the three months ended June 30, 2020 to $80 million for the three months ended June 30, 2021 primarily due to higher gathering and processing revenues and lower direct operating and facility idling expenses between periods, partially offset by lower water handling revenues, higher interest expense and loss on early extinguishment of debt between periods.
Adjusted EBITDA. Adjusted EBITDA increased by 12%, from $201 million for the three months ended June 30, 2020 to $225 million for the three months ended June 30, 2021. The increase was primarily due to an increase in equity in earnings of Antero in the third quarter of 2017,increased gathering and compression revenues, higher distributions from Joint Venture and decreased direct operating expenses and facility idling costs between periods, partially offset by lower water handling revenues between periods. For a discussion of the increasenon-GAAP financial measure Adjusted EBITDA, including a reconciliation to its most directly comparable financial measure calculated and presented in equity-based compensationaccordance with GAAP, read “—Non-GAAP Financial Measures” below.
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2021
The operating results of our reportable segments were as follows for the six months ended June 30, 2020 and income tax expense.2021:
| | | | | | | | | | | | | |
| | Six Months Ended June 30, 2020 | |
| | Gathering and | | Water | | | | Consolidated | |
(in thousands) | | Processing | | Handling | | Unallocated (1) | | Total | |
Revenues: | | | | | | | | | | | | | |
Revenue–Antero Resources | | $ | 361,120 | | | 161,535 | | | — | | | 522,655 | |
Gathering—low pressure rebate | | | (24,000) | | | — | | | — | | | (24,000) | |
Amortization of customer relationships | | | (18,477) | | | (16,734) | | | — | | | (35,211) | |
Total revenues | | | 318,643 | | | 144,801 | | | — | | | 463,444 | |
Operating expenses: | | | | | | | | | | | | | |
Direct operating | | | 27,450 | | | 63,345 | | | — | | | 90,795 | |
General and administrative (excluding equity-based compensation) | | | 10,484 | | | 5,599 | | | 3,841 | | | 19,924 | |
Equity-based compensation | | | 4,799 | | | 986 | | | 250 | | | 6,035 | |
Facility idling | | | — | | | 11,153 | | | — | | | 11,153 | |
Impairment of goodwill | | | 575,461 | | | — | | | — | | | 575,461 | |
Impairment of property and equipment | | | — | | | 89,083 | | | — | | | 89,083 | |
Depreciation | | | 27,456 | | | 27,632 | | | — | | | 55,088 | |
Accretion of asset retirement obligations | | | — | | | 103 | | | — | | | 103 | |
Loss on asset sale | | | — | | | 240 | | | — | | | 240 | |
Total operating expenses | | | 645,650 | | | 198,141 | | | 4,091 | | | 847,882 | |
Operating loss | | | (327,007) | | | (53,340) | | | (4,091) | | | (384,438) | |
Other income (expense): | | | | | | | | | | | | | |
Interest expense, net | | | — | | | — | | | (72,942) | | | (72,942) | |
Equity in earnings of unconsolidated affiliates | | | 40,024 | | | — | | | — | | | 40,024 | |
Total other income (expense) | | | 40,024 | | | — | | | (72,942) | | | (32,918) | |
Loss before taxes | | | (286,983) | | | (53,340) | | | (77,033) | | | (417,356) | |
Provision for income tax benefit | | | — | | | — | | | 112,864 | | | 112,864 | |
Net income (loss) and comprehensive income (loss) | | $ | (286,983) | | | (53,340) | | | 35,831 | | | (304,492) | |
| | | | | | | | | | | | | |
Adjusted EBITDA(2) | | | | | | | | | | | $ | 418,611 | |
| (1) | Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments. |
| (2) | Adjusted EBITDA is a non-GAAP financial measure. For a discussion of this measure, including a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, see “—Non-GAAP Financial Measures.” |
| | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 | |
| | Gathering and | | Water | | | | Consolidated | |
(in thousands) | | Processing | | Handling | | Unallocated (1) | | Total | |
Revenues: | | | | | | | | | | | | | |
Revenue–Antero Resources | | $ | 377,828 | | | 114,321 | | | — | | | 492,149 | |
Revenue–third-party | | | — | | | 95 | | | — | | | 95 | |
Amortization of customer relationships | | | (18,542) | | | (16,794) | | | — | | | (35,336) | |
Total revenues | | | 359,286 | | | 97,622 | | | — | | | 456,908 | |
Operating expenses: | | | | | | | | | | | | | |
Direct operating | | | 34,248 | | | 44,621 | | | — | | | 78,869 | |
General and administrative (excluding equity-based compensation) | | | 12,336 | | | 10,984 | | | 1,790 | | | 25,110 | |
Equity-based compensation | | | 5,047 | | | 1,569 | | | 455 | | | 7,071 | |
Facility idling | | | — | | | 2,163 | | | — | | | 2,163 | |
Impairment of property and equipment | | | 1,218 | | | 161 | | | — | | | 1,379 | |
Depreciation | | | 29,117 | | | 24,352 | | | — | | | 53,469 | |
Accretion of asset retirement obligations | | | — | | | 233 | | | — | | | 233 | |
Loss on asset sale | | | 3,628 | | | — | | | — | | | 3,628 | |
