PartnersCapitalAbstract
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20212022
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-38075
ANTERO MIDSTREAM CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware | | 61-1748605 |
(State or other jurisdiction of | | (IRS Employer Identification No.) |
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1615 Wynkoop Street | | 80202 |
(Address of principal executive offices) | | (Zip Code) |
(303) 357-7310
(Registrant’s telephone number, including area code)
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Securities registered pursuant to section 12(b) of the Act: | ||||
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.01 | | AM | | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ⌧☒ Yes ◻☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ⌧☒ Yes ◻☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer |
| Accelerated Filer |
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Non-accelerated Filer |
| Smaller Reporting Company ☐ |
Emerging Growth Company ☐ | | |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ Yes ⌧☒ No
The registrant had 477,503,787478,484,564 shares of common stock outstanding as of October 22, 2021.21, 2022.
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 26 | ||
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1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. Words such as “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking statements, although not all forward-looking statements contain such identifying words. When considering these forward-looking statements, investors should keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q. These forward-looking statements are based on management’s current beliefs, based on currently available information, as to the outcome and timing of future events. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:
● | Antero Resources Corporation’s (“Antero Resources”) expected production and development plan; |
● | impacts to producer customers of insufficient storage capacity; |
● | our ability to execute our business strategy; |
● | our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness; |
● | our ability to realize the anticipated benefits of our investments in unconsolidated affiliates; |
● | natural gas, natural gas liquids (“NGLs”), and oil prices; |
● | impacts of geopolitical events and world health events, including the coronavirus (“COVID-19”) pandemic; |
● | our ability to complete the construction of or purchase new gathering and compression, processing, water handling or other assets on schedule, at the budgeted cost or at all, and the ability of such assets to operate as designed or at expected levels; |
● | our ability to execute our share repurchase program; |
● |
● | government regulations and |
● | actions taken by third-party producers, operators, processors and transporters; |
● | pending legal or environmental matters; |
● | costs of conducting our operations; |
● | our ability to achieve our greenhouse gas reduction targets and the costs associated therewith; |
● | general economic conditions; |
● | credit markets; |
● | operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control; |
● | uncertainty regarding our future operating results; and |
● | our other plans, objectives, expectations and intentions contained in this Quarterly Report on Form 10-Q. |
1
We caution investors that these forward-looking statements are subject to all of the risks and uncertainties incidental to our business, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, commodity price volatility, inflation, environmental risks, Antero Resources’ drilling and completion and other operating risks, regulatory changes or changes in law, the uncertainty inherent in projecting Antero Resources’ future rates of production, cash flows and access to
2
capital, the timing of development expenditures, impacts of world health events (including the COVID-19 pandemic), cybersecurity risks, the state of markets for, and availability of, verified quality carbon offsets and the other risks described or referenced under the heading “1A. Risk Factors” herein, including the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 20202021 (the “2020“2021 Form 10-K”), which is on file with the Securities and Exchange Commission (“SEC”).
Should one or more of the risks or uncertainties described or referenced in this Quarterly Report on Form 10-Q occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
All forward-looking statements, expressed or implied, included in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.
32
PART I—FINANCIAL INFORMATION
ANTERO MIDSTREAM CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
| | | | | | | | | | | | | | |
| | | | (Unaudited) | | | | | (Unaudited) | | ||||
| | December 31, | | September 30, | | | December 31, | | September 30, | | ||||
|
| 2020 |
| 2021 |
|
| 2021 |
| 2022 |
| ||||
Assets | Assets | Assets | ||||||||||||
Current assets: | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 640 | | | — | | |||||||
Accounts receivable–Antero Resources | | | 73,722 | | | 85,152 | | | $ | 81,197 | | | 77,301 | |
Accounts receivable–third party | | | 839 | | | 857 | | | | 747 | | | 1,988 | |
Income tax receivable | | | 17,251 | | | 940 | | | | 940 | | | 940 | |
Other current assets | | | 1,479 | | | 541 | | | | 920 | | | 556 | |
Total current assets | | | 93,931 | | | 87,490 | | | | 83,804 | | | 80,785 | |
| | | | | | | | | | | | | | |
Property and equipment, net | | | 3,254,044 | | | 3,345,843 | | | | 3,394,746 | | | 3,508,008 | |
Investments in unconsolidated affiliates | | | 722,478 | | | 703,780 | | | | 696,009 | | | 659,006 | |
Deferred tax asset | | | 103,402 | | | 14,855 | | |||||||
Customer relationships | | | 1,427,447 | | | 1,374,443 | | | | 1,356,775 | | | 1,303,771 | |
Other assets, net | | | 9,610 | | | 7,222 | | | | 12,667 | | | 12,251 | |
Total assets | | $ | 5,610,912 | | | 5,533,633 | | | $ | 5,544,001 | | | 5,563,821 | |
| | | | | | | | | | | | | | |
Liabilities and Stockholders' Equity | Liabilities and Stockholders' Equity | Liabilities and Stockholders' Equity | ||||||||||||
Current liabilities: | | | | | | | | | | | | | | |
Accounts payable–Antero Resources | | $ | 3,862 | | | 3,157 | | | $ | 4,956 | | | 2,648 | |
Accounts payable–third party | | | 9,495 | | | 24,944 | | | | 23,592 | | | 24,125 | |
Accrued liabilities | | | 74,947 | | | 85,576 | | | | 80,838 | | | 72,952 | |
Other current liabilities | | | 5,701 | | | 5,013 | | | | 4,623 | | | 6,657 | |
Total current liabilities | | | 94,005 | | | 118,690 | | | | 114,009 | | | 106,382 | |
Long-term liabilities: | | | | | | | | | | | | | | |
Long-term debt | | | 3,091,626 | | | 3,095,560 | | | | 3,122,910 | | | 3,143,169 | |
Deferred income tax liability | | | 13,721 | | | 98,519 | | |||||||
Other | | | 6,995 | | | 6,790 | | | | 6,663 | | | 3,896 | |
Total liabilities | | | 3,192,626 | | | 3,221,040 | | | | 3,257,303 | | | 3,351,966 | |
| | | | | | | | | | | | | | |
Stockholders' Equity: | | | | | | | | | | | | | | |
Preferred stock, $0.01 par value: 100,000 authorized as of December 31, 2020 and September 30, 2021 | | | | | | | | |||||||
Series A non-voting perpetual preferred stock; 12 designated and 10 issued and outstanding as of December 31, 2020 and September 30, 2021 | | | — | | | — | | |||||||
Common stock, $0.01 par value; 2,000,000 authorized; 476,639 and 477,460 issued and outstanding as of December 31, 2020 and September 30, 2021, respectively | | | 4,766 | | | 4,775 | | |||||||
Preferred stock, $0.01 par value: 100,000 authorized as of December 31, 2021 and September 30, 2022 | | | | | | | | |||||||
Series A non-voting perpetual preferred stock; 12 designated and 10 issued and outstanding as of December 31, 2021 and September 30, 2022 | | | — | | | — | | |||||||
Common stock, $0.01 par value; 2,000,000 authorized; 477,495 and 478,462 issued and outstanding as of December 31, 2021 and September 30, 2022, respectively | | | 4,775 | | | 4,784 | | |||||||
Additional paid-in capital | | | 2,877,612 | | | 2,518,919 | | | | 2,414,398 | | | 2,123,057 | |
Accumulated deficit | | | (464,092) | | | (211,101) | | |||||||
Retained earnings (accumulated deficit) | | | (132,475) | | | 84,014 | | |||||||
Total stockholders' equity | | | 2,418,286 | | | 2,312,593 | | | | 2,286,698 | | | 2,211,855 | |
Total liabilities and stockholders' equity | | $ | 5,610,912 | | | 5,533,633 | | | $ | 5,544,001 | | | 5,563,821 | |
See accompanying notes to unaudited condensed consolidated financial statements.
3
ANTERO MIDSTREAM CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)
(In thousands, except per share amounts)
| | | | | | | |
| | Three Months Ended September 30, | | ||||
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| 2021 |
| 2022 | | ||
Revenue: |
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Gathering and compression–Antero Resources | | $ | 188,716 | | | 185,640 | |
Water handling–Antero Resources | | | 53,511 | | | 61,411 | |
Water handling–third party | | | 245 | | | 1,651 | |
Amortization of customer relationships | | | (17,668) | | | (17,668) | |
Total revenue | | | 224,804 | | | 231,034 | |
Operating expenses: | | | | | | | |
Direct operating | | | 39,499 | | | 46,648 | |
General and administrative (including $3,255 and $5,553 of equity-based compensation in 2021 and 2022, respectively) | | | 14,810 | | | 13,587 | |
Facility idling | | | 870 | | | 865 | |
Depreciation | | | 27,487 | | | 34,206 | |
Impairment of property and equipment | | | 203 | | | — | |
Accretion of asset retirement obligations | | | 114 | | | 50 | |
Gain on asset sale | | | — | | | (2,092) | |
Total operating expenses | | | 82,983 | | | 93,264 | |
Operating income | | | 141,821 | | | 137,770 | |
Other income (expense): | | | | | | | |
Interest expense, net | | | (44,544) | | | (47,835) | |
Equity in earnings of unconsolidated affiliates | | | 24,088 | | | 24,411 | |
Total other expense | | | (20,456) | | | (23,424) | |
Income before income taxes | | | 121,365 | | | 114,346 | |
Income tax expense | | | (32,038) | | | (30,332) | |
Net income and comprehensive income | | $ | 89,327 | | | 84,014 | |
| | | | | | | |
Net income per share–basic | | $ | 0.19 | | | 0.18 | |
Net income per share–diluted | | $ | 0.19 | | | 0.17 | |
| | | | | | | |
Weighted average common shares outstanding: | | | | | | | |
Basic | | | 477,442 | | | 478,460 | |
Diluted | | | 479,695 | | | 480,318 | |
See accompanying notes to unaudited condensed consolidated financial statements.
4
ANTERO MIDSTREAM CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)
(In thousands, except per share amounts)
| | | | | | | |
| | Three Months Ended September 30, | | ||||
|
| 2020 |
| 2021 | | ||
Revenue: |
| | |
| | | |
Gathering and compression–Antero Resources | | $ | 190,214 | | | 188,716 | |
Water handling–Antero Resources | | | 61,001 | | | 53,511 | |
Water handling–third party | | | — | | | 245 | |
Amortization of customer relationships | | | (17,800) | | | (17,668) | |
Total revenue | | | 233,415 | | | 224,804 | |
Operating expenses: | | | | | | | |
Direct operating | | | 38,052 | | | 39,499 | |
General and administrative (including $3,678 and $3,255 of equity-based compensation in 2020 and 2021, respectively) | | | 13,232 | | | 14,810 | |
Facility idling | | | 2,527 | | | 870 | |
Impairment of property and equipment | | | 947 | | | 203 | |
Depreciation | | | 26,801 | | | 27,487 | |
Accretion of asset retirement obligations | | | 39 | | | 114 | |
Total operating expenses | | | 81,598 | | | 82,983 | |
Operating income | | | 151,817 | | | 141,821 | |
Other income (expense): | | | | | | | |
Interest expense, net | | | (34,501) | | | (44,544) | |
Equity in earnings of unconsolidated affiliates | | | 23,173 | | | 24,088 | |
Total other expense | | | (11,328) | | | (20,456) | |
Income before income taxes | | | 140,489 | | | 121,365 | |
Provision for income tax expense | | | (34,982) | | | (32,038) | |
Net income and comprehensive income | | $ | 105,507 | | | 89,327 | |
| | | | | | | |
Net income per share–basic | | $ | 0.22 | | | 0.19 | |
Net income per share–diluted | | $ | 0.22 | | | 0.19 | |
| | | | | | | |
Weighted average common shares outstanding: | | | | | | | |
Basic | | | 476,578 | | | 477,442 | |
Diluted | | | 478,694 | | | 479,695 | |
See accompanying notes to unaudited condensed consolidated financial statements.
5
ANTERO MIDSTREAM CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
(In thousands, except per share amounts)
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | | Nine Months Ended September 30, | | ||||||||
|
| 2020 |
| 2021 | |
| 2021 |
| 2022 | | ||||
Revenue: |
| | |
| | | |
| | |
| | | |
Gathering and compression–Antero Resources | | $ | 527,334 | | | 566,544 | | | $ | 566,544 | | | 552,154 | |
Water handling–Antero Resources | | | 222,536 | | | 167,832 | | | | 167,832 | | | 176,994 | |
Water handling–third party | | | — | | | 340 | | | | 340 | | | 2,288 | |
Amortization of customer relationships | | | (53,011) | | | (53,004) | | | | (53,004) | | | (53,004) | |
Total revenue | | | 696,859 | | | 681,712 | | | | 681,712 | | | 678,432 | |
Operating expenses: | | | | | | | | | | | | | | |
Direct operating | | | 128,847 | | | 118,368 | | | | 118,368 | | | 131,959 | |
General and administrative (including $9,713 and $10,326 of equity-based compensation in 2020 and 2021, respectively) | | | 39,191 | | | 46,991 | | |||||||
General and administrative (including $10,326 and $14,026 of equity-based compensation in 2021 and 2022, respectively) | | | 46,991 | | | 47,597 | | |||||||
Facility idling | | | 13,680 | | | 3,033 | | | | 3,033 | | | 3,198 | |
Impairment of goodwill | | | 575,461 | | | — | | |||||||
Depreciation | | | 80,956 | | | 98,181 | | |||||||
Impairment of property and equipment | | | 90,030 | | | 1,582 | | | | 1,582 | | | 3,702 | |
Depreciation | | | 81,889 | | | 80,956 | | |||||||
Accretion of asset retirement obligations | | | 142 | | | 347 | | | | 347 | | | 178 | |
Loss on asset sale | | | 240 | | | 3,628 | | |||||||
Loss on settlement of asset retirement obligations | | | — | | | 539 | | |||||||
Loss (gain) on asset sale | | | 3,628 | | | (2,242) | | |||||||
Total operating expenses | | | 929,480 | | | 254,905 | | | | 254,905 | | | 283,112 | |
Operating income (loss) | | | (232,621) | | | 426,807 | | |||||||
Operating income | | | 426,807 | | | 395,320 | | |||||||
Other income (expense): | | | | | | | | | | | | | | |
Interest expense, net | | | (107,443) | | | (130,915) | | | | (130,915) | | | (137,540) | |
Equity in earnings of unconsolidated affiliates | | | 63,197 | | | 66,347 | | | | 66,347 | | | 70,467 | |
Loss on early extinguishment of debt | | | — | | | (20,701) | | | | (20,701) | | | — | |
Total other expense | | | (44,246) | | | (85,269) | | | | (85,269) | | | (67,073) | |
Income (loss) before income taxes | | | (276,867) | | | 341,538 | | |||||||
Provision for income tax benefit (expense) | | | 77,882 | | | (88,547) | | |||||||
Net income (loss) and comprehensive income (loss) | | $ | (198,985) | | | 252,991 | | |||||||
Income before income taxes | | | 341,538 | | | 328,247 | | |||||||
Income tax expense | | | (88,547) | | | (84,798) | | |||||||
Net income and comprehensive income | | $ | 252,991 | | | 243,449 | | |||||||
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Net income (loss) per share–basic | | $ | (0.42) | | | 0.53 | | |||||||
Net income (loss) per share–diluted | | $ | (0.42) | | | 0.53 | | |||||||
Net income per share–basic | | $ | 0.53 | | | 0.51 | | |||||||
Net income per share–diluted | | $ | 0.53 | | | 0.51 | | |||||||
| | | | | | | | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | | | | | | | |
Basic | | | 478,831 | | | 477,196 | | | | 477,196 | | | 478,144 | |
Diluted | | | 478,831 | | | 479,501 | | | | 479,501 | | | 480,342 | |
See accompanying notes to unaudited condensed consolidated financial statements.
65
ANTERO MIDSTREAM CORPORATION
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Additional | | | | | | | | | | | | | | | Retained | | | | ||||||||||||
| | Preferred | | Common Stock | | Paid-In | | Accumulated | | Total | | | | | | | | | | | | Additional | | Earnings | | | | | ||||||||||
| | Stock | | Shares | | Amount | | Capital | | Deficit | | Equity | | | Preferred | | Common Stock | | Paid-In | | (Accumulated | | Total | | ||||||||||||||
Balance at December 31, 2019 |
| $ | — |
| | 484,042 |
| $ | 4,840 |
| | 3,480,139 |
| | (341,565) |
| | 3,143,414 | | |||||||||||||||||||
Dividends to stockholders | | | — | | | — | | | — | | | (149,014) | | | — | | | (149,014) | | |||||||||||||||||||
Equity-based compensation | | | — | | | — | | | — | | | 3,338 | | | — | | | 3,338 | | |||||||||||||||||||
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | | | — | | | 43 | | | — | | | (26) | | | — | | | (26) | | |||||||||||||||||||
Repurchases and retirement of common stock | | | — | | | (4,700) | | | (46) | | | (15,778) | | | — | | | (15,824) | | |||||||||||||||||||
Net loss and comprehensive loss | | | — | | | — | | | — | | | — | | | (392,933) | | | (392,933) | | |||||||||||||||||||
Balance at March 31, 2020 | | | — | | | 479,385 | | | 4,794 | | | 3,318,659 | | | (734,498) | | | 2,588,955 | | |||||||||||||||||||
Dividends to stockholders | | | — | | | — | | | — | | | (147,656) | | | — | | | (147,656) | | |||||||||||||||||||
Equity-based compensation | | | — | | | — | | | — | | | 2,697 | | | — | | | 2,697 | | |||||||||||||||||||
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | | | — | | | 311 | | | 4 | | | (370) | | | — | | | (366) | | |||||||||||||||||||
Repurchases and retirement of common stock | | | — | | | (3,210) | | | (33) | | | (8,856) | | | — | | | (8,889) | | |||||||||||||||||||
Net income and comprehensive income | | | — | | | — | | | — | | | — | | | 88,441 | | | 88,441 | | |||||||||||||||||||
Balance at June 30, 2020 | | | — | | | 476,486 | | $ | 4,765 | | | 3,164,474 | | | (646,057) | | | 2,523,182 | | |||||||||||||||||||
Dividends to stockholders | | | — | | | — | | | — | | | (146,802) | | | — | | | (146,802) | | |||||||||||||||||||
Equity-based compensation | | | — | | | — | | | — | | | 3,678 | | | — | | | 3,678 | | |||||||||||||||||||
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | | | — | | | 111 | | | 1 | | | (75) | | | — | | | (74) | | |||||||||||||||||||
Net income and comprehensive income | | | — | | | — | | | — | | | — | | | 105,507 | | | 105,507 | | |||||||||||||||||||
Balance at September 30, 2020 | | $ | — | | | 476,597 | | $ | 4,766 | | | 3,021,275 | | | (540,550) | | | 2,485,491 | | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | Stock | | Shares | | Amount | | Capital | | Deficit) | | Equity | | ||||||
Balance at December 31, 2020 |
| $ | — | | | 476,639 |
| $ | 4,766 |
| | 2,877,612 |
| | (464,092) |
| | 2,418,286 | |
| $ | — | | | 476,639 |
| $ | 4,766 |
| | 2,877,612 |
| | (464,092) |
| | 2,418,286 | |
Dividends to stockholders | | | — | | | — | | | — | | | (147,332) | | | — | | | (147,332) | | | | — | | | — | | | — | | | (147,332) | | | — | | | (147,332) | |
Equity-based compensation | | | — | | | — | | | — | | | 4,012 | | | — | | | 4,012 | | | | — | | | — | | | — | | | 4,012 | | | — | | | 4,012 | |
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | | | — | | | 268 | | | 3 | | | (1,544) | | | — | | | (1,541) | | | | — | | | 268 | | | 3 | | | (1,544) | | | — | | | (1,541) | |
Net income and comprehensive income | | | — | | | — | | | — | | | — | | | 83,441 | | | 83,441 | | | | — | | | — | | | — | | | — | | | 83,441 | | | 83,441 | |
Balance at March 31, 2021 | | | — | | | 476,907 | | | 4,769 | | | 2,732,748 | | | (380,651) | | | 2,356,866 | | | | — | | | 476,907 | | | 4,769 | | | 2,732,748 | | | (380,651) | | | 2,356,866 | |
Dividends to stockholders | | | — | | | — | | | — | | | (108,936) | | | — | | | (108,936) | | | | — | | | — | | | — | | | (108,936) | | | — | | | (108,936) | |
Equity-based compensation | | | — | | | — | | | — | | | 3,059 | | | — | | | 3,059 | | | | — | | | — | | | — | | | 3,059 | | | — | | | 3,059 | |
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | | | — | | | 451 | | | 5 | | | (2,781) | | | — | | | (2,776) | | | | — | | | 451 | | | 5 | | | (2,781) | | | — | | | (2,776) | |
Net income and comprehensive income | | | — | | | — | | | — | | | — | | | 80,223 | | | 80,223 | | | | — | | | — | | | — | | | — | | | 80,223 | | | 80,223 | |
Balance at June 30, 2021 | | | — | | | 477,358 | | $ | 4,774 | | | 2,624,090 | | | (300,428) | | | 2,328,436 | | | | — | | | 477,358 | | | 4,774 | | | 2,624,090 | | | (300,428) | | | 2,328,436 | |
Dividends to stockholders | | | — | | | — | | | — | | | (107,857) | | | — | | | (107,857) | | | | — | | | — | | | — | | | (107,857) | | | — | | | (107,857) | |
Equity-based compensation | | | — | | | — | | | — | | | 3,255 | | | — | | | 3,255 | | | | — | | | — | | | — | | | 3,255 | | | — | | | 3,255 | |
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | | | — | | | 102 | | | 1 | | | (569) | | | — | | | (568) | | | | — | | | 102 | | | 1 | | | (569) | | | — | | | (568) | |
Repurchases and retirement of common stock | | | — | | | — | | | — | | | — | | | — | | | — | | |||||||||||||||||||
Net income and comprehensive income | | | — | | | — | | | — | | | — | | | 89,327 | | | 89,327 | | | | — | | | — | | | — | | | — | | | 89,327 | | | 89,327 | |
Balance at September 30, 2021 | | $ | — | | | 477,460 | | | 4,775 | | | 2,518,919 | | | (211,101) | | | 2,312,593 | | | $ | — | | | 477,460 | | $ | 4,775 | | | 2,518,919 | | | (211,101) | | | 2,312,593 | |
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Balance at December 31, 2021 |
| $ | — | | | 477,495 | | $ | 4,775 | | | 2,414,398 | | | (132,475) |
| | 2,286,698 | | |||||||||||||||||||
Dividends to stockholders | | | — | | | — | | | — | | | (108,287) | | | — | | | (108,287) | | |||||||||||||||||||
Equity-based compensation | | | — | | | — | | | — | | | 2,832 | | | — | | | 2,832 | | |||||||||||||||||||
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | | | — | | | 188 | | | 2 | | | (1,331) | | | — | | | (1,329) | | |||||||||||||||||||
Net income and comprehensive income | | | — | | | — | | | — | | | — | | | 80,040 | | | 80,040 | | |||||||||||||||||||
Balance at March 31, 2022 | | | — | | | 477,683 | | | 4,777 | | | 2,307,612 | | | (52,435) | | | 2,259,954 | | |||||||||||||||||||
Dividends to stockholders | | | — | | | — | | | — | | | (109,433) | | | — | | | (109,433) | | |||||||||||||||||||
Equity-based compensation | | | — | | | — | | | — | | | 5,641 | | | — | | | 5,641 | | |||||||||||||||||||
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | | | — | | | 754 | | | 7 | | | (5,445) | | | — | | | (5,438) | | |||||||||||||||||||
Net income and comprehensive income | | | — | | | — | | | — | | | — | | | 79,395 | | | 79,395 | | |||||||||||||||||||
Balance at June 30, 2022 | | | — | | | 478,437 | | | 4,784 | | | 2,198,375 | | | 26,960 | | | 2,230,119 | | |||||||||||||||||||
Dividends to stockholders | | | — | | | — | | | — | | | (80,853) | | | (26,960) | | | (107,813) | | |||||||||||||||||||
Equity-based compensation | | | — | | | — | | | — | | | 5,553 | | | — | | | 5,553 | | |||||||||||||||||||
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | | | — | | | 25 | | | — | | | (18) | | | — | | | (18) | | |||||||||||||||||||
Net income and comprehensive income | | | — | | | — | | | — | | | — | | | 84,014 | | | 84,014 | | |||||||||||||||||||
Balance at September 30, 2022 | | $ | — | | | 478,462 | | $ | 4,784 | | | 2,123,057 | | | 84,014 | | | 2,211,855 | |
See accompanying notes to unaudited condensed consolidated financial statements.
