PartnersCapitalAbstract
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Securities registered pursuant to section 12(b) of the Act: | ||||
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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. ⌧
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The registrant had
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 | |||
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32 | ||||
33 | ||||
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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; |
| ● | competition; |
| ● | government regulations and changes in laws; |
| ● | 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 capital, the timing of development expenditures, impacts of world health events (including the COVID-19 pandemic), cybersecurity risks, the state or 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, 2021 (the “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.
2
PART I—FINANCIAL INFORMATION
ANTERO MIDSTREAM CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited) | |||||||
December 31, | March 31, | ||||||
| 2021 |
| 2022 |
| |||
Assets | |||||||
Current assets: | |||||||
Accounts receivable–Antero Resources | $ | | | ||||
Accounts receivable–third party | | | |||||
Income tax receivable | | | |||||
Other current assets | | | |||||
Total current assets | | | |||||
Property and equipment, net | | | |||||
Investments in unconsolidated affiliates | | | |||||
Customer relationships | | | |||||
Other assets, net | | | |||||
Total assets | $ | | | ||||
Liabilities and Stockholders' Equity | |||||||
Current liabilities: | |||||||
Accounts payable–Antero Resources | $ | | | ||||
Accounts payable–third party | | | |||||
Accrued liabilities | | | |||||
Other current liabilities | | | |||||
Total current liabilities | | | |||||
Long-term liabilities: | |||||||
Long-term debt | | | |||||
Deferred income tax liability | | | |||||
Other | | | |||||
Total liabilities | | | |||||
Stockholders' Equity: | |||||||
Preferred stock, $ | |||||||
Series A non-voting perpetual preferred stock; | |||||||
Common stock, $ | | | |||||
Additional paid-in capital | | | |||||
Accumulated deficit | ( | ( | |||||
Total stockholders' equity | | | |||||
Total liabilities and stockholders' equity | $ | | | ||||
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 March 31, | |||||||
| 2021 |
| 2022 |
| |||
Revenue: |
|
| |||||
Gathering and compression–Antero Resources | $ | | | ||||
Water handling–Antero Resources | | | |||||
Water handling–third party | | | |||||
Amortization of customer relationships | ( | ( | |||||
Total revenue | | | |||||
Operating expenses: | |||||||
Direct operating | | | |||||
General and administrative (including $ | | | |||||
Facility idling | | | |||||
Depreciation | | | |||||
Impairment of property and equipment | | — | |||||
Accretion of asset retirement obligations | | | |||||
Loss (gain) on asset sale | | ( | |||||
Total operating expenses | | | |||||
Operating income | | | |||||
Other income (expense): | |||||||
Interest expense, net | ( | ( | |||||
Equity in earnings of unconsolidated affiliates | | | |||||
Total other expense | ( | ( | |||||
Income before income taxes | | | |||||
Income tax expense | ( | ( | |||||
Net income and comprehensive income | $ | | | ||||
Net income per share–basic | $ | | | ||||
Net income per share–diluted | $ | | | ||||
Weighted average common shares outstanding: | |||||||
Basic | | | |||||
Diluted | | | |||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
ANTERO MIDSTREAM CORPORATION
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands)
Additional | |||||||||||||||||||
Preferred | Common Stock | Paid-In | Accumulated | Total | |||||||||||||||
Stock | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||
Balance at December 31, 2020 |
| $ | — | |
| $ | |
| |
| ( |
| | ||||||
Dividends to stockholders | — | — | — | ( | — | ( | |||||||||||||
Equity-based compensation | — | — | — | | — | | |||||||||||||
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | — | | | ( | — | ( | |||||||||||||
Net income and comprehensive income | — | — | — | — | | | |||||||||||||
Balance at March 31, 2021 | $ | — | | $ | | | ( | | |||||||||||
Balance at December 31, 2021 |
| $ | — | | $ | | | ( |
| | |||||||||
Dividends to stockholders | — | — | — | ( | — | ( | |||||||||||||
Equity-based compensation | — | — | — | | — | | |||||||||||||
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | — | | | ( | — | ( | |||||||||||||
Net income and comprehensive income | — | — | — | — | | | |||||||||||||
Balance at March 31, 2022 | $ | — | | $ | | | ( | | |||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
ANTERO MIDSTREAM CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended March 31, | |||||||
| 2021 |
| 2022 |
| |||
Cash flows provided by (used in) operating activities: |
|
|
| ||||
Net income | $ | | | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation | | | |||||
Accretion | | | |||||
Impairment | | — | |||||
Deferred income tax expense | | | |||||
Equity-based compensation | | | |||||
Equity in earnings of unconsolidated affiliates | ( | ( | |||||
Distributions from unconsolidated affiliates | | | |||||
Amortization of customer relationships | | | |||||
Amortization of deferred financing costs | | | |||||
Settlement of asset retirement obligations | ( | ( | |||||
Loss (gain) on asset sale | | ( | |||||
Changes in assets and liabilities: | |||||||
Accounts receivable–Antero Resources | ( | | |||||
Accounts receivable–third party | | | |||||
Income tax receivable | | — | |||||
Other current assets | | | |||||
Accounts payable–Antero Resources | ( | | |||||
Accounts payable–third party | | | |||||
Accrued liabilities | ( | | |||||
Net cash provided by operating activities | | | |||||