Total operating expenses | | | 85,594 | | | 84,083 | | | 2,245 | | | 171,922 | |
Operating income (loss) | | | 273,692 | | | 13,539 | | | (2,245) | | | 284,986 | |
Other income (expense): | | | | | | | | | | | | | |
Interest expense, net | | | — | | | — | | | (86,371) | | | (86,371) | |
Equity in earnings of unconsolidated affiliates | | | 42,259 | | | — | | | — | | | 42,259 | |
Loss on early extinguishment of debt | | | — | | | — | | | (20,701) | | | (20,701) | |
Total other income (expense) | | | 42,259 | | | — | | | (107,072) | | | (64,813) | |
Income (loss) before taxes | | | 315,951 | | | 13,539 | | | (109,317) | | | 220,173 | |
Provision for income tax expense | | | — | | | — | | | (56,509) | | | (56,509) | |
Net income and comprehensive income | | $ | 315,951 | | | 13,539 | | | (165,826) | | | 163,664 | |
| | | | | | | | | | | | | |
Adjusted EBITDA(2) | | | | | | | | | | | $ | 444,287 | |
| (1) | Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments. |
| (2) | Adjusted EBITDA is a non-GAAP financial measure. For a discussion of this measure, including a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, see “—Non-GAAP Financial Measures.” |
Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2017 (in thousands):Table of Contents
| | | | | | | | | |
| | | | | | | Amount of | |
| Nine Months Ended September 30, | | Increase | |
| 2016 | | 2017 | | (Decrease) | |
Equity in earnings of Antero Midstream Partners LP | $ | 9,388 | | | 45,948 | | | 36,560 | |
Total income | | 9,388 | | | 45,948 | | | 36,560 | |
General and administrative expense | | 390 | | | 5,922 | | | 5,532 | |
Equity-based compensation | | — | | | 26,271 | | | 26,271 | |
Total expenses | | 390 | | | 32,193 | | | 31,803 | |
Income before income taxes | | 8,998 | | | 13,755 | | | 4,757 | |
Provision for income taxes | | (3,563) | | | (17,337) | | | (13,774) | |
Net income (loss) and comprehensive income (loss) | $ | 5,435 | | | (3,582) | | | (9,017) | |
Equity in earnings ofThe following table sets forth the operating data for Antero Midstream Partners LP. Equity in earningsand its subsidiaries for the six months ended June 30, 2020 and 2021.
| | | | | | | | | | | | | |
| | Six Months Ended | | Amount of | | | | |
| | June 30, | | Increase | | Percentage |
| | 2020 | | 2021 | | or Decrease | | Change |
Operating Data: | | | | | | | | | | | | | |
Gathering—low pressure (MMcf) | | | 508,262 | | | 522,994 | | | 14,732 | | | 3 | % |
Gathering—high pressure (MMcf) | | | 503,825 | | | 510,284 | | | 6,459 | | | 1 | % |
Compression (MMcf) | | | 475,757 | | | 493,243 | | | 17,486 | | | 4 | % |
Fresh water delivery (MBbl) | | | 25,937 | | | 18,899 | | | (7,038) | | | (27) | % |
Other fluid handling (MBbl) | | | 11,033 | | | 8,332 | | | (2,701) | | | (24) | % |
Wells serviced by fresh water delivery | | | 65 | | | 41 | | | (24) | | | (37) | % |
Gathering—low pressure (MMcf/d) | | | 2,793 | | | 2,889 | | | 96 | | | 3 | % |
Gathering—high pressure (MMcf/d) | | | 2,768 | | | 2,819 | | | 51 | | | 2 | % |
Compression (MMcf/d) | | | 2,614 | | | 2,725 | | | 111 | | | 4 | % |
Fresh water delivery (MBbl/d) | | | 143 | | | 104 | | | (39) | | | (27) | % |
Other fluid handling (MBbl/d) | | | 61 | | | 46 | | | (15) | | | (25) | % |
Average Realized Fees: | | | | | | | | | | | | | |
Average gathering—low pressure fee ($/Mcf) (1) | | $ | 0.33 | | | 0.33 | | | — | | | * | |
Average gathering—high pressure fee ($/Mcf) | | $ | 0.20 | | | 0.20 | | | — | | | * | |
Average compression fee ($/Mcf) | | $ | 0.20 | | | 0.20 | | | — | | | * | |
Average fresh water delivery fee ($/Bbl) | | $ | 3.96 | | | 3.97 | | | 0.01 | | | * | |
Joint Venture Operating Data: | | | | | | | | | | | | | |
Processing—Joint Venture (MMcf) | | | 248,305 | | | 260,450 | | | 12,145 | | | 5 | % |
Fractionation—Joint Venture (MBbl) | | | 5,997 | | | 6,848 | | | 851 | | | 14 | % |
Processing—Joint Venture (MMcf/d) | | | 1,364 | | | 1,439 | | | 75 | | | 5 | % |
Fractionation—Joint Venture (MBbl/d) | | | 33 | | | 38 | | | 5 | | | 15 | % |
| * | Not meaningful or applicable. |
| (1) | The six months ended June 30, 2021 average realized fee does not include $2.4 million of low pressure gathering fee revenues which volumes relate to prior periods. |
Revenues. Total revenues decreased by 1%, from $463 million, including amortization of Antero Midstream increased from $9.4customer relationships of $35 million, for the ninesix months ended SeptemberJune 30, 20162020, to $46.0$457 million, including amortization of customer relationships of $35 million, for the ninesix months ended SeptemberJune 30, 2017. Antero Midstream’s per-unit distribution2021. Gathering and processing revenues increased in the nine months ended September 30, 2017by 13%, from the nine months ended September 30, 2016, resulting in the increase in distributions on the IDRs and resulting increase in our equity in earnings of Antero Midstream.