76
ANTERO MIDSTREAM CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
| | | | | | | |
| | Nine Months Ended September 30, | | ||||
|
| 2020 |
| 2021 |
| ||
Cash flows provided by (used in) operating activities: |
| | |
|
| | |
Net income (loss) | | $ | (198,985) | | | 252,991 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
Depreciation | | | 81,889 | | | 80,956 | |
Payment of contingent consideration in excess of acquisition date fair value | | | (8,076) | | | — | |
Accretion of asset retirement obligations | | | 142 | | | 347 | |
Impairment | | | 665,491 | | | 1,582 | |
Deferred income tax expense (benefit) | | | (21,425) | | | 88,547 | |
Equity-based compensation | | | 9,713 | | | 10,326 | |
Equity in earnings of unconsolidated affiliates | | | (63,197) | | | (66,347) | |
Distributions from unconsolidated affiliates | | | 69,313 | | | 87,115 | |
Amortization of customer relationships | | | 53,011 | | | 53,004 | |
Amortization of deferred financing costs | | | 3,299 | | | 4,152 | |
Loss on early extinguishment of debt | | | — | | | 20,701 | |
Settlement of asset retirement obligations | | | (1,517) | | | (814) | |
Loss on asset sale | | | 240 | | | 3,628 | |
Changes in assets and liabilities: | | | | | | | |
Accounts receivable–Antero Resources | | | 17,081 | | | (11,429) | |
Accounts receivable–third party | | | 1,139 | | | 594 | |
Income tax receivable | | | (17,547) | | | 16,311 | |
Other current assets | | | 1,036 | | | 810 | |
Accounts payable–Antero Resources | | | (717) | | | (705) | |
Accounts payable–third party | | | 6,239 | | | 11,058 | |
Accrued liabilities | | | (50,240) | | | (7,337) | |
Net cash provided by operating activities | | | 546,889 | | | 545,490 | |
Cash flows provided by (used in) investing activities: | | | | | | | |
Additions to gathering systems and facilities | | | (137,978) | | | (120,727) | |
Additions to water handling systems | | | (27,287) | | | (36,221) | |
Investments in unconsolidated affiliates | | | (24,802) | | | (2,070) | |
Cash received in asset sale | | | 123 | | | 1,653 | |
Change in other assets | | | 1,938 | | | — | |
Net cash used in investing activities | | | (188,006) | | | (157,365) | |
Cash flows provided by (used in) financing activities: | | | | | | | |
Dividends to stockholders | | | (443,059) | | | (363,712) | |
Dividends to preferred stockholders | | | (413) | | | (413) | |
Repurchases of common stock | | | (24,713) | | | — | |
Issuance of senior notes | | | — | | | 750,000 | |
Redemption of senior notes | | | — | | | (667,472) | |
Payments of deferred financing costs | | | — | | | (9,449) | |
Borrowings (repayments) on bank credit facilities, net | | | 228,000 | | | (92,800) | |
Payment of contingent acquisition consideration | | | (116,924) | | | — | |
Employee tax withholding for settlement of equity compensation awards | | | (466) | | | (4,885) | |
Other | | | (150) | | | (34) | |
Net cash used in financing activities | | | (357,725) | | | (388,765) | |
Net increase (decrease) in cash and cash equivalents | | | 1,158 | | | (640) | |
Cash and cash equivalents, beginning of period | | | 1,235 | | | 640 | |
Cash and cash equivalents, end of period | | $ | 2,393 | | | — | |
Supplemental disclosure of cash flow information: | | | | | | | |
Cash paid during the period for interest | | $ | 135,426 | | | 132,630 | |
Cash received during the period for income taxes | | $ | 38,910 | | | 16,913 | |
Increase (decrease) in accrued capital expenditures and accounts payable for property and equipment | | $ | (11,318) | | | 22,675 | |
| | | | | | | |
| | Nine Months Ended September 30, | | ||||
|
| 2021 |
| 2022 |
| ||
Cash flows provided by (used in) operating activities: |
| | |
|
| | |
Net income | | $ | 252,991 | | | 243,449 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation | | | 80,956 | | | 98,181 | |
Accretion of asset retirement obligations | | | 347 | | | 178 | |
Impairment | | | 1,582 | | | 3,702 | |
Deferred income tax expense | | | 88,547 | | | 84,798 | |
Equity-based compensation | | | 10,326 | | | 14,026 | |
Equity in earnings of unconsolidated affiliates | | | (66,347) | | | (70,467) | |
Distributions from unconsolidated affiliates | | | 87,115 | | | 90,470 | |
Amortization of customer relationships | | | 53,004 | | | 53,004 | |
Amortization of deferred financing costs | | | 4,152 | | | 4,268 | |
Settlement of asset retirement obligations | | | (814) | | | (1,395) | |
Loss on settlement of asset retirement obligations | | | — | | | 539 | |
Loss (gain) on asset sale | | | 3,628 | | | (2,242) | |
Loss on early extinguishment of debt | | | 20,701 | | | — | |
| | | | | | | |
Changes in assets and liabilities: | | | | | | | |
Accounts receivable–Antero Resources | | | (11,429) | | | 5,596 | |
Accounts receivable–third party | | | 594 | | | (822) | |
Income tax receivable | | | 16,311 | | | — | |
Other current assets | | | 810 | | | 242 | |
Accounts payable–Antero Resources | | | (705) | | | (2,006) | |
Accounts payable–third party | | | 11,058 | | | 12,228 | |
Accrued liabilities | | | (7,337) | | | (2,773) | |
Net cash provided by operating activities | | | 545,490 | | | 530,976 | |
Cash flows provided by (used in) investing activities: | | | | | | | |
Additions to gathering systems and facilities | | | (120,727) | | | (190,407) | |
Additions to water handling systems | | | (36,221) | | | (45,747) | |
Investments in unconsolidated affiliates | | | (2,070) | | | — | |
Return of investment in unconsolidated affiliate | | | — | | | 17,000 | |
Cash received in asset sale | | | 1,653 | | | 4,026 | |
Change in other assets | | | — | | | (24) | |
Change in other liabilities | | | — | | | (804) | |
Net cash used in investing activities | | | (157,365) | | | (215,956) | |
Cash flows provided by (used in) financing activities: | | | | | | | |
Dividends to stockholders | | | (363,712) | | | (325,120) | |
Dividends to preferred stockholders | | | (413) | | | (413) | |
Issuance of senior notes | | | 750,000 | | | — | |
Redemption of senior notes | | | (667,472) | | | — | |
Payments of deferred financing costs | | | (9,449) | | | (302) | |
Borrowings (repayments) on bank credit facilities, net | | | (92,800) | | | 17,600 | |
Employee tax withholding for settlement of equity compensation awards | | | (4,885) | | | (6,785) | |
Other | | | (34) | | | — | |
Net cash used in financing activities | | | (388,765) | | | (315,020) | |
Net decrease in cash and cash equivalents | | | (640) | | | — | |
Cash and cash equivalents, beginning of period | | | 640 | | | — | |
Cash and cash equivalents, end of period | | $ | — | | | — | |
| | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | |
Cash paid during the period for interest | | $ | 132,360 | | | 130,236 | |
Cash received during the period for income taxes | | $ | 16,913 | | | — | |
Increase (decrease) in accrued capital expenditures and accounts payable for property and equipment | | $ | 22,675 | | | (17,130) | |
See accompanying notes to unaudited condensed consolidated financial statements.
87
ANTERO MIDSTREAM CORPORATION
Notes to Unaudited Condensed Consolidated Financial Statements
(1) Organization
Antero Midstream Corporation (together with its consolidated subsidiaries, “Antero Midstream,” “AM” or the “Company”) is a growth-oriented midstream company formed to own, operate and develop midstream energy infrastructure primarily to service Antero Resources Corporation (“Antero Resources”) and its production and completion activity in the Appalachian Basin’s Marcellus Shale and Utica Shale located in West Virginia and Ohio.Basin. The Company’s assets consist of gathering pipelines, compressor stations, interests in processing and fractionation plants and water handling assets. Antero Midstream provides midstream services to Antero Resources under long-term contracts. The Company’s corporate headquarters is located in Denver, Colorado.
(2) Summary of Significant Accounting Policies
(a) | Basis of Presentation |
These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information and should be read in the context of the Company’s December 31, 20202021 consolidated financial statements and notes thereto for a more complete understanding of the Company’s operations, financial position, and accounting policies. The Company’s December 31, 20202021 consolidated financial statements were included in the Company’s 20202021 Annual Report on Form 10-K, which was filed with the SEC.
These unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, and, accordingly, do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments (consisting of normal and recurring accruals) considered necessary to present fairly the Company’s financial position as of December 31, 20202021 and September 30, 2021,2022, the results of the Company’s operations for the three and nine months ended September 30, 20202021 and 2021,2022, and the Company’s cash flows for the nine months ended September 30, 20202021 and 2021.2022. The Company has no items of other comprehensive income (loss);income; therefore, net income (loss) is equal to comprehensive income (loss).income.
Certain costs of doing business incurred and charged to the Company by Antero Resources have been reflected in the accompanying unaudited condensed consolidated financial statements. These costs include general and administrative expenses provided to the Company by Antero Resources in exchange for:
● | business services, such as payroll, accounts payable and facilities management; |
● | corporate services, such as finance and accounting, legal, human resources, investor relations and public and regulatory policy; and |
● | employee compensation, including equity-based compensation. |
Transactions between the Company and Antero Resources have been identified in the unaudited condensed consolidated financial statements (see Note 4—Transactions with Affiliates).
(b) | Principles of Consolidation |
The accompanying unaudited condensed consolidated financial statements include the accounts of Antero Midstream Corporation and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated in the Company’s unaudited condensed consolidated financial statements.
(c) | Dividends |
Preferred and common dividends declared are recorded as a reduction of retained earnings to the extent that retained earnings were available at the close of the quarter prior to the dividend declaration date, with any excess recorded as a reduction of additional paid-in capital.
8
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(d) | Recently Adopted Accounting Standard |
In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Simplifying the Accounting for Income Taxes. This ASU removes certain exceptions to the general principles in Accounting Standard Codifications Topic 740, Income Taxes (“ASC 740”), and also simplifies portions of ASC 740 by clarifying and
9
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
amending existing guidance. It is effective for interim and annual reporting periods after December 15, 2020. The Company adopted this ASU on January 1, 2021, and it did not have a material impact on the Company's consolidated financial statements.statements.
(3) Goodwill and Intangibles
During the first quarter of 2020, the Company performed an interim impairment analysis of its goodwill due to changes in Antero Resources’ drilling plans as a result of the decline in commodity prices. As a result of this evaluation, the Company impaired all remaining goodwill of $575 million associated with its gathering and processing segment in the first quarter of 2020. Significant assumptions used to estimate the reporting units’ fair value included the discount rate as well as estimates of future cash flows, which were impacted primarily by commodity prices and producer customers’ development plans (which impact volumes and capital requirements).
All customer relationships are subject to amortization and are amortized over a weighted average period of 2019 years, which reflects the remaining economic life of the relationships as of September 30, 2021. 2022. The changes in the carrying amount of customer relationships for the nine months ended September 30, 2021 were as follows (in thousands):
| | | | | | | | |
Customer relationships as of December 31, 2020 | | $ | 1,427,447 | | ||||
Customer relationships as of December 31, 2021 | | $ | 1,356,775 | | ||||
Amortization of customer relationships | | | (53,004) | | | | (53,004) | |
Customer relationships as of September 30, 2021 | | $ | 1,374,443 | | ||||
Customer relationships as of September 30, 2022 | | $ | 1,303,771 | |
Future amortization expense is as follows (in thousands):
| | | | | | | | |
Remainder of year ending December 31, 2021 | | $ | 17,668 | | ||||
Year ending December 31, 2022 | | | 70,672 | | ||||
Remainder of year ending December 31, 2022 | | $ | 17,668 | | ||||
Year ending December 31, 2023 | | | 70,672 | | | | 70,672 | |
Year ending December 31, 2024 | | | 70,672 | | | | 70,672 | |
Year ending December 31, 2025 | | | 70,672 | | | | 70,672 | |
Year ending December 31, 2026 | | | 70,672 | | ||||
Thereafter | | | 1,074,087 | | | | 1,003,415 | |
Total | | $ | 1,374,443 | | | $ | 1,303,771 | |
(4) Transactions with Affiliates
(a) | Revenues |
Substantially all revenues earned in the three and nine months ended September 30, 20202021 and 20212022 were earned from Antero Resources, under various agreements for gathering and compression and water handling services. Revenues earned from gathering and processingcompression services consists of lease income.
(b) | Accounts receivable—Antero Resources and Accounts payable—Antero Resources |
Accounts receivable—Antero Resources represents amounts due from Antero Resources, primarily related to gathering and compression services and water handling services. Accounts payable—Antero Resources represents amounts due to Antero Resources for general and administrative and other costs.
(c) | Allocation of Costs Charged by Antero Resources |
The employees supporting the Company’s operations are concurrently employed by Antero Resources and the Company. Direct operating expense includes costs charged to the Company of $2 million and $3 million during both the three months ended September 30, 2020 and 2021 and $52022, respectively, and $7 million and $7$10 million during the nine months ended September 30, 20202021 and 2021,2022, respectively. These costs were for services provided by employees associated with the operation of the Company’s gathering lines, compressor stations, and water handling assets. General and administrative expense includes costs charged to the Company by Antero Resources of $6$8 million and $8$6 million during the three months ended September 30, 20202021 and 2021,2022, respectively, and $18$24 million and $24$22 million during the nine months ended September 30, 20202021 and 2021,2022, respectively. These costs relate to:to (i) various business
10
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
services, including payroll processing, accounts payable processing and facilities management, (ii) various corporate services, including legal, accounting, treasury, information technology and human resources and (iii) compensation,
9
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
including certain equity-based compensation. These expenses are charged to the Company based on (i) the nature of the expenses and are apportioned based on a combination of the Company’s proportionate share of gross property and equipment, capital expenditures and labor costs, as applicable, and (ii) an annual management services fee.applicable. The Company reimburses Antero Resources directly for all general and administrative costs charged to it. Seeit, except costs attributable to noncash equity-based compensation. For further information on equity-based compensation, see Note 9—Equity-Based Compensation and Cash Awards.
(5) Revenue
|
|
All of the Company’s gathering and compression revenues are currentlyderived from an operating lease agreement, and all of the Company’s water handling revenues are derived from service contracts with customers and are recognized when the Company satisfies a performance obligation by delivering a service to a customer.customers. The Company derivescurrently earns substantially all of its revenues from Antero Resources. The following sets forth the nature, timing of satisfaction of performance obligations and significant payment terms of the Company’s contracts with Antero Resources.
Gathering and Compression Agreement
(a) | Gathering and Compression |
Pursuant to the gathering and compression agreement with Antero Resources, Antero Resources has dedicated substantially all of its current and future acreage in West Virginia, Ohio and Pennsylvania to the Company for gathering and compression services except for acreage subject to third-party commitments or pre-existing dedications. The Company also has an option to gather and compress natural gas produced by Antero Resources on any additional acreage it acquires during the term of the agreement outside of West Virginia, Ohio and Pennsylvania on the same terms and conditions. In December 2019, the Company and Antero Resources agreed to extend the initial term of the gathering and compression agreement to 2038 and established a growth incentive fee program whereby low pressure gathering fees will be reduced from 2020 through 2023 to the extent Antero Resources achieves certain quarterly volumetric targets during such time. For the three and nine months ended September 30, 2020, Antero Resources earned rebates of $12 million and $36 million, respectively, from the Company by achieving the first level volumetric target during the first, second and third quarters of 2020. Antero Resources did 0tnot earn any rebates from the Company for the three and nine months ended September 30, 2021 since Antero Resources did not achieve any volumetric targets during the first, second orand third quarters of 2021. For the three and nine months ended September 30, 2022, Antero Resources earned rebates of $12 million and $36 million, respectively, from the Company by achieving the first level volumetric target during the first, second and third quarters of 2022. Upon completion of the initial contract term, the gathering and compression agreement will continue in effect from year to year until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the Company or Antero Resources on or before the 180th day prior to the anniversary of such effective date.
Under the gathering and compression agreement, the Company receives a low pressure gathering fee, a high pressure gathering fee and a compression fee, in each case subject to annual CPI-based adjustments.Consumer Price Index (“CPI”)-based adjustments, or a cost of service fee, at the Company’s election when such assets are placed in-service. In addition, the agreement stipulates that the Company receives a reimbursement for the actual cost of (i) electricity used at its compressor stations.stations where the compression services are provided based on a compression fee and (ii) operating expenses for all services provided for a cost of service fee.
The Company determined that the gathering and compression agreement is an operating lease becauseas Antero Resources obtains substantially all of the economic benefit of the asset and has the right to direct the use of the asset. The gathering system is an identifiable asset within the gathering and compression agreement, and it consists of underground low pressure pipelines that generally connect and deliver gas from specific well pads to compressor stations to compress the gas before delivery to underground high pressure pipelines that transport the gas to a third-party pipeline, third-party plant or Joint Venture (as defined in Note 13— Investments in Unconsolidated Affiliates) plant. The gathering system is considered a single lease due to the interrelated network of the assets. When a modification to the gathering and compression agreement occurs, the Company reassesses the classification of this lease. The Company accounts for its lease and non-lease components as a single lease component as the lease component is the predominant component. The non-lease components consist of operating, oversight and maintenance of the gathering system, which are performed on time-elapsed measures.
The gathering and compression agreement includes certain fixed fee provisions. If and to the extent Antero Resources requests that the Company construct new low pressure lines, high pressure lines and/or compressor stations, the gathering and compression agreement contains options at the Company’s election for either (i) minimum volume commitments that require Antero Resources to utilize or pay for 75% of the high pressure gathering capacity and 70% of the compression capacity of such new construction for 10 years or (ii) a cost of service fee that allows the Company to earn a 13% rate of return on such new construction over seven years, which election is made individually for each piece of equipment placed in service. All lease payments under the future minimum volume commitments discussed below are considered to be in-substance fixed lease payments under the gathering and compression agreement.