Cash flows provided by (used in) investing activities: | |||||||
Additions to gathering systems and facilities | ( | ( | |||||
Additions to water handling systems | ( | ( | |||||
Investments in unconsolidated affiliates | ( | — | |||||
Cash received in asset sale | | | |||||
Net cash used in investing activities | ( | ( | |||||
Cash flows provided by (used in) financing activities: | |||||||
Dividends to stockholders | ( | ( | |||||
Dividends to preferred stockholders | ( | ( | |||||
Payments of deferred financing costs | ( | ( | |||||
Borrowings on bank credit facilities, net | | | |||||
Employee tax withholding for settlement of equity compensation awards | ( | ( | |||||
Other | ( | — | |||||
Net cash used in financing activities | ( | ( | |||||
Net decrease in cash and cash equivalents | ( | — | |||||
Cash and cash equivalents, beginning of period | | — | |||||
Cash and cash equivalents, end of period | $ | | — | ||||
Supplemental disclosure of cash flow information: | |||||||
Cash paid during the period for interest | $ | | | ||||
Cash received during the period for income taxes | $ | | — | ||||
Increase in accrued capital expenditures and accounts payable for property and equipment | $ | | | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
6
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. 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, 2021 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, 2021 consolidated financial statements were included in the Company’s 2021 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, 2021 and March 31, 2022, the results of the Company’s operations and cash flows for the three months ended March 31, 2021 and 2022. The Company has no items of other comprehensive income; therefore, net income is equal to comprehensive income.
Certain costs of doing business incurred and charged to the Company by Antero Resources have been reflected in the accompanying unaudited condensed consolidated financial statements. These costs include general and administrative expenses provided to the Company by Antero Resources in exchange for:
| ● | 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) | 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 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.
7
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(3) Intangibles
All customer relationships are subject to amortization and are amortized over a weighted average period of
Customer relationships as of December 31, 2021 | $ | | ||
Amortization of customer relationships | ( | |||
Customer relationships as of March 31, 2022 | $ | |
Future amortization expense is as follows (in thousands):
Remainder of year ending December 31, 2022 | $ | | ||
Year ending December 31, 2023 | | |||
Year ending December 31, 2024 | | |||
Year ending December 31, 2025 | | |||
Year ending December 31, 2026 | | |||
Thereafter | | |||
Total | $ | |
(4) Transactions with Affiliates
(a) | Revenues |
Substantially all revenues earned in the three months ended March 31, 2021 and 2022 were earned from Antero Resources, under various agreements for gathering and compression and water handling services. Revenues earned from gathering and compression 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 $
8
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(5) Revenue
All of the Company’s gathering and compression revenues are derived from an operating lease agreement, and all of the Company’s water handling revenues are derived from service contracts with customers. The Company currently earns substantially all of its revenues from Antero Resources.
(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. Antero Resources did
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 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 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 as 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 or 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
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
9
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
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 March 31, 2022 are as follows (in thousands):
Remainder of year ending December 31, 2022 | $ | | ||
Year ending December 31, 2023 | | |||
Year ending December 31, 2024 | | |||
Year ending December 31, 2025 | | |||
Year ending December 31, 2026 | | |||
Thereafter | | |||
Total | $ | |
(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
The Company satisfies its performance obligations and recognizes revenue when (i) the fresh water volumes have been delivered to the hydration unit of a specified well pad or (ii) other fluid handling services have been completed. The Company invoices the customer the month after water services are performed, and payment is due in the same month. For services contracted through third-party providers, the Company’s performance obligation is satisfied when the service to be performed by the third-party provider has been completed. The Company invoices the customer after the third-party provider billing is received, and payment is due in the same month.
Transaction Price Allocated to Remaining Performance Obligations
The Company’s water service agreement with Antero Resources has a term greater than one year. The Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under 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 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
10
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
Contract Balances
Under the Company’s water service contracts, the Company invoices customers after the performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s water service contracts do not give rise to contract assets or liabilities.