General and administrative expenses. General and administrative expenses increased from $0.4$319 million for the ninesix months ended SeptemberJune 30, 20162020 to $5.9$359 million for the ninesix months ended SeptemberJune 30, 2017. In the first nine months of 2016 we did not incur any significant general and administrative costs; however, in the first nine months of 2017, we incurred approximately $5.1 million of general and administrative costs in connection with our IPO and $0.8 million of expenses related to being a public company.
Equity-based compensation expenses. Equity-based compensation expenses increased2021. Water handling revenues decreased by 33%, from zero for the nine months ended September 30, 2016 to $26.3$145 million for the ninesix months ended SeptemberJune 30, 2017. The increase was due2020 to the issuance of equity-based compensation in the form of Series B Units. See Note 3 to the condensed consolidated financial statements.
Income tax expense. Income tax expense increased from $3.6$98 million for the ninesix months ended SeptemberJune 30, 2016 to $17.32021. These fluctuations primarily resulted from the following:
Gathering and Processing
| ● | Low pressure gathering revenue increased $35 million period over period due to $24 million in lower rebates to Antero Resources during the six months ended June 30, 2021, and increased throughput volumes of 15 Bcf, or 96 MMcf/d. Low pressure gathering volumes increased due to 75 additional wells connected to our system since June 30, 2020. |
| ● | High pressure gathering revenue increased $2million period over period due to increased throughput volumes of 6 Bcf, or 51 MMcf/d, due to additional wells connected to our system. |
| ● | Compression revenue increased $4 million period over period due to increased throughput volumes of 17 Bcf, or 111 MMcf/d, primarily due to additional wells connected to our system since June 30, 2020. |
Water Handling
| ● | Fresh water delivery revenue decreased $28 million period over period due to decreased fresh water delivery volumes of 7,038 MBbl, or 39 MBbl/d, as a result of a decrease in the number of wells completed. |
| ● | Other fluid handling services revenue decreased $20 million primarily due to a $23 million decrease in services that are billed at cost plus 3% as a result of operational efficiencies associated with our flowback and produced water blending services and cost reductions, partially offset by a $3 million increase in water blending services. |
Direct operating expenses. Total direct operating expenses decreased by 13%, from $91 million for the ninesix months ended SeptemberJune 30, 2017. The increase is2020 to $79 million for the six months ended June 30, 2021. Gathering and processing direct operating expenses increased 25% from $27 million for the six months ended June 30, 2020 to $34 million for the six months ended June 30, 2021 primarily due to higher taxable income as a result of the increase in equity in earnings of Antero Midstream related to the IDRs.
The difference between income taxmaintenance expense and expected income taxad valorem taxes between periods, as well as increased expense for financial statement purposes computedfrom one new compressor station that came online in the summer of 2020. Water handling direct operating expenses decreased by applying the federal statutory rate of 35% to pre-tax income is caused by nondeductible equity-based compensation and IPO expenses, and the effect of state income taxes.
Net income (loss) and comprehensive income (loss). Net income (loss) and comprehensive income (loss) decreased30%, from net income of $5.4$63 million for the ninesix months ended SeptemberJune 30, 20162020 to a net loss of $3.6$45 million for the ninesix months ended SeptemberJune 30, 2017.2021. The decrease was primarily due to operational efficiencies associated with flowback and produced wastewater services.
General and administrative (excluding equity-based compensation) expenses. General and administrative expenses (excluding equity-based compensation expense) increased 26%, from $20 million for the six months ended June 30, 2020 to $25 million for six months ended June 30, 2021 primarily due to (i) higher salary and wage expense, which includes our annual incentive program that was significantly reduced during 2020 and (ii) legal costs associated with the Clearwater Facility, partially offset by cost reduction efforts between periods.
Equity-based compensation expenses. Equity-based compensation expenses remained relatively consistent for the six months ended June 30, 2020 and 2021 of $6 million and $7 million, respectively.
Facility idling expenses. Facility idling expenses decreased 81%, from $11 million for the six months ended June 30, 2020 to $2 million for the six months ended June 30, 2021 primarily due to reduced Clearwater Facility decommissioning costs between periods.
Impairment of goodwill expense. Impairment of goodwill expense of $575 million for the six months ended June 30, 2020 reflects an impairment of the goodwill that was associated with our gathering system due to declines in commodity prices and the industry environment.
Impairment of property and equipment expense. Impairment of property and equipment expense of $89 million for the six months ended June 30, 2020 was primarily for the impairment of fresh water delivery assets in the Utica Shale region. Impairment of property and equipment expense of $1 million for the six months ended June 30, 2021 was due to a lower of cost of market adjustment for pipe inventory.
Depreciation expense. Total depreciation expense remained consistent at $55 million and $53 million for the six months ended June 30, 2020 and 2021, respectively.
Loss on asset sale. Loss on asset sale of $4 million for the six months ended June 30, 2021 primarily relates to the sale of excess pipe inventory during the period.
Interest expense. Interest expense increased by 18%, from $73 million for the six months ended June 30, 2020 to $86 million for the six months ended June 30, 2021 primarily due to the issuance of (i) $550 million of 2026 Notes on November 10, 2020 and (ii) $750 million of 2029 Notes on June 8, 2021, partially offset by lower borrowings under the Credit Facility during the six months ended June 30, 2021 and the redemption of all $650 million of the 2024 Notes on June 8, 2021.