The Company recognizes revenue when low pressure volumes are delivered to a compressor station, compression volumes are delivered to a high pressure line and high pressure volumes are delivered to a processing plant or transmission pipeline. The Company invoices the customer the month after each service is performed, and payment is due in the same month.
1110
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
Water Services Agreementminimum volume commitments and cost of service fees are considered to be in-substance fixed lease payments under the gathering and compression agreement.
The Company recognizes lease income from its minimum volume commitments and cost of service fees under its gathering and compression agreement on a straight-line basis. Additional variable operating lease income is earned when volumes in excess of the minimum commitments are delivered under the contract. The Company recognizes variable lease income when low pressure volumes are delivered to a compressor station, compression volumes are delivered to a high pressure line and high pressure volumes are delivered to a processing plant or transmission pipeline. Minimum volume commitments for high pressure gathering capacity and compression capacity are aggregated such that there is a single minimum volume commitment for the respective service each year. The Company invoices the customer the month after each service is performed, and payment is due in the same month. The Company is not party to any leases that have not commenced.
Minimum future lease cash flows to be received by the Company under the gathering and compression agreement as of September 30, 2022 are as follows (in thousands):
| | | | |
Remainder of year ending December 31, 2022 | | $ | 45,492 | |
Year ending December 31, 2023 | | | 298,655 | |
Year ending December 31, 2024 | | | 299,473 | |
Year ending December 31, 2025 | | | 285,175 | |
Year ending December 31, 2026 | | | 271,762 | |
Thereafter | | | 562,414 | |
Total | | $ | 1,762,971 | |
(b) | Water Handling |
The Company is party to a water services agreement with Antero Resources, whereby the Company provides certain water handling services to Antero Resources within an area of dedication in defined service areas in West Virginia and Ohio. The initial term of the water services agreement runs to 2035. Upon completion of the initial term in 2035, the water services agreement will continue in effect from year to year until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the Company or Antero Resources on or before the 180th day prior to the anniversary of such effective date. Under the agreement, the Company receives a fixed fee per barrel for fresh water delivereddeliveries by pipeline directly to the well site. Additionally,site, subject to annual CPI-based adjustments. In addition, the Company receives a fixed fee per barrel foralso provides other fluid handling services. These operations, along with the Company’s fresh water delivereddelivery systems, support well completion and production operations for Antero Resources. These services are provided by truck to high-rate transfer facilities. For flowback and produced water blending services, the Company receivesdirectly or through third-parties with which the Company contracts. For these other fluid handling services provided by third-parties, Antero Resources reimburses the Company’s third-party out-of-pocket costs plus 3%. For these other fluid handling services provided by the Company, the Company charges Antero Resources a cost of service fee based on the costs incurred by the Company. All such fees under the agreement are subject to annual CPI-based adjustments and additional fees based on certain costs.
Under the water services agreement, the Company may also contract with third parties to provide water services to Antero Resources. Antero Resources reimburses the Company for third-party out-of-pocket costs plus a 3% markup.fee.
The Company satisfies its performance obligations and recognizes revenue when (i) the fresh water volumes have been delivered to the hydration unit of a specified well pad or when flowback and produced water blending(ii) other fluid handling services have been completed. The Company invoices the customer the month after water services are performed, and payment is due in the same month. For services contracted through third-party providers, the Company’s performance obligation is satisfied when the service to be performed by the third-party provider has been completed. The Company invoices the customer after the third-party provider billing is received, and payment is due in the same month.
Minimum Volume CommitmentsTransaction Price Allocated to Remaining Performance Obligations
The gathering and compressionCompany’s water service agreement includes certain minimum volume commitment provisions. If and to the extentwith Antero Resources requests that the Company construct new high pressure lines and compressor stations, the gathering and compression agreement contains options at the Company’s election for either (i) minimum volume commitments that require Antero Resources to utilize or pay for 75% of the high pressure gathering capacity and 70% of the compression capacity of such new construction for 10 years or (ii)has a service fee that allows us to earn a 13% rate of return on such new construction over seven years. The Company recognizes lease income from its minimum volume commitments under its gathering and compression agreement on a straight-line basis and additional operating lease income is earned when excess volumes are delivered under the contract. term greater than one year. The Company is not partyrequired to any leasesdisclose 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.
11
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
The remainder of the Company’s water 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.
Contract Balances
Under the Company’s water service contracts, the Company invoices customers after the performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s water service contracts do not commenced.
Minimum revenue amounts under the gathering and compression minimum volume commitments as of September 30, 2021 are as follows (in thousands):
| | | | |
Remainder of year ending December 31, 2021 | | $ | 23,119 | |
Year ending December 31, 2022 | | | 249,029 | |
Year ending December 31, 2023 | | | 249,029 | |
Year ending December 31, 2024 | | | 249,712 | |
Year ending December 31, 2025 | | | 235,940 | |
Thereafter | | | 558,288 | |
Total | | $ | 1,565,117 | |
give rise to contract assets or liabilities.
| Disaggregation of Revenue |
In the following table, revenue is disaggregated by type of service and type of fee and is identified by the reportable segment to which such revenues relate. For more information on reportable segments, see Note 14—Reportable Segments.
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | | | ||||||||
(in thousands) | | 2021 | | 2022 | | 2021 | | 2022 |
| Reportable Segment | | ||||
Type of service | | | | | | | | | | | | | | | |
Gathering—low pressure | | $ | 87,139 | | | 92,091 | | | 265,206 | | | 273,188 | | Gathering and Processing (1) | |
Gathering—low pressure rebate | | | — | | | (12,000) | | | — | | | (36,000) | | Gathering and Processing (1) | |
Compression | | | 49,765 | | | 52,364 | | | 147,273 | | | 155,462 | | Gathering and Processing (1) | |
Gathering—high pressure | | | 51,812 | | | 53,185 | | | 154,065 | | | 159,504 | | Gathering and Processing (1) | |
Fresh water delivery | | | 33,004 | | | 38,445 | | | 108,113 | | | 111,609 | | Water Handling | |
Other fluid handling | | | 20,752 | | | 24,617 | | | 60,059 | | | 67,673 | | Water Handling | |
Amortization of customer relationships | | | (9,271) | | | (9,271) | | | (27,813) | | | (27,814) | | Gathering and Processing | |
Amortization of customer relationships | | | (8,397) | | | (8,397) | | | (25,191) | | | (25,190) | | Water Handling | |
Total | | $ | 224,804 | | | 231,034 | | | 681,712 | | | 678,432 | | | |
| | | | | | | | | | | | | | | |
Type of contract | | | | | | | | | | | | | | | |
Per Unit Fixed Fee | | $ | 188,716 | | | 197,640 | | | 566,544 | | | 588,154 | | Gathering and Processing (1) | |
Gathering—low pressure rebate | | | — | | | (12,000) | | | — | | | (36,000) | | Gathering and Processing (1) | |
Per Unit Fixed Fee | | | 33,004 | | | 38,921 | | | 108,113 | | | 112,722 | | Water Handling | |
Cost plus 3% | | | 16,952 | | | 19,346 | | | 48,727 | | | 51,384 | | Water Handling | |
Cost of service fee | | | 3,800 | | | 4,795 | | | 11,332 | | | 15,176 | | Water Handling | |
Amortization of customer relationships | | | (9,271) | | | (9,271) | | | (27,813) | | | (27,814) | | Gathering and Processing | |
Amortization of customer relationships | | | (8,397) | | | (8,397) | | | (25,191) | | | (25,190) | | Water Handling | |
Total | | $ | 224,804 | | | 231,034 | | | 681,712 | | | 678,432 | | | |
(1) | Revenue related to the gathering and processing segment is classified as lease income related to the gathering system. |
The Company’s receivables from its contracts with customers and operating leases as of December 31, 2021 and September 30, 2022, were $81 million and $79 million, respectively.
12
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | | ||||||||
| | September 30, | | September 30, | | | | ||||||||
(in thousands) | | 2020 | | 2021 | | 2020 | | 2021 |
| Reportable Segment | | ||||
Revenue from contracts with customers |
| | |
| | |
| | |
| | | | | |
Type of service | | | | | | | | | | | | | | | |
Gathering—low pressure | | $ | 92,673 | | | 87,139 | | | 259,612 | | | 265,206 | | Gathering and Processing (1) | |
Gathering—low pressure rebate | | | (12,000) | | | — | | | (36,000) | | | — | | Gathering and Processing (1) | |
Gathering—high pressure | | | 57,665 | | | 51,812 | | | 158,155 | | | 154,065 | | Gathering and Processing (1) | |
Compression | | | 51,876 | | | 49,765 | | | 145,567 | | | 147,273 | | Gathering and Processing (1) | |
Fresh water delivery | | | 40,398 | | | 33,004 | | | 143,116 | | | 108,113 | | Water Handling | |
Other fluid handling | | | 20,603 | | | 20,752 | | | 79,420 | | | 60,059 | | Water Handling | |
Amortization of customer relationships | | | (9,342) | | | (9,271) | | | (27,819) | | | (27,813) | | Gathering and Processing | |
Amortization of customer relationships | | | (8,458) | | | (8,397) | | | (25,192) | | | (25,191) | | Water Handling | |
Total | | $ | 233,415 | | | 224,804 | | | 696,859 | | | 681,712 | | | |
| | | | | | | | | | | | | | | |
Type of contract | | | | | | | | | | | | | | | |
Per Unit Fixed Fee | | $ | 202,214 | | | 188,716 | | | 563,334 | | | 566,544 | | Gathering and Processing (1) | |
Gathering—low pressure rebate | | | (12,000) | | | — | | | (36,000) | | | — | | Gathering and Processing (1) | |
Per Unit Fixed Fee | | | 40,398 | | | 33,004 | | | 143,116 | | | 108,113 | | Water Handling | |
Cost plus 3% | | | 17,743 | | | 16,952 | | | 72,430 | | | 48,727 | | Water Handling | |
Cost of service fee | | | 2,860 | | | 3,800 | | | 6,990 | | | 11,332 | | Water Handling | |
Amortization of customer relationships | | | (9,342) | | | (9,271) | | | (27,819) | | | (27,813) | | Gathering and Processing | |
Amortization of customer relationships | | | (8,458) | | | (8,397) | | | (25,192) | | | (25,191) | | Water Handling | |
Total | | $ | 233,415 | | | 224,804 | | | 696,859 | | | 681,712 | | | |
|
|
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, 2020 and September 30, 2021, the Company’s receivables with customers were $74 million and $85 million, respectively.
13
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(6) Property and Equipment
(a) | Summary of Property and Equipment |
The Company’s investment in propertyProperty and equipment, fornet consisted of the periods presented is as follows:following items:
| | | | | | | | | | | | | | | | | | |
| | | | | | (Unaudited) | | | | | | | (Unaudited) | | ||||
| | Estimated | | December 31, | | September 30, | | | Estimated | | December 31, | | September 30, | | ||||
(in thousands) |
| Useful Lives |
| 2020 | | 2021 | |
| Useful Lives |
| 2021 | | 2022 | | ||||
Land |
| n/a |
| $ | 23,582 |
| | 23,369 | |
| n/a |
| $ | 23,369 |
| | 26,682 | |
Gathering systems and facilities | | 40-50 years (1) | | | 2,643,927 | | | 2,688,091 | | | 40-50 years (1) | | | 2,817,918 | | | 3,052,459 | |
Permanent buried pipelines and equipment | | 7-20 years | | | 545,419 | | | 567,376 | | | 7-20 years | | | 582,481 | | | 602,343 | |
Surface pipelines and equipment | | 1-7 years | | | 50,916 | | | 54,456 | | | 1-7 years | | | 54,542 | | | 67,520 | |
Heavy trucks and equipment | | 3-5 years | | | 5,919 | | | 5,157 | | | 3-5 years | | | 5,157 | | | 5,157 | |
Above ground storage tanks | | 5-10 years | | | 2,483 | | | 2,871 | | | 5-10 years | | | 2,946 | | | 2,953 | |
Construction-in-progress | | n/a | |
| 139,506 | | | 242,627 | | | n/a | |
| 174,271 | | | 114,582 | |
Total property and equipment | | | | | 3,411,752 | | | 3,583,947 | | | | | | 3,660,684 | | | 3,871,696 | |
Less accumulated depreciation | | | | | (157,708) | | | (238,104) | | | | | | (265,938) | | | (363,688) | |
Property and equipment, net | | | | $ | 3,254,044 | | | 3,345,843 | | | | | $ | 3,394,746 | | | 3,508,008 | |
(1) | Gathering systems and facilities are recognized as a single-leased asset with |
(b) | Subsequent Event |
Due to the decline in the industry environment as a result of low commodity prices,On October 25, 2022, the Company evaluated itsacquired certain Marcellus gas gathering and compression assets from Crestwood Equity Partners LP (NYSE: CEQP) for impairment during$205 million in cash, before closing adjustments, which was funded by borrowings under the first quarterCompany’s Credit Facility (as defined in Note 7─Long-Term Debt). These assets include 72 miles of 2020. 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 burieddry gas gathering pipelines and equipment and a $6 million impairment expense to its surface pipelines and equipment.
Additionally, the Company incurred facility idling costs for the care and maintenancenine compressor stations with approximately 700 MMcf/d of its wastewater treatment facility and related landfill (collectively, the “Clearwater Facility”) of $3 million and $1 million during the three months ended September 30, 2020 and 2021, respectively, and $14 million and $3 million during the nine months ended September 30, 2020 and 2021, respectively. The Clearwater Facility was fully impaired when it was idled in September 2019.compression capacity.
(7) Long-Term Debt
The Company’s long-termLong-term debt asconsisted of December 31, 2020 and September 30, 2021 was as follows:the following items:
| | | | | | | | | | | | | | |
| | | | (Unaudited) | | | | | (Unaudited) | | ||||
| | December 31, | | September 30, | | | December 31, | | September 30, | | ||||
(in thousands) | | 2020 | | 2021 | | | 2021 | | 2022 | | ||||
Credit Facility (a) |
| $ | 613,500 |
| | 520,700 | |
| $ | 547,200 |
| | 564,800 | |
5.375% senior notes due 2024 (b) | | | 650,000 | | | — | | |||||||
7.875% senior notes due 2026 (c) | | | 550,000 | | | 550,000 | | | | 550,000 | | | 550,000 | |
5.75% senior notes due 2027 (d) | | | 650,000 | | | 650,000 | | | | 650,000 | | | 650,000 | |
5.75% senior notes due 2028 (e) | | | 650,000 | | | 650,000 | | | | 650,000 | | | 650,000 | |
5.375% senior notes due 2029 (f) | | | — | | | 750,000 | | | | 750,000 | | | 750,000 | |
Total principal | | | 3,113,500 | | | 3,120,700 | | | | 3,147,200 | | | 3,164,800 | |
Unamortized debt premiums | | | 4,261 | | | 2,208 | | | | 2,106 | | | 1,801 | |
Unamortized debt issuance costs | | | (26,135) | | | (27,348) | | | | (26,396) | | | (23,432) | |
Total long-term debt | | $ | 3,091,626 | | | 3,095,560 | | | $ | 3,122,910 | | | 3,143,169 | |
(a) | Credit Facility |
Antero Midstream Partners LP (“Antero Midstream Partners”), an indirect, wholly owned subsidiary of Antero Midstream Corporation, as borrower (the “Borrower”), has a senior secured revolving credit facility with a consortium of banks. On October 26, 2021, the Company entered into an amended and restated senior secured revolving credit facility (the “Credit Facility”). As of December 31, 2021 and September 30, 2022, the Credit Facility had lender commitments of $1.25 billion and matures on October 26,
1413
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
2021, the Company entered into an amended and restated senior secured revolving credit facility. References in the notes to the condensed consolidated financial statements to the (i) “Prior Credit Facility” refers to the senior secured revolving credit facility in effect for periods before October 26, 2021, (ii) “New Credit Facility” refers to the senior secured revolving credit facility in effect on or after October 26, 2021 and (ii) “Credit Facility” refers to Prior Credit Facility and New Credit Facility collectively. As of September 30, 2021, lender commitments under the Prior Credit Facility were $2.13 billion. As of October 26, 2021, the New Credit Facility has lender commitments of $1.25 billion and matures on October 26, 2026; provided that if on November 17, 2025 any of the 2026 Notes (as defined below) are outstanding, the New Credit Facility will mature on such date. As of September 30, 2022, the Credit Facility had an available borrowing capacity of $685 million.
The Credit Facility contains certain covenants including restrictions on indebtedness, and requirements with respect to leverage and interest coverage ratios. The Credit Facility permits distributions to the holders of the Borrower’s equity interests in accordance with the cash distribution policy, provided that no event of default exists or would be caused thereby, and only to the extent permitted by the Company’sBorrower’s organizational documents. The Borrower was in compliance with all of the financial covenants under the Credit Facility as of December 31, 20202021 and September 30, 2021.2022.
The Prior Credit Facility providessenior secured revolving credit facility agreement in effect prior to October 26, 2021 provided for borrowing under either athe Base Rate or the Eurodollar Rate Loan (as each term is defined in the Prior Credit Facility)agreement), and the New Credit Facility provides for borrowing under either Adjusted Term Secured Overnight Financing Rate (“SOFR”) or the Base Rate (as each term is defined in the New Credit Facility). Principal amounts borrowed are payable on the maturity date with such borrowings bearing interest that is payable with respect to (i) base rate loans, quarterly and (ii) Eurodollar Rate Loans or SOFR Loans at the end of the applicable interest period if three months or(or shorter, if applicable), or every three months if the applicable interest period is longer than three months. Interest iswas payable at a variable rate based on (i) LIBOR or the base rate, determined by election at the time of borrowing, plus an applicable margin rate under the Prior Credit Facility or (ii)senior secured revolving credit facility agreement in effect prior to October 26, 2021. Interest is payable at a variable rate based on SOFR or the base rate, determined by election at the time of borrowing, plus an applicable margin rate under the New Credit Facility. Interest at the time of borrowing is determined with reference to the Borrower’s then-current leverage ratio subject to certain exceptions. Commitment fees on the unused portion of the Credit Facility are due quarterly at rates ranging from 0.25% to 0.375% subject to certain exceptions based on the leverage ratio then in effect.
As of December 31, 2020,2021, the Borrower had outstanding borrowings under the Prior Credit Facility of $614$547 million with a weighted average interest rate of 1.661.81%. As of September 30, 2021,2022, the Borrower had outstanding borrowings under the Prior Credit Facility of $521565 million with a weighted average interest rate of 1.594.81%. No letters of credit under the Prior Credit Facility were outstanding at eitheras of December 31, 20202021 or September 30, 2021.2022.
(b) | 5.375% Senior Notes Due 2024 |
On September 13, 2016, Antero Midstream Partners and its wholly owned subsidiary, Antero Midstream Finance Corporation (“Finance Corp,”Corp” and together with Antero Midstream Partners, the “Issuers”), issued $650 million in aggregate principal amount of 5.375% senior notes due September 15, 2024 (the “2024 Notes”) at par. The 2024 Notes were recorded at their fair value of $652.6$652.6 million as of March 12, 2019, which included aand the related premium of $2.6 million that was amortized into interest expense over the contractual life of the 2024 Notes. The Issuers redeemed all $650 million of the 2024 Notes at 102.688% of par on June 8, 2021, and recognized a loss of $21 million on the early extinguishment of debt during the second quarter of 2021, which includes the write-off of all unamortized debt premium and issuance costs. The 2024 Notes were unsecured and effectively subordinated to the Credit Facility 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 Corporation, Antero Midstream Partners’ wholly owned subsidiaries (other than Finance Corp) and certain of its future restricted subsidiaries. Interest on the 2026 Notes is payable on May 15 and November 15 of each year. Antero Midstream Partners may redeem all or part of the 2026 Notes at any time on or after May 15, 2023 at redemption prices ranging from
15
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
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 greater 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.
14
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(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, 2022currently 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 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 Corporation, Antero Midstream Partners’ wholly owned subsidiaries (other than Finance Corp) and certain of its future restricted subsidiaries. Interest on the 2029 Notes is payable on June 15 and December 15 of each year. Antero Midstream Partners may redeem all or part of the 2029 Notes at any time on or after June 15, 2024 at redemption prices ranging from
16
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
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) has 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
15
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
longer qualifies as a Restricted Subsidiary (as defined in the applicable indenture governing the series of Senior Notes) of the Issuer or the sale of all or substantially all of its assets) and whether or not the guarantor is the surviving entity in such transaction to a person that is not an Issuer or a Restricted Subsidiary of an Issuer, such guarantor will be released from its obligations under its guarantee if the sale or other disposition does not violate the covenants set forth in the indentures governing the applicable Senior Notes.
In addition, a guarantor will be released from its obligations under the applicable indenture and its guarantee, upon the release or discharge of the guarantee of other indebtedness under a credit facility that resulted in the creation of such guarantee, except a release or discharge by or as a result of payment under such guarantee; if the Issuers designate such subsidiary as an unrestricted subsidiary and such designation complies with the other applicable provisions of the indenture governing the applicable Senior Notes or in connection with any covenant defeasance, legal defeasance or satisfaction and discharge of the applicable Senior Notes.
During the three and nine months ended September 30, 20202021 and 2021,2022, all of the Company’s assets and operations are attributable to the Issuers and its guarantors.
(8) Accrued Liabilities
Accrued liabilities as of December 31, 2020 and September 30, 2021 consisted of the following items:
| | | | | | | | | | | | | | |
| | | | (Unaudited) | | | | | (Unaudited) | | ||||
| | December 31, | | September 30, | | | December 31, | | September 30, | | ||||
(in thousands) |
| 2020 |
| 2021 |
|
| 2021 |
| 2022 |
| ||||
Capital expenditures | | $ | 11,307 | | | 29,591 | | | $ | 24,900 | | | 19,465 | |
Operating expenses | | | 10,038 | | | 9,372 | | | | 10,417 | | | 8,716 | |
Interest expense | | | 46,209 | | | 40,944 | | | | 36,794 | | | 39,831 | |
Production taxes | | | 3,368 | | | 2,929 | | |||||||
Ad valorem taxes | | | 5,400 | | | 2,265 | | |||||||
Other | | | 4,025 | | | 2,740 | | | | 3,327 | | | 2,675 | |
Total accrued liabilities | | $ | 74,947 | | | 85,576 | | | $ | 80,838 | | | 72,952 | |
(9) Equity-Based Compensation and Cash Awards
(a) | Summary of Equity-Based Compensation |
The Company’s equity-based compensation includes (i) costs allocated to Antero Midstream by Antero Resources for grants made prior to March 12, 2019 pursuant to the Antero Resources Corporation Long-Term Incentive Plan (the “AR LTIP”) and (ii) costs related to the Antero Midstream Corporation Long-Term Incentive Plan (the “AM LTIP”). Antero Midstream’s equity-based compensation expense is included in general and administrative expenses, and recorded as a credit to the applicable classes of equity.
AR LTIP
17
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
Equity-based compensation expense allocated to the CompanyAntero Midstream from Antero Resources was $1.2$0.3 million and $0.3$0.1 million for the three months ended September 30, 20202021 and 2021,2022, respectively, and $4.5$1.8 million and $1.8$0.4 million for the nine months ended September 30, 20202021 and 2021, respectively.2022, respectively, which includes expense related to the Converted AM RSU Awards (as defined below). For grants made prior to March 12, 2019, Antero Resources has total unamortized expense related to its various equity-based compensation plans that can be allocated to the Company of approximatelyless than $1.90.1 million as of September 30, 2021.2022, which includes the Converted AM RSU Awards (as defined below). A portion of this unamortized cost will be allocated to Antero Midstream as it is amortized over the remaining service period of the related awards. The Company does not reimburse Antero Resources for noncash equity compensation allocated to it for awards issued under the AR LTIP or the Antero Resources Corporation 2020 Long-Term Incentive Plan following March 12, 2019.LTIP.
AM LTIP
The Company is authorized to grant up to 15,398,901 shares of AM common stock to employees and directors under the AM LTIP. The AM LTIP provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), dividend equivalents, other stock-based awards, cash awards and substitute awards. The terms and conditions of the
16
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
awards granted are established by the compensation committee of the Board of Directors (the “Board”). As of September 30, 2021,2022, a total of 10,041,0127,410,734 shares were available for future grant under the AM LTIP.
The Company recognizedCompany’s equity-based compensation expense, related to these awards, which does not include expense for the Company’s performance share unit (“PSU”) awards,by type of award, is as follows:
$2.3 million and $2.8 million for the three months ended September 30, 2020 and 2021, respectively, and $5.0 million and $7.9 million for the nine months ended September 30, 2020 and 2021, respectively.
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
(in thousands) | | 2021 | | 2022 | | 2021 | | 2022 | | ||||
Restricted stock units (1) | | $ | 2,905 | | | 4,525 | | | 8,608 | | | 11,438 | |
Performance share units (1) | | | 123 | | | 833 | | | 1,036 | | | 1,938 | |
Equity awards issued to directors | | | 227 | | | 195 | | | 682 | | | 650 | |
Total expense | | $ | 3,255 | | | 5,553 | | | 10,326 | | | 14,026 | |
(1) | Amounts include equity-based compensation expense allocated to the Company by Antero Resources. |
(b) | Restricted Stock Unit Awards |
As of March 19, 2019, each of the unvested outstanding phantom units granted under the Antero Midstream Partners Long Term Incentive Plan was assumed by the Company and converted into 1.8926 RSUs under the AM LTIP representing a right to receive shares of the Company’s common stock for each converted phantom unit (all such RSUs, the “Converted AM RSU Awards”). The Converted AM RSU Awards are accounted for as if they are distributed by Antero Midstream Partners to Antero Resources. Therefore, the expense related to the Converted AM RSU Awards is subject to allocation by Antero Resources.
A summary of the RSU awards activity, duringwhich includes the nine months ended September 30, 2021Converted AM RSU Awards, is as follows:
| | | | | | | | | | | | |
| | | | Weighted Average | | | | | Weighted Average | | ||
| | Number | | Grant Date | | | Number | | Grant Date | | ||
|
| of Units |
| Fair Value | |
| of Units |
| Fair Value | | ||
Total AM LTIP RSUs awarded and unvested—December 31, 2020 | | 3,314,955 | | $ | 8.09 | | ||||||
Total AM LTIP RSUs awarded and unvested—December 31, 2021 | | 3,573,377 | | $ | 8.11 | | ||||||
Granted | | 1,791,444 | | | 8.71 | | | 2,750,896 | | | 11.28 | |
Vested | | (1,267,750) | | | 9.07 | | | (1,243,878) | | | 8.40 | |
Forfeited | | (221,710) | | | 7.36 | | | (159,119) | | | 9.37 | |
Total AM LTIP RSUs awarded and unvested—September 30, 2021 | | 3,616,939 | | $ | 8.10 | | ||||||
Total AM LTIP RSUs awarded and unvested—September 30, 2022 | | 4,921,276 | | $ | 9.77 | | ||||||
| | | | | | | | | | | | |
As of September 30, 2021,2022, unamortized expense of $24.1$39.2 million related to the unvested RSUs, which includes less than $0.1 million related to the Converted AM RSU Awards, is expected to be recognized over a weighted average period of approximately 2.82.4 years and theyears. The Company’s proportionate share of the Converted AM RSU Awards will be allocated to it as it is recognized.
(c) | Performance Share Unit Awards |
2019 Performance Share Unit Awards Based
In 2019, the Company granted performance share units (“PSUs”) to certain of its employees and executive officers that vest based on Returnthe Company’s actual return on Invested Capitalinvested capital (“ROIC”) (as defined in the award agreement) over a three-year period as compared to a targeted ROIC (“2019 ROIC PSUs”). The number of shares of the Company’s common stock that could be earned with respect to the 2019 ROIC PSUs ranged from zero to 200% of the target number of 2019 ROIC PSUs originally granted. During the second quarter of 2022, the performance condition for the 2019 ROIC PSUs was met at 200% of target and 137,712 target 2019 ROIC PSUs converted into 275,424 shares of the Company’s common stock. As of September 30, 2022, there were no 2019 ROIC PSUs outstanding.
17
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
2022 Performance Share Unit Awards
In April 2022, the Company granted PSUs to certain of its executive officers that vest based on the Company’s actual ROIC (as defined in the award agreement) over a three-year period concluding on December 31, 2024 as compared to a targeted ROIC (“2022 ROIC PSUs”). The number of shares of the Company’s common stock that can be earned with respect to the 2022 ROIC PSUs ranges from zero to 200% of the target number of 2022 ROIC PSUs originally granted. The grant date fair value of these awards was based on the closing price of the Company’s common stock on the date of the grant, assuming target achievement of the performance condition. Expense related to the 2022 ROIC PSUs is recognized based on the number of shares of the Company’s common stock that are expected to be issued at the end of the measurement period, and such expense is reversed if the likelihood of achieving the performance condition decreases. The likelihood of achieving the performance conditions related to return on invested capital2022 ROIC PSU awards was probable as of September 30, 2022.
Summary Information for Performance Share Unit Awards
A summary of the PSU awards outstanding was probable for the three and nine months ended September 30, 2020 and 2021. The Company recognized expense of $0.1 million for both the three months ended September 30, 2020 and 2021, and $0.2 million and $0.7 million for the nine months ended September activity is as follows:
30, 2020 and 2021, respectively.
| | | | | | |
| | | | Weighted Average | | |
| | Number | | Grant Date | | |
|
| of Units |
| Fair Value | | |
Total AM LTIP PSUs awarded and unvested—December 31, 2021 | | 116,526 | | $ | 6.32 | |
Granted | | 461,121 | | | 11.05 | |
Vested (1) | | (137,712) | | | 6.32 | |
Forfeited | | — | | | — | |
Total AM LTIP PSUs awarded and unvested—September 30, 2022 | | 439,935 | | $ | 11.28 | |
(1) | The performance condition for these vested PSUs was met at 200% of target and as such, they converted into 275,424 shares of the Company’s common stock during the second quarter of 2022. |
As of September 30, 2021, there was $0.32022, unamortized expense of $8.4 million of unamortized equity-based compensation expense related to unvested PSUs that is expected to be recognized over a weighted average period of 0.5approximately 2.5 years.
(d) | Cash Awards |
In January 2020, the Company granted cash awards of $2.2 million to certain executives under the AM LTIP that vest ratably over a period of up to three years.years. In July 2020, the Company granted additional cash awards of $0.7$0.7 million to certain non-executive employees under the AM LTIP that vest ratably over a period of four years.years. The compensation expense for these awards is recognized ratably over the applicable vesting period. As of December 31, 20202021 and September 30, 2021,2022, the Company has recorded $1.8$1.1 million and $1.0$0.5 million, respectively, in other liabilities in the condensed consolidated balance sheets related to unvested cash awards.
18
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(10) Cash Dividends
The following table details the amount of distributions andCompany paid cash dividends paid with respect tofor the quarter indicated as follows (in thousands, except per share data):
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Dividends | | | | | | | | | Dividends | | ||||
Period |
| Record Date |
| Dividend Date |
| Dividends |
| per Share | |
| Record Date |
| Dividend Date |
| Dividends |
| per Share | | ||||
Q4 2019 | | January 31, 2020 | | February 12, 2020 | | $ | 148,876 | | $ | 0.3075 | | |||||||||||
* | | February 14, 2020 | | February 14, 2020 | | | 138 | | | * | | |||||||||||
Q1 2020 | | April 30, 2020 | | May 12, 2020 | | | 147,519 | | | 0.3075 | | |||||||||||
* | | May 15, 2020 | | May 15, 2020 | | | 137 | | | * | | |||||||||||
Q2 2020 | | July 30, 2020 | | August 12, 2020 | | | 146,664 | | | 0.3075 | | |||||||||||
* | | August 14, 2020 | | August 14, 2020 | | | 138 | | | * | | |||||||||||
Q3 2020 | | October 29, 2020 | | November 12, 2020 | | | 146,581 | | | 0.3075 | | |||||||||||
* | | November 16, 2020 | | November 16, 2020 | | | 137 | | | * | | |||||||||||
| | Total 2020 | | | | $ | 590,190 | | | | | |||||||||||
| | | | | | | | | | | | |||||||||||
Q4 2020 | | February 3, 2021 | | February 11, 2021 | | $ | 147,194 | | $ | 0.3075 | | | February 3, 2021 | | February 11, 2021 | | $ | 147,194 | | $ | 0.3075 | |
* | | February 16, 2021 | | February 16, 2021 | | | 138 | | | * | | | February 16, 2021 | | February 16, 2021 | | | 138 | | | * | |
Q1 2021 | | April 28, 2021 | | May 12, 2021 | | | 108,799 | | | 0.2250 | | | April 28, 2021 | | May 12, 2021 | | | 108,799 | | | 0.2250 | |
* | | May 17, 2021 | | May 17, 2021 | | | 137 | | | * | | | May 17, 2021 | | May 17, 2021 | | | 137 | | | * | |
Q2 2021 | | July 28, 2021 | | August 11, 2021 | | | 107,719 | | | 0.2250 | | | July 28, 2021 | | August 11, 2021 | | | 107,719 | | | 0.2250 | |
* | | August 16, 2021 | | August 16, 2021 | | | 138 | | | * | | | August 16, 2021 | | August 16, 2021 | | | 138 | | | * | |
Q3 2021 | | October 27, 2021 | | November 10, 2021 | | | 107,459 | | | 0.2250 | | |||||||||||
* | | November 15, 2021 | | November 15, 2021 | | | 137 | | | * | | |||||||||||
| | Total 2021 | | | | $ | 364,125 | | | | | | Total 2021 | | | | $ | 471,721 | | | | |
| | | | | | | | | | | | |||||||||||
Q4 2021 | | January 26, 2022 | | February 9, 2022 | | $ | 108,149 | | $ | 0.2250 | | |||||||||||
* | | February 14, 2022 | | February 14, 2022 | | | 138 | | | * | | |||||||||||
Q1 2022 | | April 27, 2022 | | May 11, 2022 | | | 109,296 | | | 0.2250 | | |||||||||||
* | | May 16, 2022 | | May 16, 2022 | | | 137 | | | * | | |||||||||||
Q2 2022 | | July 27, 2022 | | August 10, 2022 | | | 107,675 | | | 0.2250 | | |||||||||||
* | | August 15, 2022 | | August 15, 2022 | | | 138 | | | * | | |||||||||||
| | Total 2022 | | | | $ | 325,533 | | | | |
* | Dividends are paid in accordance with the terms of the Series A Preferred Stock (as defined below) as discussed in Note 11—Equity and Earnings Per Common Share. |
On October 13, 2021,12, 2022, the Board announced the declaration of a cash dividend on the shares of AM common stock of $0.225$0.2250 per share for the quarter ended September 30, 2021.2022. The dividend will be payable on November 10, 20219, 2022 to stockholders of record as of October 27, 2021.26, 2022. The Company pays dividends (i) out of surplus or (ii) if there is no surplus, out of the net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year, as provided under Delaware law.
The Board also declared a cash dividend of $138 thousand on the shares of Series A Preferred Stock of Antero Midstream to be paid on November 15, 202114, 2022 in accordance with the terms of the Series A Preferred Stock, which are discussed in Note 11—Equity and Earnings Per Common Share. As of September 30, 2021,2022, there were dividends in the amount of $69 thousand accumulated in arrears on the Company’s Series A Preferred Stock.
(11) Equity and Earnings Per Common Share
(a) | Preferred Stock |
The Board authorized 100,000,000 shares of preferred stock on March 12, 2019, and issued 10,000 shares of preferred stock designated as "5.5% Series A Non-Voting Perpetual Preferred Stock" (the "Series A Preferred Stock"), to The Antero Foundation on that date. Dividends on the Series A Preferred Stock are cumulative from the date of original issue and payable in cash on the 45th day following the end of each fiscal quarter, or such other dates as the Board will approve, at a rate of 5.5% per annum on (i) the liquidation preference per share of Series A Preferred Stock (as described below) and (ii) the amount of accrued and unpaid dividends for any prior dividend period on such share of Series A Preferred Stock, if any. At any time following the date of issue, in the event of a change of control, or at any time on or after March 12, 2029, the Company may redeem the Series A Preferred Stock at a price equal to $1,000 per share, plus any accrued and unpaid dividends, payable in cash; provided that if any shares of the Series A Preferred Stock are held by The Antero Foundation at the time of such redemption, the price for redemption of each share of Series A Preferred Stock will be the greater of (i) $1,000 per share, plus any accrued but unpaid dividends, and (ii) the fair market value of the Series A Preferred Stock. On or after March 12, 2029, the holder of each share of Series A Preferred Stock (other than The Antero Foundation) may convert such shares, at any time and from time to time, at the option of the holder into a number of shares of AM common stock
19
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
Preferred Stock. On or after March 12, 2029, the holder of each share of Series A Preferred Stock (other than The Antero Foundation) may convert such shares, at any time and from time to time, at the option of the holder into a number of shares of AM common stock equal to the conversion ratio in effect on the applicable conversion date, subject to certain limitations. The Series A Preferred Stock ranks senior to the AM common stock as to dividend rights, as well as with respect to rights upon liquidation, winding-up or dissolution of the Company. Holders of the Series A Preferred Stock do not have any voting rights in the Company, except as required by law, or any preemptive rights.
(b) | Weighted Average Shares Outstanding |
The following is a reconciliation of the Company’s basic weighted average shares outstanding to diluted weighted average shares outstanding during the periods presented:outstanding:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended | | ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | | ||||||||||||||||
(in thousands) |
| 2020 |
| 2021 |
| 2020 |
| 2021 | |
| 2021 |
| 2022 |
| 2021 |
| 2022 | | ||||||||
Basic weighted average number of shares outstanding | | | 476,578 | | | 477,442 | | | 478,831 | | | 477,196 | | | | 477,442 | | | 478,460 | | | 477,196 | | | 478,144 | |
Add: Dilutive effect of RSUs | | | 254 | | | 1,093 | | | — | | | 1,113 | | | | 1,093 | | | 769 | | | 1,113 | | | 1,003 | |
Add: Dilutive effect of PSUs | | | — | | | 200 | | | — | | | 232 | | | | 200 | | | — | | | 232 | | | 106 | |
Add: Dilutive effect of Series A Preferred Stock | | | 1,862 | | | 960 | | | — | | | 960 | | | | 960 | | | 1,089 | | | 960 | | | 1,089 | |
Diluted weighted average number of shares outstanding | | | 478,694 | | | 479,695 | | | 478,831 | | | 479,501 | | | | 479,695 | | | 480,318 | | | 479,501 | | | 480,342 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average number of outstanding equity awards excluded from calculation of diluted earnings per common share (1): | | | | | | | | | | | | | | | | | | | | | | | | | | |
RSUs | | | 2,995 | | | 235 | | | 2,168 | | | 283 | | | | 235 | | | 2,685 | | | 283 | | | 1,662 | |
Series A Preferred Shares | | | — | | | — | | | 1,862 | | | — | | |||||||||||||
PSUs | | | — | | | 880 | | | — | | | 545 | |
(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 |
Earnings per common share—basic for each period is computed by dividing the net income (loss)or loss attributable to the Company by the basic weighted average number of shares of AM common stock outstanding during the period. Earnings per common share—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 periods in which the Company incurs a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the effect of all equity awards is anti-dilutive.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended | | ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | | ||||||||||||||||
(in thousands, except per share amounts) |
| 2020 |
| 2021 |
| 2020 |
| 2021 | |
| 2021 |
| 2022 |
| 2021 |
| 2022 | | ||||||||
Net income (loss) | | $ | 105,507 | | | 89,327 | | | (198,985) | | | 252,991 | | |||||||||||||
Net income | | $ | 89,327 | | | 84,014 | | | 252,991 | | | 243,449 | | |||||||||||||
Less preferred stock dividends | | | (138) | | | (138) | | | (413) | | | (413) | | | | (138) | | | (138) | | | (413) | | | (413) | |
Net income (loss) available to common shareholders | | $ | 105,369 | | | 89,189 | | | (199,398) | | | 252,578 | | |||||||||||||
Net income available to common shareholders | | $ | 89,189 | | | 83,876 | | | 252,578 | | | 243,036 | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) per share–basic | | $ | 0.22 | | | 0.19 | | | (0.42) | | | 0.53 | | |||||||||||||
Net income (loss) per share–diluted | | $ | 0.22 | | | 0.19 | | | (0.42) | | | 0.53 | | |||||||||||||
Net income per share–basic | | $ | 0.19 | | | 0.18 | | | 0.53 | | | 0.51 | | |||||||||||||
Net income per share–diluted | | $ | 0.19 | | | 0.17 | | | 0.53 | | | 0.51 | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding–basic | | | 476,578 | | | 477,442 | | | 478,831 | | | 477,196 | | | | 477,442 | | | 478,460 | | | 477,196 | | | 478,144 | |
Weighted average common shares outstanding–diluted | | | 478,694 | | | 479,695 | | | 478,831 | | | 479,501 | | | | 479,695 | | | 480,318 | | | 479,501 | | | 480,342 | |
20
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(12) Fair Value Measurement
(a) | Senior Unsecured Notes |
Goodwill
The Company estimated the fair value of its assets in performing its goodwill impairment analysis in the first quarter of 2020. The Company utilized a combination of approaches to discounted cash flow approach, comparable company method and the market value approach. The Company used a weighted average cost of capital of 18.0% as of March 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
The Company estimated the undiscounted future cash flow projections to assess its property and equipment for impairment. The carrying values of certain 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 fresh water during the period 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 fresh water during the 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 December 31, 2020 and September 30, 2021, the fair value and carrying value of the Company’s Senior Notes wereis as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | (Unaudited) | | | | | | | | | (Unaudited) | | ||||||||
| | December 31, 2020 | | September 30, 2021 | | | December 31, 2021 | | September 30, 2022 | | ||||||||||||||||
(in thousands) | | Fair Value (1) | | Carrying Value (2) | | Fair Value (1) | | Carrying Value (2) | | | Fair Value (1) | | Carrying Value (2) | | Fair Value (1) | | Carrying Value (2) | | ||||||||
2024 Notes | | $ | 633,750 | | | 646,391 | | | — | | | — | | |||||||||||||
2026 Notes | | | 569,250 | | | 543,267 | | | 599,500 | | | 544,028 | | | $ | 604,450 | | | 544,294 | | | 551,430 | | | 545,128 | |
2027 Notes | | | 637,000 | | | 645,390 | | | 667,875 | | | 645,820 | | | | 672,750 | | | 645,970 | | | 601,120 | | | 646,444 | |
2028 Notes | | | 624,000 | | | 643,078 | | | 673,530 | | | 643,693 | | | | 680,225 | | | 643,902 | | | 591,500 | | | 644,554 | |
2029 Notes | | | — | | | — | | | 772,500 | | | 741,319 | | | | 783,750 | | | 741,544 | | | 657,375 | | | 742,243 | |
Total | | $ | 2,464,000 | | | 2,478,126 | | | 2,713,405 | | | 2,574,860 | | | $ | 2,741,175 | | | 2,575,710 | | | 2,401,425 | | | 2,578,369 | |
(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
(b) | Other Assets and Liabilities |
The carrying values of accounts receivable and accounts payable atas of December 31, 20202021 and September 30, 20212022 approximated fair value because of their short-term nature. The carrying value of the amounts under the Prior Credit Facility atas of December 31, 20202021 and September 30, 20212022 approximated fair value because the variable interest rates are reflective of current market conditions.