Equity in earnings of unconsolidated affiliates. Equity in earnings in unconsolidated affiliates increased by 6%, from $40 million for the six months ended June 30, 2020 to $42 million for the six months ended June 30, 2021 primarily attributable to an increase in equity-based compensation, general and administrative expenses, and income tax expense,the level of volume throughput at the Joint Venture between periods.
Loss on early extinguishment of debt. Loss on early extinguishment of debt for the six months ended June 30, 2021 of $21 million relates to the redemption of all $650 million of the 2024 Notes at a premium to par of $17 million as well as the write-off of $6 million of unamortized deferred financing costs, partially offset by $2 million of unamortized premium.
Income tax benefit (expense). Income tax benefit for the six months ended June 30, 2020 was $113 million primarily due to the loss before taxes for the period coupled with an $11 million rate benefit related to the carryback of net operating losses to prior tax years. Income tax expense for the six months ended June 30, 2021 was $57 million primarily due to income before taxes for the period which reflects an effective tax rate of 25.7%.
Net income (loss). Net loss was $304 million for the six months ended June 30, 2020 primarily due to a $575 million impairment of goodwill for our gathering system and an $89 million impairment of our freshwater delivery assets. Net income was $164 million for the six months ended June 30, 2021 primarily due to higher gathering and processing revenues and lower direct operating and facility idling expenses between periods, offset by lower water handling revenues, higher interest expense and higher loss on early extinguishment of debt between periods.
Adjusted EBITDA. Adjusted EBITDA increased by 6%, from $419 million for the six months ended June 30, 2020 to $444 million for the six months ended June 30, 2021. The increase was primarily due to increased gathering and compression revenues and decreased direct operating expenses and facility idling costs between periods, partially offset by lower water handling revenues between periods. 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 equity in earnings of Antero Midstream in 2017.accordance with GAAP, read “—Non-GAAP Financial Measures” below.
Capital Resources and Liquidity
Sources and Uses of Cash
As a result ofCapital resources and liquidity are provided by operating cash flow, cash on our interest in IDR LLC, we will receive at least 94% ofbalance sheet and available borrowings under the cash distributions paid by Antero Midstream on the IDRs. Our interest in the IDR distributions is our only cash-generating asset.Credit Facility and capital market transactions. We expect that the cash distributions on the IDRscombination of these capital resources will be adequate to meet our working capital requirements, andcapital expenditures program, expected quarterly cash distributionsdividends and share repurchases under our share repurchases program for at least the next twelve12 months. At September 30, 2017, we had a working capital deficit due to our
income tax payable, which is based on equity in earnings from unconsolidated affiliates for the three months ended September 30, 2017. The cash distribution attributable to our equity in earnings for the three months ended September 30, 2017 will be received in the fourth quarter of 2017 when Antero Midstream declares and pays the cash distribution for the third quarter. On October 11, 2017, Antero MidstreamDirectors (the “Board”) declared a cash distribution that included an IDR distributiondividend on the shares of $19.1 millionAM common stock of $0.225 per share for the quarter ended June 30, 2021. The dividend will be payable on August 11, 2021 to IDR LLCstockholders of record as of July 28, 2021. Our Board also declared a cash dividend of $138 thousand on Novemberthe shares of Series A Preferred Stock, which will be paid on August 16, 2017.2021 in accordance with their terms, which are discussed in Note 11—Equity and Earnings Per Common Share. As of June 30, 2021, 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 and quarterly cash dividends to our stockholders will be funded from cash flows internally generated from our operations or borrowings under the Credit Facility.
Cash Flows Provided by
The following table summarizes our cash flows for the six months ended June 30, 2020 and 2021:
| | | | | | | |
| | Six Months Ended June 30, | |
(in thousands) | | 2020 | | 2021 | |
Net cash provided by operating activities | | $ | 388,413 | | | 360,375 | |
Net cash used in investing activities | | | (143,341) | | | (73,704) | |
Net cash used in financing activities | | | (243,310) | | | (286,633) | |
Net increase in cash and cash equivalents | | $ | 1,762 | | | 38 | |
Operating Activities
Activities.Net cash provided by operating activities was $5.1$388 million and $13.5$360 million for the ninesix months ended SeptemberJune 30, 20162020 and 2017,2021, respectively. The increasedecrease in cash flow fromflows provided by operations for the ninesix months ended SeptemberJune 30, 20172021 compared to the ninesix months ended SeptemberJune 30, 20162020 was primarily the result of (i) lower water handling revenues, (ii) lower income tax refunds, (iii) increased interest expense and (iv) higher cash used for working capital between periods, excluding income tax
receivable, partially offset by higher gathering and processing revenues and lower direct operating and facility idling expenses between periods. We received income tax refunds during the six months ended June 30, 2020 and 2021 of $39 million and $17 million, respectively, from certain net operating loss carryback provisions included in the Coronavirus Aid, Relief, and Economic Security Act that was enacted in March 2020.
Investing Activities. Net cash flows used in investing activities was $143 million and $74 million for the six months ended June 30, 2020 and 2021, respectively. The decrease in cash flows used in investing activities was primarily due to increased distributions from Antero Midstream of $28.9(i) a $52 million decrease in additions to our gathering system and (ii) a $21 million decrease in investments made in unconsolidated affiliates, partially offset by ana $3 million increase in general and administrative expenses (primarily attributableadditions to the IPO) of $5.5 million, $15.1 million of cash paid in 2017 for 2016 and 2017 income taxes, and other working capital items.our water handling system between periods.