21
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(13) Investments in Unconsolidated Affiliates
The Company has a 15% equity interest in a gathering system of Stonewall Gas Gathering LLC (“Stonewall”), which operates a 67-mile pipeline on which Antero Resources is an anchor shipper.
The Company has a 50% equity interest in the joint venture to develop processing and fractionation assets with MarkWest Energy Partners, L.P. (“MarkWest”), a wholly owned subsidiary of MPLX, LP (the “Joint Venture”). The Joint Venture was formed to develop processing and fractionation assets in Appalachia. MarkWest operates the Joint Venture assets, which consist of processing plants in West Virginia and a one-third interest in 2two 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 on the Company’s proportionate share of net income are received, they are recorded as reductions to the carrying value of the investment on the condensed consolidated balance sheet and are classified as cash inflows from operating activities in accordance with the nature of the distribution approach under FASB ASC Topic 230, Statement of Cash Flows. The Company uses the equity method of accounting to account for its investments in 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 boardBoard of directorsDirectors and participation in policy-making decisions of Stonewall and the Joint Venture.
21
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
The following table is a reconciliation of the Company’s investments in these unconsolidated affiliates:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Total Investment | | | | | | | Total Investment | | ||||||
| | | | MarkWest | | in Unconsolidated | | | | | MarkWest | | in Unconsolidated | | ||||||
(in thousands) |
| Stonewall |
| | Joint Venture |
| Affiliates | |
| Stonewall |
| | Joint Venture |
| Affiliates | | ||||
Balance at December 31, 2020 | | $ | 137,632 | | | 584,846 | | | 722,478 | | ||||||||||
Additional investments | | | — | | | 2,070 | | | 2,070 | | ||||||||||
Equity in earnings of unconsolidated affiliates | | | 4,918 | | | 61,429 | | | 66,347 | | ||||||||||
Balance as of December 31, 2021 | | $ | 130,572 | | | 565,437 | | | 696,009 | | ||||||||||
Equity in earnings of unconsolidated affiliates (1) | | | 5,367 | | | 65,100 | | | 70,467 | | ||||||||||
Distributions from unconsolidated affiliates | | | (10,215) | | | (76,900) | | | (87,115) | | | | (9,000) | | | (81,470) | | | (90,470) | |
Balance at September 30, 2021 | | $ | 132,335 | | | 571,445 | | | 703,780 | | ||||||||||
Return of investment in unconsolidated affiliate | | | — | | | (17,000) | | | (17,000) | | ||||||||||
Balance as of September 30, 2022 | | $ | 126,939 | | | 532,067 | | | 659,006 | |
(1) | As adjusted for the amortization of the difference between the cost of the equity investments in Stonewall and the Joint Venture and the amount of the underlying equity in the net assets of Stonewall and the Joint Venture as of March 12, 2019. |
(14) Reportable Segments
(a) | Summary of Reportable Segments |
The Company’s operations, which are located in the United States, are organized into 2two reportable segments: (i) gathering and processing and (ii) water handling. These segments are monitored separately by management for performance and are consistent with internal financial reporting. These segments have been identified based on the differing products and services, regulatory environment and the expertise required for these operations. Management evaluates the performance of the Company’s business segments based on operating income. Interest expense is primarily managed and evaluated on a consolidated basis.
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 2two independent systems that deliver fresh water from sources including the Ohio River, local reservoirs and several regional waterways. Portions of these water handling systems are also utilized to transport flowback and produced water. The water handling segment also includes the Clearwater Facility that was placed in service in 2018systems consist of permanent buried pipelines, surface pipelines and idled in September 2019,water storage facilities, as well as other fluid handling services, which includes high rate transfer, wastewater transportation, disposalpumping stations, blending facilities and blending. See Note 6—Property and Equipment.impoundments to transport water throughout the systems used to deliver water for Antero Resources’ well completions.
22
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(b) Reportable Segments Financial Information The summarized operating results Three Months Ended September 30, 2020 Three Months Ended September 30, 2021 Gathering and Water Consolidated Gathering and Water Consolidated (in thousands) Processing Handling Unallocated (1) Total Processing Handling Unallocated (1) Total Revenues: Revenue–Antero Resources $ 190,214 61,001 — 251,215 $ 188,716 53,511 — 242,227 Revenue–third-party — 245 — 245 Amortization of customer relationships (9,342) (8,458) — (17,800) (9,271) (8,397) — (17,668) Total revenues 180,872 52,543 — 233,415 179,445 45,359 — 224,804 Operating expenses: Direct operating 16,078 21,974 — 38,052 16,161 23,338 — 39,499 General and administrative 8,137 3,100 1,995 13,232 9,076 4,554 1,180 14,810 Facility idling — 2,527 — 2,527 — 870 — 870 Depreciation 15,151 12,336 — 27,487 Impairment of property and equipment 947 — — 947 — 203 — 203 Depreciation 14,900 11,901 — 26,801 Accretion of asset retirement obligations — 39 — 39 — 114 — 114 Total operating expenses 40,062 39,541 1,995 81,598 40,388 41,415 1,180 82,983 Operating income $ 140,810 13,002 (1,995) 151,817 $ 139,057 3,944 (1,180) 141,821 Equity in earnings of unconsolidated affiliates $ 23,173 — — 23,173 $ 24,088 — — 24,088 Total assets $ 4,383,313 1,146,687 143,504 5,673,504 Additions to property and equipment $ 34,041 7,810 — 41,851 $ 69,069 13,514 — 82,583 Three Months Ended September 30, 2021 Gathering and Water Consolidated (in thousands) Processing Handling Unallocated (1) Total Revenues: Revenue–Antero Resources $ 188,716 53,511 — 242,227 Revenue–third-party — 245 — 245 Amortization of customer relationships (9,271) (8,397) — (17,668) Total revenues 179,445 45,359 — 224,804 Operating expenses: Direct operating 16,161 23,338 — 39,499 General and administrative 9,076 4,554 1,180 14,810 Facility idling — 870 — 870 Impairment of property and equipment — 203 — 203 Depreciation 15,151 12,336 — 27,487 Accretion of asset retirement obligations — 114 — 114 Total operating expenses 40,388 41,415 1,180 82,983 Operating income $ 139,057 3,944 (1,180) 141,821 Equity in earnings of unconsolidated affiliates $ 24,088 — — 24,088 Total assets $ 4,416,828 1,100,884 15,921 5,533,633 Additions to property and equipment, net $ 69,069 13,514 — 82,583 These segments are monitored separately by management for performance and are consistent with internal financial reporting. These segments have been identified based on the differing products and services, regulatory environment and the expertise required for these operations. Management evaluates the performance of the Company’s business segments based on operating income. Interest expense is primarily managed and evaluated on a consolidated basis. and assets of the Company’s reportable segments wereare as follows for the three and nine months ended September 30, 2020 and 2021:follows:(1) Certain expenses that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis.
23
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | |
| | Three Months Ended September 30, 2022 | | ||||||||||
| | Gathering and | | Water | | | | Consolidated | | ||||
(in thousands) |
| Processing |
| Handling |
| Unallocated (1) |
| Total | | ||||
Revenues: | | | | | | | | | | | | | |
Revenue–Antero Resources | | $ | 185,640 | | | 61,411 | | | — | | | 247,051 | |
Revenue–third-party | | | — | | | 1,651 | | | — | | | 1,651 | |
Amortization of customer relationships | | | (9,271) | | | (8,397) | | | — | | | (17,668) | |
Total revenues | | | 176,369 | | | 54,665 | | | — | | | 231,034 | |
Operating expenses: | | | | | | | | | | | | | |
Direct operating | | | 19,813 | | | 26,835 | | | — | | | 46,648 | |
General and administrative | | | 9,890 | | | 2,425 | | | 1,272 | | | 13,587 | |
Facility idling | | | — | | | 865 | | | — | | | 865 | |
Depreciation | | | 21,177 | | | 13,029 | | | — | | | 34,206 | |
Accretion of asset retirement obligations | | | — | | | 50 | | | — | | | 50 | |
Gain on asset sale | | | (2,056) | | | (36) | | | — | | | (2,092) | |
Total operating expenses | | | 48,824 | | | 43,168 | | | 1,272 | | | 93,264 | |
Operating income | | $ | 127,545 | | | 11,497 | | | (1,272) | | | 137,770 | |
| | | | | | | | | | | | | |
Equity in earnings of unconsolidated affiliates | | $ | 24,411 | | | — | | | — | | | 24,411 | |
Additions to property and equipment, net | | $ | 58,742 | | | 15,378 | | | — | | | 74,120 | |
(1) | Certain expenses that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis. |
2423
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 | | | Nine Months Ended September 30, 2021 | | ||||||||||||||||||||
| | Gathering and | | Water | | | | Consolidated | | | Gathering and | | Water | | | | Consolidated | | ||||||||
(in thousands) |
| Processing |
| Handling |
| Unallocated (1) | | Total | |
| Processing |
| Handling |
| Unallocated (1) | | Total | | ||||||||
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue–Antero Resources | | $ | 527,334 | | | 222,536 | | | — | | | 749,870 | | | $ | 566,544 | | | 167,832 | | | — | | | 734,376 | |
Revenue–third-party | | | — | | | 340 | | | — | | | 340 | | |||||||||||||
Amortization of customer relationships | | | (27,819) | | | (25,192) | | | — | | | (53,011) | | | | (27,813) | | | (25,191) | | | — | | | (53,004) | |
Total revenues | | | 499,515 | | | 197,344 | | | — | | | 696,859 | | | | 538,731 | | | 142,981 | | | — | | | 681,712 | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct operating | | | 43,528 | | | 85,319 | | | — | | | 128,847 | | | | 50,409 | | | 67,959 | | | — | | | 118,368 | |
General and administrative | | | 23,420 | | | 9,685 | | | 6,086 | | | 39,191 | | | | 26,459 | | | 17,107 | | | 3,425 | | | 46,991 | |
Facility idling | | | — | | | 13,680 | | | — | | | 13,680 | | | | — | | | 3,033 | | | — | | | 3,033 | |
Impairment of goodwill | | | 575,461 | | | — | | | — | | | 575,461 | | |||||||||||||
Depreciation | | | 44,268 | | | 36,688 | | | — | | | 80,956 | | |||||||||||||
Impairment of property and equipment | | | 947 | | | 89,083 | | | — | | | 90,030 | | | | 1,218 | | | 364 | | | — | | | 1,582 | |
Depreciation | | | 42,356 | | | 39,533 | | | — | | | 81,889 | | |||||||||||||
Accretion of asset retirement obligations | | | — | | | 142 | | | — | | | 142 | | | | — | | | 347 | | | — | | | 347 | |
Loss on asset sale | | | — | | | 240 | | | — | | | 240 | | | | 3,628 | | | — | | | — | | | 3,628 | |
Total operating expenses | | | 685,712 | | | 237,682 | | | 6,086 | | | 929,480 | | | | 125,982 | | | 125,498 | | | 3,425 | | | 254,905 | |
Operating loss | | $ | (186,197) | | | (40,338) | | | (6,086) | | | (232,621) | | |||||||||||||
Operating income | | $ | 412,749 | | | 17,483 | | | (3,425) | | | 426,807 | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity in earnings of unconsolidated affiliates | | $ | 63,197 | | | — | | | — | | | 63,197 | | | $ | 66,347 | | | — | | | — | | | 66,347 | |
Total assets | | $ | 4,383,313 | | | 1,146,687 | | | 143,504 | | | 5,673,504 | | |||||||||||||
Additions to property and equipment | | $ | 137,978 | | | 27,287 | | | — | | | 165,265 | | | $ | 120,727 | | | 36,221 | | | — | | | 156,948 | |
(1) | Certain expenses that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 | | | Nine Months Ended September 30, 2022 | | ||||||||||||||||||||
| | Gathering and | | Water | | | | Consolidated | | | Gathering and | | Water | | | | Consolidated | | ||||||||
(in thousands) |
| Processing |
| Handling |
| Unallocated (1) | | Total | |
| Processing |
| Handling |
| Unallocated (1) | | Total | | ||||||||
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue–Antero Resources | | $ | 566,544 | | | 167,832 | | | — | | | 734,376 | | | $ | 552,154 | | | 176,994 | | | — | | | 729,148 | |
Revenue–third-party | | | — | | | 340 | | | — | | | 340 | | | | — | | | 2,288 | | | — | | | 2,288 | |
Amortization of customer relationships | | | (27,813) | | | (25,191) | | | — | | | (53,004) | | | | (27,814) | | | (25,190) | | | — | | | (53,004) | |
Total revenues | | | 538,731 | | | 142,981 | | | — | | | 681,712 | | | | 524,340 | | | 154,092 | | | — | | | 678,432 | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct operating | | | 50,409 | | | 67,959 | | | — | | | 118,368 | | | | 56,338 | | | 75,621 | | | — | | | 131,959 | |
General and administrative | | | 26,459 | | | 17,107 | | | 3,425 | | | 46,991 | | | | 30,081 | | | 13,015 | | | 4,501 | | | 47,597 | |
Facility idling | | | — | | | 3,033 | | | — | | | 3,033 | | | | — | | | 3,198 | | | — | | | 3,198 | |
Depreciation | | | 59,838 | | | 38,343 | | | — | | | 98,181 | | |||||||||||||
Impairment of property and equipment | | | 1,218 | | | 364 | | | — | | | 1,582 | | | | 1,130 | | | 2,572 | | | — | | | 3,702 | |
Depreciation | | | 44,268 | | | 36,688 | | | — | | | 80,956 | | |||||||||||||
Accretion of asset retirement obligations | | | — | | | 347 | | | — | | | 347 | | | | — | | | 178 | | | — | | | 178 | |
Loss on asset sale | | | 3,628 | | | — | | | — | | | 3,628 | | |||||||||||||
Loss on settlement of asset retirement obligations | | | — | | | 539 | | | — | | | 539 | | |||||||||||||
Gain on asset sale | | | (2,119) | | | (123) | | | — | | | (2,242) | | |||||||||||||
Total operating expenses | | | 125,982 | | | 125,498 | | | 3,425 | | | 254,905 | | | | 145,268 | | | 133,343 | | | 4,501 | | | 283,112 | |
Operating income | | $ | 412,749 | | | 17,483 | | | (3,425) | | | 426,807 | | | $ | 379,072 | | | 20,749 | | | (4,501) | | | 395,320 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity in earnings of unconsolidated affiliates | | $ | 66,347 | | | — | | | — | | | 66,347 | | | $ | 70,467 | | | — | | | — | | | 70,467 | |
Total assets | | $ | 4,416,828 | | | 1,100,884 | | | 15,921 | | | 5,533,633 | | |||||||||||||
Additions to property and equipment, net | | $ | 120,727 | | | 36,221 | | | — | | | 156,948 | | | $ | 190,407 | | | 45,747 | | | — | | | 236,154 | |
(1) | Certain expenses that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis. |
24
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
The summarized total assets of the Company’s reportable segments are as follows:
| | | | | | | | | | | | | |
| | | | | | | | | | (Unaudited) | | ||
| | | | | | | | December 31, | | September 30, | | ||
(in thousands) | | | | | | | | 2021 | | 2022 | | ||
Gathering and Processing | | | | | | | | $ | 4,450,939 | | | 4,489,750 | |
Water Handling | | | | | | | | | 1,092,122 | | | 1,073,000 | |
Unallocated (1) | | | | | | | | | 940 | | | 1,071 | |
Total assets | | | | | | | | $ | 5,544,001 | | | 5,563,821 | |
(1) | Certain assets that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis. |
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. The information provided below supplements, but does not form part of, our unaudited condensed consolidated financial statements. This discussion contains forward-looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on items that could impact our future operating performance or financial condition, please see “Item 1A. Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law. In this section, references to “Antero Midstream,” “AM,” the “Company,” “we,” “us,” and “our” refer to Antero Midstream Corporation and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.
Overview
We are a growth-oriented midstream energy company formed to own, operate and develop midstream energy assets to primarily service Antero Resources’ production and completion activity. We believe that our strategically located assets and our relationship with Antero Resources have allowed us to become a leading midstream energy company serving the Appalachian Basin and present opportunities to expand our midstream services to other operators in the Appalachian Basin. Our assets consist of gathering pipelines, compressor stations and interests in processing and fractionation plants that collect and process production from Antero Resources’ wells in the Appalachian Basin in West Virginia and Ohio. Our assets also include two independent fresh water deliveryhandling systems that deliver fresh water from the Ohio River and several regional waterways. These fresh water deliveryhandling systems consist of permanent buried pipelines, surface pipelines and fresh water storage facilitates,facilities, as well as pumping stations, blending facilities and impoundmentsimpoundments. Portions of these water handling systems are also utilized to transport the fresh water throughout the pipelines.flowback and produced water. 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.
2021 Developments and Highlights
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 caused a significant decrease in 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 in “—Capital Resources and Liquidity—Debt Agreements—Senior Secured Revolving Credit Facility ”) 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 have implemented protocols to reduce the risk of an outbreak within our field operations and corporate offices, and these protocols have not reduced Antero Resources’ production and our throughput in a significant manner. A substantial portion of our non-field level employees operated in remote work from home arrangements through September 30, 2021, and due to the rise of COVID-19 cases as a result of new variants of the virus, our plans to return to full-time in-office arrangements during the third quarter of 2021 have been deferred in order to protect the health and safety of our employees and contract workers. 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 had 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 our 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
26
were to 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.
Financing Highlights
Credit FacilityMarcellus Bolt-On Acquisition
On October 26, 2021, 25, 2022, we entered into an amendedacquired certain Marcellus gas gathering and restatedcompression assets from Crestwood Equity Partners LP (NYSE: CEQP) (“Crestwood”) for $205 million in cash, before closing adjustments, which was funded by borrowings under our senior secured revolving credit facility (“Credit Facility”). These assets include 72 miles of dry gas gathering pipelines and nine compressor stations with lender commitmentsapproximately 700 MMcf/d of $1.25 billion, which matures on October 26, 2026; provided that if on November 17, 2025 anycompression capacity. Current throughput of the assets is approximately 200 MMcf/d, resulting in significant available capacity for growth.7.875% senior unsecured notes due May 15, 2026 (the “2026 Notes”)
Market Conditions and Business Trends
Commodity Markets
Prices for natural gas, NGLs and oil have increased significantly during the nine months ended September 30, 2022 as compared to same period of 2021. While substantially all of our revenues are outstanding,based on fixed-fee contracts that are not directly impacted by changes in commodity prices, commodity price changes do impact the New Credit Facility will mature on such date. We elected to reduce our commitments from $2.13 billion under the Prior Credit Facility (as defined in “—Capitalrevenues and cash flows of Antero Resources, and Liquidity—Debt Agreements—Senior Secured Revolving Credit Facility ”) to $1.25 billion to better align withAntero Resources’ drilling and development plan does have a direct impact on our expected future liquidity needs. See Note 7—Long-Term Debt togathering, compression and water handling service throughput, revenues and cash flows. In the unaudited condensed consolidated financial statements and “—Capitalcurrent economic environment, we expect that commodity prices for some or all of the commodities produced by Antero Resources and Liquidity—Debt Agreements—Credit Facility” for more information.
Issuance of Senior Notes
On June 8, 2021, we 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 Facilitycould remain volatile. However, to the extent of the value of the collateral securing the Credit Facility. The 2029 Notes are fully and unconditionally guaranteed onAntero Resources maintains a joint and several senior unsecured basis by Antero Midstream Corporation, Antero Midstream Partners LP’s (“Antero Midstream Partners”) wholly owned subsidiaries (other than Antero Midstream Finance Corporation) and certain of its future restricted subsidiaries. See Note 7—Long-Term Debtmaintenance capital program as it has done in recent years, we do not expect to the unaudited condensed consolidated financial statements for more information.