Cash Flows Used in Investing Activities
We did not have any investing cash flow activities during the nine months ended September 30, 2016 or 2017.
Cash Flows Used in Financing Activities
Activities.Net cash used in financing activities was $243 million and $287 million for the ninesix months ended SeptemberJune 30, 2017 consisted2020 and 2021, respectively. The increase in cash flows used in financing activities was primarily due to the redemption of $15.7$650 million in pre-IPO income distributedof 2024 Notes at 102.688% of par on June 8, 2021 and $100 million net repayments on the Credit Facility during the six months ended June 30, 2021, partially offset by (i) the issuance of $750 million of 2029 Notes on June 8, 2021 and (ii) reduced dividends to stockholders of $40 million between periods, and (iii) no payments for contingent acquisition consideration or repurchases of common stock during the six months ended June 30, 2021. During the six months ended June 30, 2020, we used $125 million for payment to Antero Resources for contingent acquisition consideration (net of $8 million reflected in the cash flows provided by operating operations related to the accretion of fair value), $24 million for repurchases of common stock and incurred net borrowings on the Credit Facility of $195 million.
2021 Capital Investment
The Board approved a 2021 capital budget with a range of $240 million to $260 million, which includes approximately $65 million of additional growth capital supporting the increased gross volumes expected from Antero Resources as a result of its drilling partnership that was announced during the first quarter of 2021. Our capital budgets may be adjusted as business conditions warrant, and we plan to expand our existing Appalachian Basin gathering, compression and water handling infrastructure to accommodate Antero Resources’ announced development plans.
Antero Resources announced its 2021 consolidated drilling and completion budget of $590 million, which includes plans to operate three drilling rigs. and complete between 65 and 70 horizontal wells on a gross basis, substantially all of which are located on acreage dedicated to us. Antero also announced that as a result of the drilling partnership, the Company will increase its drilled wells from a range of 65 to 70 wells to 80 to 85 wells in 2021 on a gross basis. A further or extended decline in commodity prices could cause some of Antero Resources’ or third parties’ development and production projects to be uneconomic or less profitable, which could reduce gathering and water handling volumes in our current and future potential areas of operation. Those reductions in gathering and water handling volumes could reduce our revenue and cash flows and adversely affect our ability to return capital to holders of our common stock.
For the three and six months ended June 30, 2021, our capital expenditures were approximately $70.9 million and $100.8 million, respectively, including $0.2 million and $1.0 million of capital investment in the Joint Venture, respectively.
Debt Agreements
Credit Facility
Antero Midstream Partners LP (“Antero Midstream Partners”), as borrower (the “Borrower”), entered into a senior secured revolving credit facility (as amended, the “Credit Facility”) with a consortium of banks on October 26, 2017. The Credit Facility includes fall away covenants and lower interest rates that are triggered if and when the Borrower elects to enter into an Investment priorGrade Period (as defined in the Credit Facility). The Credit Facility provides for borrowing under either the Eurodollar Rate or the Base Rate (as each term is defined in the Credit Facility).
The Credit Facility matures on October 26, 2022. As of June 30, 2021, we had $514 million of borrowings and no letters of credit outstanding under the Credit Facility. Lender commitments under the Credit Facility are currently $2.13 billion.
We have a choice of borrowing in Eurodollars or at the base rate. Principal amounts borrowed are payable on the maturity date with such borrowings bearing interest that is payable (i) with respect to base rate loans, quarterly and (ii) with respect to Eurodollar loans, the last day of each Interest Period (as defined below); provided that if any Interest Period for a Eurodollar loan
exceeds three months, interest will be payable on the respective dates that fall every three months after the beginning of such Interest Period. Eurodollar loans bear interest at a rate per annum equal to the LIBOR Rate administered by the ICE Benchmark Administration for one, two, three, six or, if available to the lenders, twelve months (the “Interest Period”) plus an applicable margin ranging from 125 to 225 basis points (subject to certain exceptions), depending on the leverage ratio then in effect. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 25 to 125 basis points (subject to certain exceptions) depending on the leverage ratio then in effect.
The Credit Facility is guaranteed by our subsidiaries and is secured by mortgages on substantially all of Antero Midstream Partners’ and its liquidationsubsidiaries’ properties. The Credit Facility contains restrictive covenants that may limit our ability to, among other things:
| ● | incur additional indebtedness; |
| ● | make certain restricted payments; |
| ● | engage in certain other transactions without the prior consent of the lenders. |
The Credit Facility also requires us to maintain the following financial ratios (subject to certain exceptions):
| ● | a consolidated interest coverage ratio, which is the ratio of our consolidated EBITDA to its consolidated current interest charges of at least 2.5 to 1.0 at the end of each fiscal quarter; |
| ● | a consolidated total leverage ratio, which is the ratio of consolidated debt to consolidated EBITDA, of not more than 5.00 to 1.00 at the end of each fiscal quarter; provided that, at our election (the “Financial Covenant Election”), the consolidated total leverage ratio shall be no more than 5.25 to 1.0; and |
| ● | after a Financial Covenant Election, a consolidated senior secured leverage ratio covenant rather than the consolidated total leverage ratio covenant, which is the ratio of consolidated senior secured debt to consolidated EBITDA, of not more than 3.75 to 1.0. |
We were in compliance with the applicable covenants and $5.0 millionratios as of June 30, 2021.
Senior Notes
Please refer to 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 quarterlyour 2020 Form 10-K for information on our Senior Notes.
Non-GAAP Financial Measures
We use Adjusted EBITDA as an important indicator of our performance. In our presentation of Adjusted EBITDA for the three months ended June 30, 2020 and 2021 net income (loss) and the corresponding adjustments reflect our actual results of operations.
We define Adjusted EBITDA as net income before net interest expense, income tax expense, depreciation, impairment, accretion of asset retirement obligations, equity-based compensation, excluding equity in earnings of unconsolidated affiliates, amortization of customer relationships, loss on asset sale, loss (gain) on early extinguishment of debt and including cash distributions from unconsolidated affiliates.
We use Adjusted EBITDA to assess:
●the financial performance of our shareholders. We didassets, 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 any financing cash flow activities duringimportant 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 nine months ended September 30, 2016.most directly comparable GAAP financial measure for the periods presented:
| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | |
| | June 30, | | June 30, | |
(in thousands) | | 2020 | | 2021 | | 2020 | | 2021 | |
Reconciliation of Net Income (Loss) to Adjusted EBITDA: | | | | | | | | | | | | | |
Net income (loss) | | $ | 88,441 | | | 80,223 | | | (304,492) | | | 163,664 | |
Interest expense, net | | | 35,311 | | | 43,505 | | | 72,942 | | | 86,371 | |
Income tax expense (benefit) | | | 31,921 | | | 28,485 | | | (112,864) | | | 56,509 | |
Amortization of customer relationships | | | 17,606 | | | 17,668 | | | 35,211 | | | 35,336 | |
Depreciation expense | | | 27,745 | | | 26,619 | | | 55,088 | | | 53,469 | |
Impairment | | | — | | | — | | | 664,544 | | | 1,379 | |
Accretion of asset retirement obligations | | | 61 | | | 114 | | | 103 | | | 233 | |
Equity-based compensation | | | 2,697 | | | 3,059 | | | 6,035 | | | 7,071 | |
Equity in earnings of unconsolidated affiliates | | | (20,947) | | | (21,515) | | | (40,024) | | | (42,259) | |
Distributions from unconsolidated affiliates | | | 18,200 | | | 26,275 | | | 41,828 | | | 58,185 | |
Loss on early extinguishment of debt | | | — | | | 20,701 | | | — | | | 20,701 | |
Loss (gain) on asset sale | | | 240 | | | (135) | | | 240 | | | 3,628 | |
Adjusted EBITDA | | $ | 201,275 | | | 224,999 | | | 418,611 | | | 444,287 | |
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 assets and 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.
Equity-Based Compensation
Equity-based compensation awards are measured at their grant date fair value We provide expanded discussion of our more significant accounting policies, estimates and related compensation cost is recognized overjudgments in the vesting period of the grant. Compensation cost for awards with only service conditions is recognized on a straight-line basis over the requisite service period of the entire award. Estimating the fair value of each award involves a number of2020 Form 10-K. We believe these accounting policies reflect our more significant estimates including interest rates, expected volatilityand assumptions used in preparation of our equity value, and expected distributionsfinancial statements.
New Accounting Pronouncements
Please refer to Note 2—Summary of Significant Accounting Policies to the unaudited condensed consolidated financial statements for information on the Series B Units.new accounting pronouncements.
Off-Balance Sheet Arrangements
As of SeptemberJune 30, 2017,2021, we did not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Risk.
The natureprimary 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 structures, and we intend to continue to pursue additional fixed-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 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 businessborrowings under the Credit Facility from time-to-time in order to manage risks associated with floating interest rates. At June 30, 2021, we had $514 million of borrowings and operations is such that no activities or transactions are conducted or entered into by us thatletters of credit outstanding under the Credit Facility. A 1.0% increase in the Credit Facility interest rate would require us to have a discussion under this item.
For a discussion of these matters as they pertain to Antero Midstream, please read Item 3. “Quantitative and Qualitative Disclosures About Market Risk” of Antero Midstream’s Quarterly Report on Form 10-Qresulted in an estimated $3.0 million increase in interest expense for the quartersix months ended SeptemberJune 30, 2017, which has been included2021.
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 this filing as Exhibit 99.1 and incorporated herein by reference, as the activitiesour area of operations or otherwise, that adversely affects Antero Midstream have a significant impact on ourResources’ production, drilling schedule, financial condition, leverage, market reputation, liquidity, results of operations or cash flows may adversely affect our revenues and financial position.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)13a-15(b) under the Securities Exchange Act, of 1934, as amended (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)13a-15(e) and 15d‑15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report.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 the reports that we file or submit 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 SEC’s rules and forms.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 SeptemberJune 30, 20172021 at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There hashave been no changechanges in our internal control over financial reporting (as defined in Rules 13a‑15(f)13a-15(f) and 15d‑15(f)15d-15(f) under the Exchange Act) during the third quarter of 2017three months ended June 30, 2021 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
Item 5. Other Information.