Redemption of Senior Notes
On June 8, 2021, we redeemed all ofexperience substantial variability in our outstanding 5.375% Senior Notes Due September 15, 2024 (the “2024 Notes”) at a redemption price of 102.688% of the principal amount therefore, plus accrued and unpaid interest. See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information.throughput volumes resulting from volatile commodity prices.
Growth Incentive Fee Program Withwith Antero Resources
On December 8, 2019, we and Antero Resources amended the existingOur gathering and compression agreement to establishwith Antero Resources includes a a growth 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 extendResources’ throughput on the primary term of suchassets acquired from Crestwood will be gathered under an existing agreement by an additional four years to November 10, 2038. The following table summarizesthat will not be considered in the low pressure gathering growth incentive targets through 2023.rebate volumes with Antero Resources. If actual low pressure volumes are below the lowest threshold for the respective period, Antero Resources will not receiveearn a reduction in low pressure gathering fees.
26
The following table summarizes the remaining low pressure gathering growth incentive targets through 2023:
| | | | | |
| | Low Pressure Gathering | | Quarterly Fee | |
| | Volume Growth Incentive | | Reduction | |
| | Targets (MMcf/d) | | (in millions) | |
|
|
|
|
|
|
Threshold 1 | | >2,900 and <3,150 | | $12.0 | |
Threshold 2 | | >3,150 and <3,400 | | $15.5 | |
Threshold 3 | | >3,400 | | $19.0 | |
ForDuring the three months ended September 30, 2021,2022, Antero Resources delivered low pressure gathering volumes of 2,8802,952 MMcf/d and as a result, noearned a quarterly fee reduction was earnedof $12 million during the period. During the nine months ended September 30, 2021,2022, Antero Resources earned an aggregate of $36 million in fee reductions. Antero Resources did not earn any quarterly fee reductions.reductions during the three and nine months ended September 30, 2021.
Economic Indicators
The economy is experiencing elevated inflation levels as a result of global supply and demand imbalances, where global demand continues to outpace current supplies. For example, the BLS Consumer Price Index (“CPI”) for all urban consumers increased 8% from September 2021 to September 2022 as compared to the average annual increase of 3% over the previous 10 years. Despite inflationary pressures, our 2022 capital budget remains unchanged as of September 30, 2022. See “—Capital Resources and Liquidity—2022 Capital Investment” for more information. In order to manage the inflation risk currently present in the United States’ economy, the Federal Reserve has utilized monetary policy in the form of interest rate increases in an effort to bring the inflation rate in line with its stated goal of 2% on a long-term basis.
The global economy also continues to be impacted by the effects of the COVID-19 pandemic and global events, among other factors. These events have often caused global supply chain disruptions with additional pressure due to trade sanctions on Russia and other global trade restrictions, among others. However, neither our nor Antero Resources’ supply chain has experienced any significant interruptions due to the COVID-19 pandemic or global supply and demand imbalances.
Inflationary pressures and supply chain disruptions could result in increases to our operating and capital costs that are not fixed or renegotiation of contracts and/or supply agreements, among others. These economic variables are beyond our control and may adversely impact our business, financial condition, results of operations and future cash flows.
COVID-19 Pandemic
We have continued to operate throughout the COVID-19 pandemic, in some cases subject to federal, state and local regulations, and we are taking steps to protect the health and safety of our workers. We have implemented protocols to reduce the risk of an outbreak within our field operations and offices, and these protocols have not impacted Antero Resources’ production, our throughput or our business activities. During the third quarter of 2022, we transitioned from a hybrid working arrangement for non-field level employees, which involved a combination of in-office and remote work-from-home arrangements, to an in-office working arrangement for all non-field level employees. 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. We continue to monitor the COVID-19 environment in order to protect the health and safety of our employees.
Results of Operations
We have two operating segments: (i) gathering and processing and (ii) water handling. The gathering and processing segment includes a network of gathering pipelines and compressor stations that collect and process production from Antero Resources’ wells in the Appalachian Basin, as well as equity in earnings from our investments in the joint venture to develop processing and fractionation
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assets with MarkWest Energy Partners, L.P., a wholly owned subsidiary of MPLX, LP (the “Joint Venture”) and Stonewall Gas Gathering LLC. The water handling segment includes (i) two independent systems that deliver fresh water from sources including the Ohio River, local reservoirs and several regional waterways (ii) the wastewater treatment facility and related landfill (collectively, the “Clearwater Facility”) that was idled in September 2019 and (iii)(ii) other fluid handling services, which include high rate transfer, wastewater transportation, disposal and blending.
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Three Months Ended September 30, 20202021 Compared to Three Months Ended September 30, 20212022
The operating results of our reportable segments wereare as follows for the three months ended September 30, 2020 and 2021:follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | | | Three Months Ended September 30, 2021 | | ||||||||||||||||||||
| | Gathering and | | Water | | | | Consolidated | | | Gathering and | | Water | | | | Consolidated | | ||||||||
(in thousands) |
| Processing |
| Handling |
| Unallocated (1) |
| Total | |
| Processing |
| Handling |
| Unallocated (1) |
| Total | | ||||||||
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue–Antero Resources | | $ | 202,214 | | | 61,001 | | | — | | | 263,215 | | | $ | 188,716 | | | 53,511 | | | — | | | 242,227 | |
Gathering—low pressure rebate | | | (12,000) | | | — | | | — | | | (12,000) | | |||||||||||||
Revenue–third-party | | | — | | | 245 | | | — | | | 245 | | |||||||||||||
Amortization of customer relationships | | | (9,342) | | | (8,458) | | | — | | | (17,800) | | | | (9,271) | | | (8,397) | | | — | | | (17,668) | |
Total revenues | | | 180,872 | | | 52,543 | | | — | | | 233,415 | | | | 179,445 | | | 45,359 | | | — | | | 224,804 | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct operating | | | 16,078 | | | 21,974 | | | — | | | 38,052 | | | | 16,161 | | | 23,338 | | | — | | | 39,499 | |
General and administrative (excluding equity-based compensation) | | | 5,405 | | | 2,579 | | | 1,570 | | | 9,554 | | | | 6,533 | | | 4,069 | | | 953 | | | 11,555 | |
Equity-based compensation | | | 2,732 | | | 521 | | | 425 | | | 3,678 | | | | 2,543 | | | 485 | | | 227 | | | 3,255 | |
Facility idling | | | — | | | 2,527 | | | — | | | 2,527 | | | | — | | | 870 | | | — | | | 870 | |
Depreciation | | | 15,151 | | | 12,336 | | | — | | | 27,487 | | |||||||||||||
Impairment of property and equipment | | | 947 | | | — | | | — | | | 947 | | | | — | | | 203 | | | — | | | 203 | |
Depreciation | | | 14,900 | | | 11,901 | | | — | | | 26,801 | | |||||||||||||
Accretion of asset retirement obligations | | | — | | | 39 | | | — | | | 39 | | | | — | | | 114 | | | — | | | 114 | |
Total operating expenses | | | 40,062 | | | 39,541 | | | 1,995 | | | 81,598 | | | | 40,388 | | | 41,415 | | | 1,180 | | | 82,983 | |
Operating income | | | 140,810 | | | 13,002 | | | (1,995) | | | 151,817 | | | | 139,057 | | | 3,944 | | | (1,180) | | | 141,821 | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | — | | | — | | | (34,501) | | | (34,501) | | | | — | | | — | | | (44,544) | | | (44,544) | |
Equity in earnings of unconsolidated affiliates | | | 23,173 | | | — | | | — | | | 23,173 | | | | 24,088 | | | — | | | — | | | 24,088 | |
Total other income (expense) | | | 23,173 | | | — | | | (34,501) | | | (11,328) | | | | 24,088 | | | — | | | (44,544) | | | (20,456) | |
Income before income taxes | | | 163,983 | | | 13,002 | | | (36,496) | | | 140,489 | | | | 163,145 | | | 3,944 | | | (45,724) | | | 121,365 | |
Provision for income tax expense | | | — | | | — | | | (34,982) | | | (34,982) | | |||||||||||||
Income tax expense | | | — | | | — | | | (32,038) | | | (32,038) | | |||||||||||||
Net income and comprehensive income | | $ | 163,983 | | | 13,002 | | | (71,478) | | | 105,507 | | | $ | 163,145 | | | 3,944 | | | (77,762) | | | 89,327 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA(2) | | | | | | | | | | | $ | 228,567 | | | | | | | | | | | | $ | 219,478 | |
(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.” |
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 | | | Three Months Ended September 30, 2022 | | ||||||||||||||||||||
| | Gathering and | | Water | | | | Consolidated | | | Gathering and | | Water | | | | Consolidated | | ||||||||
(in thousands) |
| Processing |
| Handling |
| Unallocated (1) |
| Total | |
| Processing |
| Handling |
| Unallocated (1) |
| Total | | ||||||||
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue–Antero Resources | | $ | 188,716 | | | 53,511 | | | — | | | 242,227 | | | $ | 197,640 | | | 61,411 | | | — | | | 259,051 | |
Revenue–third-party | | | — | | | 245 | | | — | | | 245 | | | | — | | | 1,651 | | | — | | | 1,651 | |
Gathering—low pressure rebate | | | (12,000) | | | — | | | — | | | (12,000) | | |||||||||||||
Amortization of customer relationships | | | (9,271) | | | (8,397) | | | — | | | (17,668) | | | | (9,271) | | | (8,397) | | | — | | | (17,668) | |
Total revenues | | | 179,445 | | | 45,359 | | | — | | | 224,804 | | | | 176,369 | | | 54,665 | | | — | | | 231,034 | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct operating | | | 16,161 | | | 23,338 | | | — | | | 39,499 | | | | 19,813 | | | 26,835 | | | — | | | 46,648 | |
General and administrative (excluding equity-based compensation) | | | 6,533 | | | 4,069 | | | 953 | | | 11,555 | | | | 5,657 | | | 1,300 | | | 1,077 | | | 8,034 | |
Equity-based compensation | | | 2,543 | | | 485 | | | 227 | | | 3,255 | | | | 4,233 | | | 1,125 | | | 195 | | | 5,553 | |
Facility idling | | | — | | | 870 | | | — | | | 870 | | | | — | | | 865 | | | — | | | 865 | |
Impairment of property and equipment | | | — | | | 203 | | | — | | | 203 | | |||||||||||||
Depreciation | | | 15,151 | | | 12,336 | | | — | | | 27,487 | | | | 21,177 | | | 13,029 | | | — | | | 34,206 | |
Accretion of asset retirement obligations | | | — | | | 114 | | | — | | | 114 | | | | — | | | 50 | | | — | | | 50 | |
Gain on asset sale | | | (2,056) | | | (36) | | | — | | | (2,092) | | |||||||||||||
Total operating expenses | | | 40,388 | | | 41,415 | | | 1,180 | | | 82,983 | | | | 48,824 | | | 43,168 | | | 1,272 | | | 93,264 | |
Operating income | | | 139,057 | | | 3,944 | | | (1,180) | | | 141,821 | | | | 127,545 | | | 11,497 | | | (1,272) | | | 137,770 | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | — | | | — | | | (44,544) | | | (44,544) | | | | — | | | — | | | (47,835) | | | (47,835) | |
Equity in earnings of unconsolidated affiliates | | | 24,088 | | | — | | | — | | | 24,088 | | | | 24,411 | | | — | | | — | | | 24,411 | |
Total other income (expense) | | | 24,088 | | | — | | | (44,544) | | | (20,456) | | | | 24,411 | | | — | | | (47,835) | | | (23,424) | |
Income before income taxes | | | 163,145 | | | 3,944 | | | (45,724) | | | 121,365 | | �� | | 151,956 | | | 11,497 | | | (49,107) | | | 114,346 | |
Provision for income tax expense | | | — | | | — | | | (32,038) | | | (32,038) | | |||||||||||||
Income tax expense | | | — | | | — | | | (30,332) | | | (30,332) | | |||||||||||||
Net income and comprehensive income | | $ | 163,145 | | | 3,944 | | | (77,762) | | | 89,327 | | | $ | 151,956 | | | 11,497 | | | (79,439) | | | 84,014 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA(2) | | | | | | | | | | | $ | 219,478 | | | | | | | | | | | | $ | 223,120 | |
(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.” |
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The following table sets forth the operating data for Antero Midstream and its subsidiaries for the three months ended September 30, 2020 and 2021:is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Amount of | | | | | | Three Months Ended | | Amount of | | | | | ||||||||||
| | September 30, | | Increase | | Percentage | | September 30, | | Increase | | Percentage | ||||||||||||||
|
| 2020 |
| 2021 |
| or Decrease |
| Change |
| 2021 |
| 2022 |
| or Decrease |
| Change | ||||||||||
Operating Data: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gathering—low pressure (MMcf) | | | 280,688 | | | 264,999 | | | (15,689) | | | (6) | % | | | 264,999 | | | 271,569 | | | 6,570 | | | 2 | % |
Compression (MMcf) | | | 259,523 | | | 251,555 | | | (7,968) | | | (3) | % | | | 251,555 | | | 257,025 | | | 5,470 | | | 2 | % |
Gathering—high pressure (MMcf) | | | 276,699 | | | 258,585 | | | (18,114) | | | (7) | % | | | 258,585 | | | 257,757 | | | (828) | | | * | |
Fresh water delivery (MBbl) | | | 10,202 | | | 8,335 | | | (1,867) | | | (18) | % | | | 8,335 | | | 9,515 | | | 1,180 | | | 14 | % |
Other fluid handling (MBbl) | | | 5,151 | | | 4,325 | | | (826) | | | (16) | % | | | 4,325 | | | 5,280 | | | 955 | | | 22 | % |
Wells serviced by fresh water delivery | | | 21 | | | 18 | | | (3) | | | (14) | % | | | 18 | | | 18 | | | — | | | * | |
Gathering—low pressure (MMcf/d) | | | 3,051 | | | 2,880 | | | (171) | | | (6) | % | | | 2,880 | | | 2,952 | | | 72 | | | 3 | % |
Compression (MMcf/d) | | | 2,821 | | | 2,734 | | | (87) | | | (3) | % | | | 2,734 | | | 2,794 | | | 60 | | | 2 | % |
Gathering—high pressure (MMcf/d) | | | 3,008 | | | 2,811 | | | (197) | | | (7) | % | | | 2,811 | | | 2,802 | | | (9) | | | * | |
Fresh water delivery (MBbl/d) | | | 111 | | | 91 | | | (20) | | | (18) | % | | | 91 | | | 103 | | | 12 | | | 13 | % |
Other fluid handling (MBbl/d) | | | 56 | | | 47 | | | (9) | | | (16) | % | | | 47 | | | 57 | | | 10 | | | 21 | % |
Average Realized Fees: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Average gathering—low pressure fee ($/Mcf) | | $ | 0.33 | | | 0.33 | | | — | | | * | | | $ | 0.33 | | | 0.34 | | | 0.01 | | | 3 | % |
Average compression fee ($/Mcf) | | $ | 0.20 | | | 0.20 | | | — | | | * | | | $ | 0.20 | | | 0.21 | | | 0.01 | | | 3 | % |
Average gathering—high pressure fee ($/Mcf) | | $ | 0.21 | | | 0.20 | | | (0.01) | | | (5) | % | | $ | 0.20 | | | 0.21 | | | 0.01 | | | 3 | % |
Average fresh water delivery fee ($/Bbl) | | $ | 3.96 | | | 3.96 | | | — | | | * | | | $ | 3.96 | | | 4.04 | | | 0.08 | | | 2 | % |
Joint Venture Operating Data: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Processing—Joint Venture (MMcf) | | | 136,555 | | | 141,580 | | | 5,025 | | | 4 | % | | | 141,580 | | | 135,611 | | | (5,969) | | | (4) | % |
Fractionation—Joint Venture (MBbl) | | | 3,552 | | | 3,408 | | | (144) | | | (4) | % | | | 3,408 | | | 3,287 | | | (121) | | | (4) | % |
Processing—Joint Venture (MMcf/d) | | | 1,484 | | | 1,539 | | | 55 | | | 4 | % | | | 1,539 | | | 1,474 | | | (65) | | | (4) | % |
Fractionation—Joint Venture (MBbl/d) | | | 39 | | | 37 | | | (2) | | | (5) | % | | | 37 | | | 36 | | | (1) | | | (3) | % |
* | Not meaningful or applicable. |
Revenues. Total revenues decreasedincreased by 4%3%, from $233 million, including amortization of customer relationships of $18 million, for the three months ended September 30, 2020, to $225 million, including amortization of customer relationships of $18 million, for the three months ended September 30, 2021,. Gathering and processing revenues decreased by 1%, from $181 to $231 million, including amortization of customer relationships of $18 million, for the three months ended September 30, 2020 to2022. Gathering and processing revenues decreased by 2%, from $180 million for the three months ended September 30, 2021. Water handling revenues decreased by 14%, from $52 to $176 million for the three months ended September 30, 2020 to2022. Water handling revenues increased by 21%, from $45 million for the three months ended September 30, 2021. to $55 million for the three months ended September 30, 2022. These fluctuations primarily resulted from the following:
Gathering and Processing
● | Low pressure gathering revenue |
● | Compression revenue |
● | High pressure gathering revenue |
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Water Handling
● | Fresh water delivery revenue |
● | Other fluid handling services revenue |
Direct operating expenses. Total direct operating expenses increased by 4%18%, from $38 million for the three months ended September 30, 2020 to $39 million for the three months ended September 30, 2021. to $47 million for the three months ended September 30, 2022. Gathering and processing direct operating expenses remained consistent atincreased by 23%, from $16 million for the three months ended September 30, 2020 and 2021 primarily due to higher ad valorem taxes between periods, offset by lower direct operating expenses due to lower throughput volumes between periods. Water handling direct operating expenses increased by 6%, from $22$20 million for the three months ended September 30, 20202022 primarily due to (i) higher throughput volumes between periods, (ii) two compressors that came online between periods and (iii) higher chemical, fuel, labor and heavy maintenance expense. Water handling direct operating expenses increased by 15%, from $23 million for the three months ended September 30, 2021. The increase was to $27 million for the three months ended September 30, 2022 primarily due to the increase in cost plus 3% service costs, including higher fuel expense, and higher fresh water trucking and disposal costsblending volumes between periods.
General and administrative (excluding equity-based compensation) expenses. General and administrative expenses (excluding equity-based compensation expense) increased 21%decreased by 30%, from $10$12 million for the three months ended September 30, 20202021 to $12$8 million for three months ended September 30, 20212022 primarily due to higher(i) lower costs allocated to us from Antero Resources duringand (ii) lower legal costs associated with the third quarter of 2021.Veolia legal matter between periods. See “Item 1. Legal Proceedings” below for additional information.
Equity-based compensation expenses. Equity-based compensation expenses remained relatively consistent at $4 million and $3 million for the three months ended September 30, 2020 and 2021, respectively.
Facility idling expenses. Facility idling expenses decreased 66%increased by 71%, from $3 million for the three months ended September 30, 20202021 to $5 million for the three months ended September 30, 2022 primarily due to an increase in the annual equity awards granted during the second quarter of 2022 as compared to prior years.
Facility idling expenses. Facility idling expenses remained consistent at $1 million for the three months ended September 30, 2021 primarily due to reduced Clearwater Facility decommissioning costs between periods.and 2022.
Depreciation expense. Total depreciation expense remained consistent at $27increased by 24% from $27 million for the three months ended September 30, 2020 and 2021.
Interest expense. Interest expense increased by 29%, from $352021 to $34 million for the three months ended September 30, 20202022. This increase is primarily a result of a phased early retirement of an underutilized compressor station beginning in the second quarter of 2022 through the first half of 2023, which allows us to relocate and reuse the compressor units and equipment to (i) expand an existing compressor station and (ii) contribute to a new compressor station. There are certain costs associated with the underutilized compressor station that cannot be relocated or reused that will be depreciated over the remaining period of use. During the three months ended September 30, 2022, we recognized depreciation expense associated with assets that are subject to early retirement in the future of $5 million.
Gain on asset sale. There were no asset sales during the three months ended September 30, 2021. Gain on asset sale of $2 million for the three months ended September 30, 2022 was primarily due to (i) the sale of four compressor engines and (ii) reimbursement of certain cancelled project costs.
Interest expense. Interest expense increased by 7%, from $45 million for the three months ended September 30, 2021 to $48 million for the three months ended September 30, 2022 primarily due to the issuanceincreased interest rates on our Credit Facility as a result 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 Prior Credit Facilityhigher benchmark rates during the three months ended September 30, 20212022 and the redemption of all $650 million of the 2024 Notes on June 8, 2021.higher Credit Facility borrowings between periods.
Equity in earnings of unconsolidated affiliates. Equity in earnings in unconsolidated affiliates remained relatively consistent at $23$24 million for the three months ended September 30, 20202021 and $24 million for three months ended September 30, 20212022 primarily due to one newhigher Joint Venture earnings as a result of annual CPI-based adjustments for processing plant with nameplate capacity of 200 MMcf/d being placed in service during July 2021,and fractionation fees, partially offset by lower processed volumes at the effects of the processing plant and fractionation facility downtime during the third quarter of 2021.Joint Venture between periods.