Amended and Restated Antero Midstream Credit Facility
On October 26, 2017, Antero Midstream entered into an amendment and restatement of its revolving credit facility (as amended, the “Credit Facility”). For a description of the Credit Facility, see “—Debt Agreements—Revolving Credit Facility” in Antero Midstream’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, which has been included in this filing as Exhibit 99.1 and incorporated herein by reference.. The description of the Credit Facility is a summary and is qualified in its entirety by the terms of the Credit Facility. A copy of the Credit Facility is filed as Exhibit 10.1 hereto, and is incorporated herein by reference.
PART II—OTHER INFORMATIONINFORMATION
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. However,
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.
Veolia
The Company is currently involved in a consolidated lawsuit with Veolia Water Technologies, Inc. (“Veolia”) and Veolia Water North America Operating Services, LLC (“Veolia North America”) 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 and Veolia North America in the district court of Denver County, Colorado, 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 design flaws during contract negotiations and continued to conceal and fraudulently misrepresent the impact of certain design changes post-execution of the DBA. Antero Treatment is seeking damages from Veolia of at least $457 million, which represents the Company’s recorded impairment of the idled Clearwater Facility. In the alternative, Antero Treatment sought rescission of the DBA and restitution of, at a minimum, the $230 million out-of-pocket costs paid to Veolia pursuant to the DBA. Antero Treatment also asserts related claims against Veolia North America, including equitable claims with respect to certain amounts Antero paid to Veolia North America.
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 asserts breach of contract and equitable claims against the Antero Defendants for alleged failures under the DBA, including an allegation that the Antero Defendants improperly terminated the DBA to prevent Veolia from earning an approximate $26 million contract balance. The Antero Defendants vigorously deny Veolia’s claims. Veolia seeks money damages in an amount not currently subjectyet specified. Veolia’s suit has been consolidated into the action filed by Antero Treatment.
On April 17, 2020, Veolia, Veolia North America and the Antero Defendants each filed partial motions to any material litigation.dismiss directed at certain claims asserted by the opposing party. On July 23, 2020, the Court dismissed Veolia’s equitable claims against the Antero Defendants and Antero Treatment’s alternative claim for rescission against Veolia. All other claims remain part of the consolidated action. Following an order issued by the Court on June 17, 2021, the case is now set for trial beginning on January 24, 2022.
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, set forthsee “Item 1A. Risk Factors” in our prospectus dated May 3, 2017 and filed with the SEC on May 5, 2017 that were set forth under the caption “Risk Factors.” The risks described in our prospectus could materially and adversely affect our business, financial condition, cash flows, and results of operations.2020 Form 10-K. There have been no material changes to the risks described in our prospectus and under the heading “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 and in Antero Midstream’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017.such report. We may experience additional risks and uncertainties not currently known to us, or,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 our business, financial condition, cash flows and results of operations.
Item 5. Other Information.
Disclosure pursuant to Section 13(r) of the Securities Exchange Act of 1934
Pursuant to Section 13(r) of the Securities Exchange Act of 1934, we may be required to disclose in our annual and quarterly reports to the SEC, whether we or any of our “affiliates” knowingly engaged in certain activities, transactions or dealings relating to Iran or with certain individuals or entities targeted by U.S. economic sanctions. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law. Because the SEC defines the term “affiliate” broadly, it includes any entity under common “control” with us (and the term “control” is also construed broadly by the SEC).
The description of the activities below has been provided to us by Warburg Pincus LLC (“Warburg”), affiliates of which: (i) beneficially own more than 10% of our outstanding common shares and/or are members of our general partner’s board of directors, (ii) beneficially own more than 10% of the equity interests of, and have the right to designate members of the board of directors of Santander Asset Management Investment Holdings Limited (“SAMIH”). SAMIH may therefore be deemed to be under common “control” with us; however, this statement is not meant to be an admission that common control exists.
The disclosure below relates solely to activities conducted by SAMIH and its affiliates. The disclosure does not relate to any activities conducted by us or by Warburg and does not involve our or Warburg’s management. Neither we nor Warburg has had any involvement in or control over the disclosed activities, and neither we nor Warburg has independently verified or participated in the preparation of the disclosure. Neither we nor Warburg is representing as to the accuracy or completeness of the disclosure nor do we or Warburg undertake any obligation to correct or update it.
We understand that one or more SEC-reporting affiliates of SAMIH intend to disclose in their next annual or quarterly SEC report that:
a) Santander UK plc (“Santander UK”) holds two savings accounts and one current account for two customers resident in the United Kingdom (“UK”) who are currently designated by the United States (“US”) under the Specially Designated Global Terrorist (“SDGT”) sanctions program. Revenues and profits generated by Santander UK on these accounts in the nine month period ended September 30, 2017 were negligible relative to the overall revenues and profits of Banco Santander SA.