Provision for incomeIncome tax expense. Income tax expense for the three months ended September 30, 20202021 and 20212022 was $35$32 million and $32$30 million, respectively, which reflects effective tax rates of 24.9%26.4% and 26.4%26.5%, respectively.
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Net income. Net income decreased by 15%6%, from $106 million for the three months ended September 30, 2020 to $89 million for the three months ended September 30, 2021 primarily due to lower water handling revenues and higher interest expense between periods.
Adjusted EBITDA. Adjusted EBITDA decreased by 4%, from $229$84 million for the three months ended September 30, 20202022. The decrease was primarily due to decreased low pressure gathering revenues, higher direct operating costs and higher depreciation expense between periods, partially offset higher compression, high pressure gathering and water handling revenues.
Adjusted EBITDA. Adjusted EBITDA increased by 2%, from $219 million for the three months ended September 30, 2021. to $223 million for the three months ended September 30, 2022. The decreaseincrease was primarily due to lowerhigher compression, high pressure gathering and water handling revenues and lower general and administrative costs between periods, partially offset by decreased low pressure gathering revenues and higher direct operating costs 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 accordance with GAAP, read “—Non-GAAP Financial Measures” below.
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Nine Months Ended September 30, 20202021 Compared to Nine Months Ended September 30, 20212022
The operating results of our reportable segments wereare as follows for the nine months ended September 30, 2020 and 2021:follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 | | | Nine Months Ended September 30, 2021 | | ||||||||||||||||||||
| | Gathering and | | Water | | | | Consolidated | | | Gathering and | | Water | | | | Consolidated | | ||||||||
(in thousands) |
| Processing |
| Handling |
| Unallocated (1) |
| Total | |
| Processing |
| Handling |
| Unallocated (1) |
| Total | | ||||||||
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue–Antero Resources | | $ | 563,334 | | | 222,536 | | | — | | | 785,870 | | | $ | 566,544 | | | 167,832 | | | — | | | 734,376 | |
Gathering—low pressure rebate | | | (36,000) | | | — | | | — | | | (36,000) | | |||||||||||||
Revenue–third-party | | | — | | | 340 | | | — | | | 340 | | |||||||||||||
Amortization of customer relationships | | | (27,819) | | | (25,192) | | | — | | | (53,011) | | | | (27,813) | | | (25,191) | | | — | | | (53,004) | |
Total revenues | | | 499,515 | | | 197,344 | | | — | | | 696,859 | | | | 538,731 | | | 142,981 | | | — | | | 681,712 | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct operating | | | 43,528 | | | 85,319 | | | — | | | 128,847 | | | | 50,409 | | | 67,959 | | | — | | | 118,368 | |
General and administrative (excluding equity-based compensation) | | | 15,889 | | | 8,178 | | | 5,411 | | | 29,478 | | | | 18,869 | | | 15,053 | | | 2,743 | | | 36,665 | |
Equity-based compensation | | | 7,531 | | | 1,507 | | | 675 | | | 9,713 | | | | 7,590 | | | 2,054 | | | 682 | | | 10,326 | |
Facility idling | | | — | | | 13,680 | | | — | | | 13,680 | | | | — | | | 3,033 | | | — | | | 3,033 | |
Impairment of goodwill | | | 575,461 | | | — | | | — | | | 575,461 | | |||||||||||||
Depreciation | | | 44,268 | | | 36,688 | | | — | | | 80,956 | | |||||||||||||
Impairment of property and equipment | | | 947 | | | 89,083 | | | — | | | 90,030 | | | | 1,218 | | | 364 | | | — | | | 1,582 | |
Depreciation | | | 42,356 | | | 39,533 | | | — | | | 81,889 | | |||||||||||||
Accretion of asset retirement obligations | | | — | | | 142 | | | — | | | 142 | | | | — | | | 347 | | | — | | | 347 | |
Loss on asset sale | | | — | | | 240 | | | — | | | 240 | | | | 3,628 | | | — | | | — | | | 3,628 | |
Total operating expenses | | | 685,712 | | | 237,682 | | | 6,086 | | | 929,480 | | | | 125,982 | | | 125,498 | | | 3,425 | | | 254,905 | |
Operating loss | | | (186,197) | | | (40,338) | | | (6,086) | | | (232,621) | | |||||||||||||
Operating income | | | 412,749 | | | 17,483 | | | (3,425) | | | 426,807 | | |||||||||||||
Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | — | | | — | | | (107,443) | | | (107,443) | | | | — | | | — | | | (130,915) | | | (130,915) | |
Equity in earnings of unconsolidated affiliates | | | 63,197 | | | — | | | — | | | 63,197 | | | | 66,347 | | | — | | | — | | | 66,347 | |
Loss on early extinguishment of debt | | | — | | | — | | | (20,701) | | | (20,701) | | |||||||||||||
Total other income (expense) | | | 63,197 | | | — | | | (107,443) | | | (44,246) | | | | 66,347 | | | — | | | (151,616) | | | (85,269) | |
Loss before income taxes | | | (123,000) | | | (40,338) | | | (113,529) | | | (276,867) | | |||||||||||||
Provision for income tax benefit | | | — | | | — | | | 77,882 | | | 77,882 | | |||||||||||||
Net loss and comprehensive loss | | $ | (123,000) | | | (40,338) | | | (35,647) | | | (198,985) | | |||||||||||||
Income before income taxes | | | 479,096 | | | 17,483 | | | (155,041) | | | 341,538 | | |||||||||||||
Income tax expense | | | — | | | — | | | (88,547) | | | (88,547) | | |||||||||||||
Net income and comprehensive income | | $ | 479,096 | | | 17,483 | | | (243,588) | | | 252,991 | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA(2) | | | | | | | | | | | $ | 647,178 | | | | | | | | | | | | $ | 663,765 | |
(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.” |
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 | | | Nine Months Ended September 30, 2022 | | ||||||||||||||||||||
| | Gathering and | | Water | | | | Consolidated | | | Gathering and | | Water | | | | Consolidated | | ||||||||
(in thousands) |
| Processing |
| Handling |
| Unallocated (1) |
| Total | |
| Processing |
| Handling |
| Unallocated (1) |
| Total | | ||||||||
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue–Antero Resources | | $ | 566,544 | | | 167,832 | | | — | | | 734,376 | | | $ | 588,154 | | | 176,994 | | | — | | | 765,148 | |
Revenue–third-party | | | — | | | 340 | | | — | | | 340 | | | | — | | | 2,288 | | | — | | | 2,288 | |
Gathering—low pressure rebate | | | (36,000) | | | — | | | — | | | (36,000) | | |||||||||||||
Amortization of customer relationships | | | (27,813) | | | (25,191) | | | — | | | (53,004) | | | | (27,814) | | | (25,190) | | | — | | | (53,004) | |
Total revenues | | | 538,731 | | | 142,981 | | | — | | | 681,712 | | | | 524,340 | | | 154,092 | | | — | | | 678,432 | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct operating | | | 50,409 | | | 67,959 | | | — | | | 118,368 | | | | 56,338 | | | 75,621 | | | — | | | 131,959 | |
General and administrative (excluding equity-based compensation) | | | 18,869 | | | 15,053 | | | 2,743 | | | 36,665 | | | | 19,490 | | | 10,230 | | | 3,851 | | | 33,571 | |
Equity-based compensation | | | 7,590 | | | 2,054 | | | 682 | | | 10,326 | | | | 10,591 | | | 2,785 | | | 650 | | | 14,026 | |
Facility idling | | | — | | | 3,033 | | | — | | | 3,033 | | | | — | | | 3,198 | | | — | | | 3,198 | |
Depreciation | | | 59,838 | | | 38,343 | | | — | | | 98,181 | | |||||||||||||
Impairment of property and equipment | | | 1,218 | | | 364 | | | — | | | 1,582 | | | | 1,130 | | | 2,572 | | | — | | | 3,702 | |
Depreciation | | | 44,268 | | | 36,688 | | | — | | | 80,956 | | |||||||||||||
Accretion of asset retirement obligations | | | — | | | 347 | | | — | | | 347 | | | | — | | | 178 | | | — | | | 178 | |
Loss on asset sale | | | 3,628 | | | — | | | — | | | 3,628 | | |||||||||||||
Loss on settlement of asset retirement obligations | | | — | | | 539 | | | — | | | 539 | | |||||||||||||
Gain on asset sale | | | (2,119) | | | (123) | | | — | | | (2,242) | | |||||||||||||
Total operating expenses | | | 125,982 | | | 125,498 | | | 3,425 | | | 254,905 | | | | 145,268 | | | 133,343 | | | 4,501 | | | 283,112 | |
Operating income | | | 412,749 | | | 17,483 | | | (3,425) | | | 426,807 | | | | 379,072 | | | 20,749 | | | (4,501) | | | 395,320 | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | — | | | — | | | (130,915) | | | (130,915) | | | | — | | | — | | | (137,540) | | | (137,540) | |
Equity in earnings of unconsolidated affiliates | | | 66,347 | | | — | | | — | | | 66,347 | | | | 70,467 | | | — | | | — | | | 70,467 | |
Loss on early extinguishment of debt | | | — | | | — | | | (20,701) | | | (20,701) | | |||||||||||||
Total other income (expense) | | | 66,347 | | | — | | | (151,616) | | | (85,269) | | | | 70,467 | | | — | | | (137,540) | | | (67,073) | |
Income before income taxes | | | 479,096 | | | 17,483 | | | (155,041) | | | 341,538 | | | | 449,539 | | | 20,749 | | | (142,041) | | | 328,247 | |
Provision for income tax expense | | | — | | | — | | | (88,547) | | | (88,547) | | |||||||||||||
Income tax expense | | | — | | | — | | | (84,798) | | | (84,798) | | |||||||||||||
Net income and comprehensive income | | $ | 479,096 | | | 17,483 | | | (243,588) | | | 252,991 | | | $ | 449,539 | | | 20,749 | | | (226,839) | | | 243,449 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA(2) | | | | | | | | | | | $ | 663,765 | | | | | | | | | | | | $ | 653,178 | |
(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.” |
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The following table sets forth the operating data for Antero Midstream and its subsidiaries for the nine months ended September 30, 2020 and 2021.is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Amount of | | | | | | Nine Months Ended | | Amount of | | | | | ||||||||||
| | September 30, | | Increase | | Percentage | | September 30, | | Increase | | Percentage | ||||||||||||||
|
| 2020 |
| 2021 |
| or Decrease |
| Change |
| 2021 |
| 2022 |
| or Decrease |
| Change | ||||||||||
Operating Data: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gathering—low pressure (MMcf) | | | 788,950 | | | 787,993 | | | (957) | | | * | | | | 787,993 | | | 805,598 | | | 17,605 | | | 2 | % |
Compression (MMcf) | | | 729,467 | | | 744,798 | | | 15,331 | | | 2 | % | | | 744,798 | | | 763,143 | | | 18,345 | | | 2 | % |
Gathering—high pressure (MMcf) | | | 780,524 | | | 768,869 | | | (11,655) | | | (1) | % | | | 768,869 | | | 773,336 | | | 4,467 | | | 1 | % |
Fresh water delivery (MBbl) | | | 36,139 | | | 27,234 | | | (8,905) | | | (25) | % | | | 27,234 | | | 27,437 | | | 203 | | | 1 | % |
Other fluid handling (MBbl) | | | 16,184 | | | 12,657 | | | (3,527) | | | (22) | % | | | 12,657 | | | 14,182 | | | 1,525 | | | 12 | % |
Wells serviced by fresh water delivery | | | 86 | | | 59 | | | (27) | | | (31) | % | | | 59 | | | 54 | | | (5) | | | (8) | % |
Gathering—low pressure (MMcf/d) | | | 2,879 | | | 2,886 | | | 7 | | | * | | | | 2,886 | | | 2,951 | | | 65 | | | 2 | % |
Compression (MMcf/d) | | | 2,662 | | | 2,728 | | | 66 | | | 2 | % | | | 2,728 | | | 2,795 | | | 67 | | | 2 | % |
Gathering—high pressure (MMcf/d) | | | 2,849 | | | 2,816 | | | (33) | | | (1) | % | | | 2,816 | | | 2,833 | | | 17 | | | 1 | % |
Fresh water delivery (MBbl/d) | | | 132 | | | 100 | | | (32) | | | (24) | % | | | 100 | | | 101 | | | 1 | | | 1 | % |
Other fluid handling (MBbl/d) | | | 59 | | | 46 | | | (13) | | | (22) | % | | | 46 | | | 52 | | | 6 | | | 13 | % |
Average Realized Fees: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Average gathering—low pressure fee ($/Mcf) | | $ | 0.33 | | | 0.33 | | | — | | | * | | | $ | 0.33 | | | 0.34 | | | 0.01 | | | 3 | % |
Average compression fee ($/Mcf) | | $ | 0.20 | | | 0.20 | | | — | | | * | | | $ | 0.20 | | | 0.21 | | | 0.01 | | | 3 | % |
Average gathering—high pressure fee ($/Mcf) | | $ | 0.20 | | | 0.20 | | | — | | | * | | | $ | 0.20 | | | 0.21 | | | 0.01 | | | 3 | % |
Average fresh water delivery fee ($/Bbl) | | $ | 3.96 | | | 3.97 | | | 0.01 | | | * | | | $ | 3.97 | | | 4.07 | | | 0.10 | | | 3 | % |
Joint Venture Operating Data: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Processing—Joint Venture (MMcf) | | | 384,860 | | | 402,030 | | | 17,170 | | | 4 | % | | | 402,030 | | | 404,517 | | | 2,487 | | | 1 | % |
Fractionation—Joint Venture (MBbl) | | | 9,549 | | | 10,256 | | | 707 | | | 7 | % | | | 10,256 | | | 9,732 | | | (524) | | | (5) | % |
Processing—Joint Venture (MMcf/d) | | | 1,405 | | | 1,473 | | | 68 | | | 5 | % | | | 1,473 | | | 1,482 | | | 9 | | | 1 | % |
Fractionation—Joint Venture (MBbl/d) | | | 35 | | | 38 | | | 3 | | | 9 | % | | | 38 | | | 36 | | | (2) | | | (5) | % |
* | Not meaningful or applicable. |
Revenues. Total revenues decreased by 2%1%, from $697 million, including amortization of customer relationships of $53 million, for the nine months ended September 30, 2020, to $682 million, including amortization of customer relationships of $53 million, for the nine months ended September 30, 2021,. Gathering and processing revenues increased by 8%, from $499 to $678 million, including amortization of customer relationships of $53 million, for the nine months ended September 30, 2020 to2022. Gathering and processing revenues decreased by 3%, from $539 million for the nine months ended September 30, 2021. Water handling revenues decreased by 28%, from $198 to $524 million for the nine months ended September 30, 2020 to2022. Water handling revenues increased by 8%, from $143 million for the nine months ended September 30, 2021. to $154 million for the nine months ended September 30, 2022. These fluctuations primarily resulted from the following:
Gathering and Processing
● | Low pressure gathering revenue |
● | Compression revenue increased |
● | High pressure gathering revenue increased $5 million period over period due to increased throughput volumes of |
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Water Handling
● | Fresh water delivery revenue |
● | Other fluid handling services revenue |
Direct operating expenses. Total direct operating expenses decreasedincreased by 8%11%, from $129 million for the nine months ended September 30, 2020 to $118 million for the nine months ended September 30, 2021. Gathering and processing direct operating expenses increased 16% from $44 to $132 million for the nine months ended September 30, 2020 to2022. Gathering and processing direct operating expenses increased by 12%, from $50 million for the nine months ended September 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 $85$56 million for the nine months ended September 30, 20202022 primarily due to (i) higher throughput volumes between periods, (ii) two compressors that came online between periods and (iii) higher chemical, labor, fuel and heavy maintenance expense. Water handling direct operating expenses increased by 11%, from $68 million for the nine months ended September 30, 2021. The decrease was to $76 million for the nine months ended September 30, 2022 primarily due to operational efficiencies associated with flowbackthe higher water blending volumes between periods and produced wastewater services.higher fresh water deliveries in the Utica for Antero Resources’ development program between periods.
General and administrative (excluding equity-based compensation) expenses. General and administrative expenses (excluding equity-based compensation expense) increased 24%decreased by 8%, from $29$37 million for the nine months ended September 30, 20202021 to $37$34 million for nine months ended September 30, 20212022 primarily due to (i) higher salary and wage expense, which includes our annual incentive program that was significantly reduced during 2020 (ii) higherlower costs allocated to us from Antero Resources during 2021and (iii)and (ii) lower legal costs associated with the Clearwater Facility, partially offset by cost reduction effortsVeolia legal matter between periods. See “Item 1. Legal Proceedings” below for additional information.
Equity-based compensation expenses. Equity-based compensation expenses remained consistent atincreased by 36%, from $10 million for the nine months ended September 30, 2020 and 2021.
Facility idling expenses. Facility idling expenses decreased 78%, from2021 to $14 million for the nine months ended September 30, 20202022 primarily due to an increase in the annual equity awards granted during the second quarter of 2022 as compared to prior years.
Facility idling expenses. Facility idling expenses remained consistent at $3 million for the nine months ended September 30, 2021 primarily due to reduced Clearwater Facility decommissioning costs between periods.and 2022.
Impairment of goodwillDepreciation expense. Impairment of goodwillTotal depreciation expense of $575increased by 21%, from $81 million for the nine months ended September 30, 2020 reflects2021 to $98 million for the nine months ended September 30, 2022. This increase is primarily a result of a phased early retirement of an impairmentunderutilized compressor station beginning in the second quarter of 2022 through the goodwill that wasfirst half of 2023, which allows us to relocate and reuse the compressor units and equipment to (i) expand an existing compressor station and (ii) contribute to a new compressor station. There are certain costs associated with our gathering system duethe underutilized compressor station that cannot be relocated or reused that will be depreciated over the remaining period of use. During the nine months ended September 30, 2022, we recognized depreciation expense associated with assets that were retired early during the period and assets that are subject to declinesearly retirement in commodity pricesthe future of $5 million and the industry environment.$6 million, respectively.
Impairment of property and equipment expense. Impairment of property and equipment expense of $90 million for the nine months ended September 30, 2020 was primarily for the impairment of fresh water delivery assets in the Utica Shale region. Impairment of property and equipment expense of $2$2 million for the nine months ended September 30, 2021 was primarily due to a lower of cost of marketor net realizable value adjustment for pipe inventory.
Depreciation expense. Total depreciation Impairments of property and equipment expense remained relatively consistent at $82of $4 million and $81 million forduring the nine months ended September 30, 20202022 was primarily due to (i) a write-down of the Clearwater Facility related to the retirement obligation for the facility and 2021, respectively.(ii) cancelled projects.
Loss (gain) on asset sale. Loss on asset sale of $4$4 million for the nine months ended September 30, 2021 primarily relates to the sale of excess pipe inventory during the period.
Interest expense. Interest expense increased by 22%, from $107 millionGain on asset sale for the nine months ended September 30, 20202022 primarily relates to (i) the sale of four compressor engines, (ii) reimbursement of certain cancelled project costs and (iii) sale of miscellaneous equipment and excess pipe inventory.
Interest expense. Interest expense increased by 5%, from $131 million for the nine months ended September 30, 2021 to $138 million for the nine months ended September 30, 2022 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 Priorand increased interest rates on our Credit Facility due to higher benchmark rates during the nine months ended September 30, 2021 and2022, partially offset by the redemption of all $650 million of the 2024 Notes on June 8, 2021.2021 and lower borrowings on our Credit Facility between periods.
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Equity in earnings of unconsolidated affiliates. Equity in earnings in unconsolidated affiliates increased by 5%6%, from $63 million for the nine months ended September 30, 2020 to $66 million for the nine months ended September 30, 2021 to $70 million for the nine months ended September 30, 2022 primarily attributabledue to an increase in the level of volume throughputprocessed volumes at the Joint Venture between periods, including one new Joint Venture processing plant with nameplate capacity of 200 MMcf/d being placed in service during July 2021, partially offset by the effects of theas well as higher processing plant and fractionation facility downtime during the third quarter of 2021.fees due to annual CPI-based adjustments.
35
Loss on early extinguishment of debt. Loss on early extinguishment of debt for the nine months ended September 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 benefit (expense). Income tax benefit There was no loss on early extinguishment of debt for the nine months ended September 30, 2020 was $78 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 prior2022.
Income tax years.expense. Income tax expense remained relatively consistent for the nine months ended September 30, 2021 wasand 2022 at $89 million primarily due to income before taxes for the periodand $85 million, respectively, which reflects an effective tax raterates of 25.9%. and 25.8%, respectively.
Net income (loss).income. Net loss was $199 million for the nine months ended September 30, 2020 primarily due to a $575 million impairment of goodwill for our gathering system and a $90 million impairment of our freshwater delivery assets. Net income was $253decreased by 4%, from $253 million for the nine months ended September 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 3%, from $647$243 million for the nine months ended September 30, 20202022 primarily due to (i) a decrease in low pressure gathering revenues, (ii) higher direct operating expenses, (iii) higher depreciation expense and (iv) higher interest expense, partially offset by higher equity in earnings of unconsolidated affiliates and increased compression, high pressure gathering and water handling revenues. In addition, the nine months ended September 30, 2021 included a loss on early extinguishment of debt for the redemption of the 2024 Notes, and there was no loss on early extinguishment of debt during the nine months ended September 30, 2022.
Adjusted EBITDA. Adjusted EBITDA decreased by 2%, from $664 million for the nine months ended September 30, 2021. to $653 million for the nine months ended September 30, 2022. The increasedecrease between periods was primarily due to increaseda decrease in low pressure gathering and compression revenues and decreasedhigher direct operating expenses, and facility idling costs between periods, partially offset by higher other fluid handling and fresh water delivery revenues and lower water handling revenues between periods.general and administrative costs, excluding equity-based compensation expense. For a discussion of the non-GAAP financial measure Adjusted EBITDA, including a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, readsee “—Non-GAAP Financial Measures” below.
Capital Resources and Liquidity
Sources and Uses of Cash
Capital resources and liquidity are provided by operating cash flow, cash on our balance sheetflows and available borrowings under theour Credit Facility and capital market transactions. See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements. We expect that the combination of these capital resources will be adequate to meet our working capital requirements, capital expenditures program, expected quarterly cash dividends and share repurchases under our share repurchases program for at least the next 12 months.
Our Board of Directors (the “Board”) declared a cash dividend on the shares of AMour common stock of $0.225$0.2250 per share for the quarter ended September 30, 2021.2022. The dividend will be payable on November 10, 20219, 2022 to stockholders of record as of October 27, 2021.26, 2022. Our Board also declared a cash dividend of $138 thousand on the shares of Series A Preferred Stock, which will be paid on November 15, 202114, 2022 in accordance with their terms, which are discussed in Note 11—Equity and Earnings Per Common Share. As of September 30, 2021,2022, there were dividends in the amount of $69 thousand accumulated in arrears on our Series A Preferred Stock.
We expect our future cash requirements relating to working capital, capital expenditures, acquisitions and quarterly cash dividends to our stockholders will be funded from cash flows internally generated from our operations or borrowings under the Credit Facility.
On October 25, 2022, we acquired certain Marcellus gas gathering and compression assets from Crestwood for $205 million in cash, before closing adjustments, which was funded by borrowings under our Credit Facility. See “—Marcellus Bolt-On Acquisition” for more information.
As of September 30, 2022, we did not have any off-balance sheet arrangements.
36
Cash Flows
The following table summarizes our cash flows for the nine months ended September 30, 20202021 and 2021:2022:
| | | | | | | |
| | Nine Months Ended September 30, | | ||||
(in thousands) |
| 2020 |
| 2021 | | ||
Net cash provided by operating activities | | $ | 546,889 | | | 545,490 | |
Net cash used in investing activities | | | (188,006) | | | (157,365) | |
Net cash used in financing activities | | | (357,725) | | | (388,765) | |
Net increase (decrease) in cash and cash equivalents | | $ | 1,158 | | | (640) | |
| | | | | | | |
| | Nine Months Ended September 30, | | ||||
(in thousands) |
| 2021 |
| 2022 | | ||
Net cash provided by operating activities | | $ | 545,490 | | | 530,976 | |
Net cash used in investing activities | | | (157,365) | | | (215,956) | |
Net cash used in financing activities | | | (388,765) | | | (315,020) | |
Net decrease in cash and cash equivalents | | $ | (640) | | | — | |
Operating Activities. Net cash provided by operating activities was $547$545 million and $545$531 million for the nine months ended September 30, 20202021 and 2021,2022, respectively. The decrease in cash flows provided by operations for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020between periods was primarily the result of (i) lower water handlingdecreased low pressure gathering revenues (ii) lower income tax refunds and (iii) increased interest expense,higher direct operating expenses, partially offset by (i) higher gathering and processing revenues, (ii) lower direct operating and facility idling expenses and (iii) lower cash used forchanges in working capital, excluding income tax
36
receivable, and higher other fluid handling and fresh water delivery revenues between periods. WeAdditionally, we received income tax refunds during the nine months ended September 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. We did not receive any income tax refunds during the nine months ended September 30, 2022.
Investing Activities. Net cash flows used in investing activities was $188$157 million and $157$216 million for the nine months ended September 30, 20202021 and 2021,2022, respectively. The decreaseincrease in cash flows used in investing activities between periods was primarily due to (i) a $17$70 million decreaseincrease in additions tocapital spending for expansion of our gathering system and (ii) a $23$10 million decreaseincrease in investments made in unconsolidated affiliates,capital spending for expansion of our water handling system, partially offset by a $9$17 million return of capital distribution from the Joint Venture for a processing plant held in inventory that was sold by the Joint Venture during the third quarter of 2022 and a $2 million increase in additions to our water handling systemasset sale proceeds between periods.
Financing Activities. Net cash used in financing activities was $358$389 million and $389$315 million for the nine months ended September 30, 20202021 and 2021,2022, respectively. The increasedecrease in cash flows used in financing activities between periods was primarily due to no redemptions of our senior notes or net repayments on our Credit Facility, and reduced dividends to stockholders of $39 million. During the redemptionnine months ended September 30, 2021, we issued $750 million principal amount of 2029 Notes, redeemed $650 million principal amount of 2024 Notes at 102.688% of par on June 8, 2021 and repaid $93 million net repayments on the Priorour Credit Facility during the nine months ended September 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 $79 million between periods, and (iii) no payments for contingent acquisition consideration or repurchases of common stock during the nine months ended September 30, 2021.Facility. During the nine months ended September 30, 2020,2022, 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), $25 million for repurchases of common stock and incurred net borrowings of $18 million on the Priorour Credit Facility of $228 million.Facility.
20212022 Capital Investment
The Board approved a 20212022 capital budget with a range of $240$275 million to $260$300 million, which includes approximately $65 million of additional growth capital supporting the increased gross volumes expected from Antero Resources as a result of itsResources’ drilling partnership that was announced during the first quarter of 2021.partnership. Our capital budgets may be adjusted as business conditions warrant,warrant. If natural gas, NGLs and oil prices decline to levels below acceptable levels or costs increase to levels above acceptable levels, Antero Resources could choose to defer a significant portion of its budgeted capital expenditures until later periods. As a result, we planmay also defer a significant portion of our budgeted capital expenditures to expandachieve the desired balance between sources and uses of liquidity and prioritize capital projects that we believe have the highest expected returns. We routinely monitor and adjust our existing Appalachian Basin gathering, compression and water handling infrastructurecapital expenditures in response to accommodatechanges in Antero Resources’ announced development plans.
Antero Resources announced its 2021 consolidated drilling and completion budgetplans, changes in prices, availability of $590 million, which includes plans to operate three drilling rigs and complete between 65 and 70 horizontal wells on a gross basis, substantially allfinancing, acquisition costs, industry conditions, the timing of which are located on acreage dedicated to us. Antero also announced that as a resultregulatory approvals, success or lack of the drilling partnership, the Company will increase its drilled wells from a range of 65 to 70 wells to 80 to 85 wellssuccess 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 anddrilling activities, contractual obligations, internally generated cash flows and adversely affectother factors both within and outside our abilitycontrol. Additionally, we monitor our existing assets and look for opportunities to returnreuse or otherwise repurpose assets in an effort to maintain our capital to holders of our common stock.efficiency.
For the three months ended September 30, 2022, our capital expenditures were $37 million, including $41 million for our gathering and compression system and $13 million for our water handling facilities, partially offset by a $17 million return of capital from the Joint Venture for a processing plant held in inventory that was sold by the Joint Venture during the third quarter of 2022. For the nine months ended September 30, 2021,2022, our capital expenditures were approximately $81$202 million, including $172 million for our gathering and $182compression system and $47 million respectively, including $1for our water handling facilities, partially offset by a $17 million and $2 millionreturn of capital investment indistribution from the Joint Venture respectively.
Debt Agreements
Credit Facility
Antero Midstream Partners, as borrower (the “Borrower”), an indirect, wholly owned subsidiaryfor a processing plant held in inventory that was sold by the Joint Venture during the third quarter of Antero Midstream Corporation, has a senior secured revolving credit facility with a consortium of banks. On October 26, 2021, we entered into an amended and restated senior secured revolving credit facility. References to the (i) “Prior Credit Facility” refers to the senior secured revolving credit facility in effect for periods before October 26, 2021, (ii) “New Credit Facility” refers to the senior secured revolving credit facility in effect on or after October 26, 2021 and (ii) “Credit Facility” refers to Prior Credit Facility and New Credit Facility collectively. The New Credit Facility provides for borrowing under either Adjusted Term Secured Overnight Financing Rate (“SOFR”) or the Base Rate (as each term is defined in the New Credit Facility).
The New Credit Facility has lender commitments of $1.25 billion and matures on October 26, 2026; provided that if on November 17, 2025 any of the 2026 Notes are outstanding, the New Credit Facility will mature on such date. As of September 30, 2021, we had $521 million of borrowings and no letters of credit outstanding under the Prior Credit Facility.
We have a choice of borrowing in SOFR Loans 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 SOFR2022.
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Loans, the last day of each Interest Period (as defined below); provided that if any Interest Period for a SOFR Loan exceeds three months, interest will be payable on the respective dates that fall every three months after the beginning of such Interest Period. SORF Loans bear interest at a rate per annum equal to the rate for SOFR rate loans for one, two, three or six months (the “Interest Period”) plus an applicable margin ranging from 150 to 250 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 SOFR Rate loans plus 100 basis points, plus an applicable margin ranging from 50 to 150 basis points (subject to certain exceptions) depending on the leverage ratio then in effect.Debt Agreements
The Credit Facility is guaranteed by our subsidiaries and is secured by mortgages on substantially all of Antero Midstream Partners’ and its subsidiaries’ properties. The New Credit Facility contains restrictive covenants that may limit our ability to, among other things:
The Credit Facility also requires us to maintain the following financial ratios (subject to certain exceptions):
We were in compliance with the applicable covenants and ratios as of September 30, 2021 under the Prior Credit Facility.
Please refer to Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information on our Credit Facility.
Senior Notes
Please refer toSee Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements and to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 20202021 Form 10-K for information on our Senior Notes.debt agreements.
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 September 30, 2020 and 2021 net income (loss) and the corresponding adjustments reflect our actual results of operations.
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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 on early extinguishment of debt, loss on settlement of asset retirement obligations, loss (gain) on asset sale and including cash distributions from unconsolidated affiliates.
We use Adjusted EBITDA to assess:
● the financial performance of our assets, without regard to financing methods, capital structure or historical cost basis;
● our operating performance and return on capital as compared to other publicly traded companies in the midstream energy sector, without regard to financing or capital structure; and
● the viability of acquisitions and other capital expenditure projects.
Adjusted EBITDA is a non-GAAP financial measure. The GAAP measure most directly comparable to Adjusted EBITDA is net income. The non-GAAP financial measure of Adjusted EBITDA should not be considered as an alternative to the GAAP measure of net income. Adjusted EBITDA presentations are not made in accordance with GAAP and have important limitations as an analytical tool because they include some, but not all, items that affect net income. You should not consider Adjusted EBITDA in isolation or as a substitute for analyses of results as reported under GAAP. Our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other corporations.
The following table represents a reconciliation of our Adjusted EBITDA to the most directly comparable GAAP financial measure for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended | | ||||||||||||||||
| | September 30, | | September 30, | | | September 30, | | September 30, | | ||||||||||||||||
(in thousands) | | 2020 | | 2021 | | 2020 | | 2021 | | | 2021 | | 2022 | | 2021 | | 2022 | | ||||||||
Reconciliation of Net Income (Loss) to Adjusted EBITDA: | | | | | | | | | | | | | | |||||||||||||
Net income (loss) | | $ | 105,507 | | | 89,327 | | | (198,985) | | | 252,991 | | |||||||||||||
Net income | | $ | 89,327 | | | 84,014 | | | 252,991 | | | 243,449 | | |||||||||||||
Interest expense, net | | | 34,501 | | | 44,544 | | | 107,443 | | | 130,915 | | | | 44,544 | | | 47,835 | | | 130,915 | | | 137,540 | |
Provision for income tax expense (benefit) | | | 34,982 | | | 32,038 | | | (77,882) | | | 88,547 | | |||||||||||||
Income tax expense | | | 32,038 | | | 30,332 | | | 88,547 | | | 84,798 | | |||||||||||||
Depreciation expense | | | 27,487 | | | 34,206 | | | 80,956 | | | 98,181 | | |||||||||||||
Amortization of customer relationships | | | 17,800 | | | 17,668 | | | 53,011 | | | 53,004 | | | | 17,668 | | | 17,668 | | | 53,004 | | | 53,004 | |
Depreciation expense | | | 26,801 | | | 27,487 | | | 81,889 | | | 80,956 | | |||||||||||||
Equity-based compensation | | | 3,255 | | | 5,553 | | | 10,326 | | | 14,026 | | |||||||||||||
Impairment | | | 947 | | | 203 | | | 665,491 | | | 1,582 | | | | 203 | | | — | | | 1,582 | | | 3,702 | |
Accretion of asset retirement obligations | | | 39 | | | 114 | | | 142 | | | 347 | | | | 114 | | | 50 | | | 347 | | | 178 | |
Equity-based compensation | | | 3,678 | | | 3,255 | | | 9,713 | | | 10,326 | | |||||||||||||
Equity in earnings of unconsolidated affiliates | | | (23,173) | | | (24,088) | | | (63,197) | | | (66,347) | | | | (24,088) | | | (24,411) | | | (66,347) | | | (70,467) | |
Distributions from unconsolidated affiliates | | | 27,485 | | | 28,930 | | | 69,313 | | | 87,115 | | | | 28,930 | | | 29,965 | | | 87,115 | | | 90,470 | |
Loss on early extinguishment of debt | | | — | | | — | | | — | | | 20,701 | | | | — | | | — | | | 20,701 | | | — | |
Loss on asset sale | | | — | | | — | | | 240 | | | 3,628 | | |||||||||||||
Loss on settlement of asset retirement obligations | | | — | | | — | | | — | | | 539 | | |||||||||||||
Loss (gain) on asset sale | | | — | | | (2,092) | | | 3,628 | | | (2,242) | | |||||||||||||
Adjusted EBITDA | | $ | 228,567 | | | 219,478 | | | 647,178 | | | 663,765 | | | $ | 219,478 | | | 223,120 | | | 663,765 | | | 653,178 | |
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
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disclosure of contingent liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our financial statements. We provide expanded discussion of our more significant accounting policies, estimates and judgments in the 20202021 Form 10-K. We believe these accounting policies reflect our more significant estimates and assumptions used in preparation of our financial statements.
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New Accounting Pronouncements
Please refer toSee Note 2—Summary of Significant Accounting Policies to the unaudited condensed consolidated financial statements for information on new accounting pronouncements.
Off-Balance Sheet Arrangements
As of September 30, 2021, we did not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risk. The term “market risk” refers to the risk of loss arising from adverse changes in commodity prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures.
Commodity Price Risk
Our gathering and compression and water services agreements with Antero Resources provide for fixed-fee and cost of service fee structures, and we intend to continue to pursue additional fixed-fee or cost of service fee opportunities with Antero Resources and third parties in order to avoid direct commodity price exposure. However, to the extent that our future contractual arrangements with Antero Resources or third parties do not provide for fixed-fee or cost of service fee structures, we may become subject to commodity price risk. We are subject to commodity price risks to the extent that they impact Antero Resources’ development program and production and therefore our gathering, compression, and water handling volumes. We cannot predict to what extent our business would be impacted by lower commodity prices and any resulting impact on Antero Resources’ operations.
Interest Rate Risk
Our primary exposure to interest rate risk results from outstanding borrowings under the Credit Facility, which has a floating interest rate. We do not currently, but may in the future, hedge the interest on portions of our borrowings under the Credit Facility from time-to-time in order to manage risks associated with floating interest rates. At September 30, 2021,2022, we had $521$565 million of borrowings and no letters of credit outstanding under the Prior Credit Facility. A 1.0% increase in the Prior Credit Facility interest rate would have resulted in an estimated $4 million increase in interest expense for the nine months ended September 30, 2021.2022.
Credit Risk
We are dependent on Antero Resources as our primary customer, and we expect to derive substantially all of our revenues from Antero Resources for the foreseeable future. As a result, any event, whether in our area of operations or otherwise, that adversely affects Antero Resources’ production, drilling schedule, financial condition, leverage, market reputation, liquidity, results of operations or cash flows may adversely affect our revenues and operating results.
Further, we are subject to the risk of non-payment or non-performance by Antero Resources, including with respect to our gathering and compression and water handling services agreements. We cannot predict the extent to which Antero Resources’ business would be impacted if conditions in the energy industry were to deteriorate, nor can we estimate the impact such conditions would have on Antero Resources’ ability to execute its drilling and development program or to perform under our agreements. Any material non-payment or non-performance by Antero Resources could adversely affect our revenues and operating results and our ability to return capital to stockholders.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 20212022 at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
Our operations are subject to a variety of risks and disputes normally incident to our business. As a result, we may, at any given time, be a defendant in various legal proceedings and litigation arising in the ordinary course of business.
We maintain insurance policies with insurers in amounts and with coverage and deductibles that we, with the advice of our insurance advisors and brokers, believe are reasonable and prudent. We cannot, however, assure you that this insurance will be adequate to protect us from all material expenses related to potential future claims for personal and property damage or that these levels of insurance will be available in the future at economical prices.
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 miscalculations and design flaws during contract negotiations and continued to conceal and fraudulently misrepresent the impact of certain design changes post-execution of the DBA. 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 assertsasserted breach of contract and equitable claims against the Antero Defendants for alleged failures under the DBA. Veolia’s suit was consolidated into the action filed by Antero Treatment.
Veolia and the Antero Defendants each filed partial motions to dismiss and motions for summary judgment directed at certain claims asserted by the opposing party. A bench trial on the remaining claims was held from January 24 through February 10, 2022 and concluded on February 24, 2022. At trial, Antero Treatment sought damages from Veolia of approximately $450 million, which represents the Company’s out-of-pocket costs associated with the Clearwater Facility project. In the alternative, Antero Treatment sought damages related to multiple breaches of the DBA, and seekstotaling approximately $370 million. Also at trial, Veolia sought monetary damages of approximately $118 million, including an approximate $26 millionalleged delay and extra-contractual costs and a contract balance relating to an allegation that Antero Defendants improperly terminated the DBA. The Antero Defendants vigorously deny Veolia’s claims. Veolia’s suitA final judgment on the claims has not yet 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 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.rendered.
Item 1A. Risk Factors.
We are subject to certain risks and hazards due to the nature of the business activities we conduct. For a discussion of these risks, see “Item 1A. Risk Factors” in the 20202021 Form 10-K. There have been no material changes to the risks described in such report. We may experience additional risks and uncertainties not currently known to us. Furthermore, as a result of developments occurring in the future, conditions that we currently deem to be immaterial may also materially and adversely affect us.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following table sets forth our common stock share purchase activity for each period presented:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Approximate | | | | | | | | | | Approximate | | ||
| | | | | | Total Number of | | Dollar Value of | | | | | | | Total Number of | | Dollar Value of | | ||||
| | Total Number | | Average Price | | Shares Purchased | | Shares that May | | | Total Number | | Average Price | | Shares Purchased | | Shares that May | | ||||
| | of Shares | | Paid per | | as Part of Publicly | | Yet be Purchased | | | of Shares | | Paid per | | as Part of Publicly | | Yet be Purchased | | ||||
Period | | Purchased (1) | | Share | | Announced Plans (2) | | Under the Plan | | | Purchased (1) | | Share | | Announced Plans (2) | | Under the Plan | | ||||
July 1, 2021 – July 31, 2021 | | 57,912 | | $ | 9.83 | | — | | | N/A | | |||||||||||
August 1, 2021 – August 31, 2021 | | — | | | — | | — | | | N/A | | |||||||||||
September 1, 2021 – September 30, 2021 | | — | | | — | | — | | | N/A | | |||||||||||
July 1, 2022 – July 31, 2022 | | 1,965 | | $ | 9.26 | | — | | $ | 149,767,409 | | |||||||||||
August 1, 2022 – August 31, 2022 | | — | | | — | | — | | | N/A | | |||||||||||
September 1, 2022 – September 30, 2022 | | — | | | — | | — | | | N/A | | |||||||||||
Total | | 57,912 | | $ | 9.83 | | — | | $ | 149,767,409 | | | 1,965 | | $ | 9.26 | | — | | $ | 149,767,409 | |
(1) | The total number of shares |
(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 September 30, |
Item 5. Other Information.
Amended Credit Facility
On October 26, 2021, we entered into an amendment to the Prior Credit Facility. Please refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity—Debt Agreements—Credit Facility ” for a description of the New Credit Facility. The description of the New Credit Facility is a summary and is qualified in its entirety by the terms of the New Credit Facility. A copy of the New Credit Facility is filed as Exhibit 10.1 hereto, and is incorporated herein by reference.
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Item 6. Exhibits
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Exhibit Number | | Description of Exhibit |
3.1 | | |
3.2 | | |
3.3 | | |
3.4 | | |
|
| |
|
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31.1 | * | |
31.2 | * | |
32.1 | * | |
32.2 | * | |
101 | * | |
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.
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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 CORPORATION | |
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By: | /s/ Brendan E. Krueger |
| BRENDAN E. KRUEGER |
| Chief Financial Officer, Treasurer and Vice President of Finance |
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Date: | October |
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