(b) Santander UK holds two frozen current accounts for two UK nationals who are designated by the US under the SDGT sanctions program. The accounts held by each customer have been frozen since their designation and have remained frozen through the nine month period ended September 30, 2017. The accounts are in arrearsus.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following table sets forth our 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 | |
Period | | Purchased (1) | | Share | | Announced Plans (2) | | Under the Plan | |
April 1, 2021 – April 30, 2021 | | 276,378 | | $ | 8.71 | | — | | | 149,767,409 | |
May 1, 2021 – May 31, 2021 | | — | | | — | | — | | | N/A | |
June 1, 2021 – June 30, 2021 | | — | | | — | | — | | | N/A | |
Total | | 276,378 | | $ | 8.71 | | — | | $ | 149,767,409 | |
| (1) | The total number of shares reflects shares transferred to us to satisfy tax withholding obligations incurred upon the vesting of equity awards held by our employees. |
| (2) | In August 2019, the Board authorized a $300 million share repurchase program, which was extended through June 30, 2023 during the first quarter of 2021. During the three months ended June 30, 2021, we made no repurchases under this program. |
(£1,844.73 in debit combined) and are currently being managed by Santander UK Collections & Recoveries department. No revenues or profits were generated by Santander UK on this account in the nine month period ended September 30, 2017.Table of Contents
Item 6. Exhibits.Exhibits
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Exhibit Number | | Description of Exhibit |
3.1 | | Certificate of Conversion of Antero Resources Midstream Management LLC from a Delaware limited liability companyCorporation, dated March 12, 2019 (incorporated by reference to a Delaware limited partnership,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 asMarch 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 | | Bylaws of May 4, 2017Antero Midstream Corporation, dated March 12, 2019 (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K (Commission File No. 001-38075) filed on March 12, 2019). |
3.4 | | Certificate of Designations of Antero Midstream Corporation, dated March 12, 2019 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8‑K (Commission File No. 001‑38075) filed on May 9, 2017). |
3.2 | | Certificate of Limited Partnership of Antero Midstream GP LP, dated as of May 4, 2017 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8‑K (Commission File No. 001‑38075) filed on May 9, 2017).
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3.3 | | Agreement of Limited Partnership of Antero Midstream GP LP, dated as of May 9, 2017, by and between AMGP GP LLC, as the General Partner, and Antero Resources Investment LLC, as the Organizational Limited Partner (incorporated by reference to Exhibit 3.3 to the Current Report on Form 8‑K (Commission File No. 001‑38075) filed on May 9, 2017).
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3.4 | | Certificate of Formation of AMGP GP LLC, dated as of April 18, 2017 (incorporated by reference to Exhibit 3.5 to Antero Resources Midstream Management LLC’s Registration Statement on Form S-1 (Commission File No. 333‑216975) filed on April 24, 2017).
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3.5 | | Limited Liability Company Agreement of AMGP GP LLC, dated as of May 9, 2017, by and among Warburg Pincus Private Equity X O&G, L.P., Warburg Pincus X Partners, L.P., Warburg Pincus Private Equity VIII, LP, Warburg Pincus Netherlands Private Equity VIII C.V.I, WP-WPVIII Investors, L.P., Yorktown Energy Partners V, L.P., Yorktown Energy Partners VI, L.P., Yorktown Energy Partners VII, L.P., Yorktown Energy Partners VIII, L.P., Paul M. Rady and Glen C. Warren, Jr. (incorporated by reference to Exhibit 3.4 to the Current Report on Form 8‑K (Commission File No. 001‑38075) filed on May 9, 2017).
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3.6 | | Agreement of Limited Partnership of Antero Midstream Partners LP dated as of November 10, 2014 (incorporated by reference to Exhibit 3.1 to Antero Midstream Partners LP'sCompany’s Current Report on Form 8-K (Commission File No. 001-38075) filed November 17, 2014)on March 12, 2019).
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3.7 | 4.1 | Amendment No. 1 dated February 23, 2016 to the Agreement of Limited Partnership of Antero Midstream Partners LP (incorporated by reference to Exhibit 3.4 to Antero Midstream Partners LP's Annual Report on Form 10-K filed February 24, 2016).
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3.8 | | Limited Liability Company Agreement of Antero IDR Holdings LLCIndenture, dated December 31, 2016 (incorporated by reference to Exhibit 3.9 to Antero Resources Midstream Management LLC’s Registration Statement on Form S-1 (Commission File No. 333‑216975) filed on April 7, 2017).
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10.1 | | Amended and Restated Credit Agreement,June 8, 2021, by and among Antero Midstream Partners LP, Antero Midstream Finance Corporation, the lenders
guarantors party thereto and Wells Fargo Bank, National Association, as Administrative Agenttrustee (incorporated by reference to Exhibit 10.1 4.1 to Antero Midstream Partners LP's Quarterlythe Company’s Current Report on Form 10-Q8-K (Commission File No. 001-36719)001-38075) filed on November 1, 2017)June 8, 2021). |
4.2 | | Form of 5.375% Senior Note due 2029 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (Commission File No. 001-36120) filed on June 8, 2021). |
22.1 | | List of Guarantor and Issuer Subsidiaries (incorporated by reference to Exhibit 22.1 to the Company’s Annual Report on Form 10-K (Commission File No. 001-38075) filed on February 17, 2021). |
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). |
99.1 | *101
| Antero Midstream Partners LP’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017.
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101 | * | The following financial information from this Quarterly Report on Form 10‑Q10-Q of ANTERO MIDSTREAM GP LPAntero Midstream Corporation for the quarter ended SeptemberJune 30, 2017,2021, formatted in XBRL (eXtensibleiXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Partners’ Capital,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.
SIGNATURES
SIGNATURES
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.
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| | | |
| ANTERO MIDSTREAM GP LP | CORPORATION |
| | | |
| By:
| AMGP GP LLC, its general partner
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| | | |
| By: | /s/ Michael Kennedy | Brendan E. Krueger |
| | Michael Kennedy
| BRENDAN E. KRUEGER |
| | Chief Financial Officer, | Treasurer and Vice President of Finance |
| | | |
| Date: | November 1, 2017
| July 28, 2021 |