(c) | 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 March 31, | |||||||||
(in thousands) | 2021 | 2022 |
| Reportable Segment |
| ||||
Type of service | |||||||||
Gathering—low pressure | $ | | | Gathering and Processing (1) | |||||
Gathering—low pressure rebate | — | ( | Gathering and Processing (1) | ||||||
Compression | | | Gathering and Processing (1) | ||||||
Gathering—high pressure | | | Gathering and Processing (1) | ||||||
Fresh water delivery | | | Water Handling | ||||||
Other fluid handling | | | Water Handling | ||||||
Amortization of customer relationships | ( | ( | Gathering and Processing | ||||||
Amortization of customer relationships | ( | ( | Water Handling | ||||||
Total | $ | | | ||||||
Type of contract | |||||||||
Per Unit Fixed Fee | $ | | | Gathering and Processing (1) | |||||
Gathering—low pressure rebate | — | ( | Gathering and Processing (1) | ||||||
Per Unit Fixed Fee | | | Water Handling | ||||||
Cost plus | | | Water Handling | ||||||
Cost of service fee | | | Water Handling | ||||||
Amortization of customer relationships | ( | ( | Gathering and Processing | ||||||
Amortization of customer relationships | ( | ( | Water Handling | ||||||
Total | $ | | | ||||||
| (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 March 31, 2022, were $
11
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(6) Property and Equipment
Property and equipment, net consisted of the following items:
(Unaudited) | |||||||||
Estimated | December 31, | March 31, | |||||||
(in thousands) |
| Useful Lives |
| 2021 | 2022 |
| |||
Land |
| n/a |
| $ | |
| | ||
Gathering systems and facilities | | | |||||||
Permanent buried pipelines and equipment | | | |||||||
Surface pipelines and equipment | | | |||||||
Heavy trucks and equipment | | | |||||||
Above ground storage tanks | | | |||||||
Construction-in-progress | n/a |
| | | |||||
Total property and equipment | | | |||||||
Less accumulated depreciation | ( | ( | |||||||
Property and equipment, net | $ | | | ||||||
| (1) | Gathering systems and facilities are recognized as a single-leased asset with |
(7) Long-Term Debt
Long-term debt consisted of the following items:
(Unaudited) | |||||||
December 31, | March 31, | ||||||
(in thousands) | 2021 | 2022 | |||||
Credit Facility (a) |
| $ | |
| | ||
| | ||||||
| | ||||||
| | ||||||
| | ||||||
Total principal | | | |||||
Unamortized debt premiums | | | |||||
Unamortized debt issuance costs | ( | ( | |||||
Total long-term debt | $ | | | ||||
(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 March 31, 2022, the Credit Facility had lender commitments of $
The Credit Facility contains certain covenants including restrictions on indebtedness, and requirements with respect to leverage and interest coverage ratios. The Credit Facility permits distributions to the holders of the Borrower’s equity interests in accordance with the cash distribution policy, provided that no event of default exists or would be caused thereby, and only to the extent permitted by the Borrower’s organizational documents. The Borrower was in compliance with all of the financial covenants under the Credit Facility as of December 31, 2021 and March 31, 2022.
12
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
The senior secured revolving credit facility agreement in effect prior to October 26, 2021 provided for borrowing under either the Base Rate or the Eurodollar Rate (as each term is defined in the agreement), and the 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 Credit Facility). Principal amounts borrowed are payable on the maturity date with such borrowings bearing interest that is payable with respect to (i) base rate loans, quarterly and (ii) SOFR Loans at the end of the applicable interest period if three months (or shorter, if applicable), or every three months if the applicable interest period is longer than three months. Interest was payable at a variable rate based on LIBOR or the base rate, determined by election at the time of borrowing, plus an applicable margin rate under the 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 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
As of December 31, 2021, the Borrower had outstanding borrowings under the Credit Facility of $
(b) |
On September 13, 2016, Antero Midstream Partners and its wholly owned subsidiary, Finance Corp (together with Antero Midstream Partners, the “Issuers”), issued $
(c) |
On November 10, 2020, the Issuers issued $
(d) |
On February 25, 2019, the Issuers issued $
13
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
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
(e) |
On June 28, 2019, the Issuers issued $
(f) |
On June 8, 2021, the Issuers issued $
(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 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
14
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
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 months ended March 31, 2021 and 2022, all of the Company’s assets and operations are attributable to the Issuers and its guarantors.
(8) Accrued Liabilities
Accrued liabilities consisted of the following items:
(Unaudited) | |||||||
December 31, | March 31, | ||||||
(in thousands) |
| 2021 |
| 2022 |
| ||
Capital expenditures | $ | | | ||||
Operating expenses | | | |||||
Interest expense | | | |||||
Ad valorem taxes | | | |||||
Other | | | |||||
Total accrued liabilities | $ | | | ||||
(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
Equity-based compensation expense allocated to Antero Midstream from Antero Resources was $
AM LTIP
The Company is authorized to grant up to
15
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
The Company’s equity-based compensation expense, by type of award, is as follows:
Three Months Ended March 31, | |||||||
(in thousands) | 2021 | 2022 | |||||
Restricted stock units (1) | $ | | | ||||
Performance share units (1) | | | |||||
Equity awards issued to directors | | | |||||
Total expense | $ | | | ||||
| (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
A summary of the RSU awards activity, which includes the Converted AM RSU Awards, is as follows:
Weighted Average | ||||||
Number | Grant Date | |||||
| of Units |
| Fair Value |
| ||
Total AM LTIP RSUs awarded and unvested—December 31, 2021 | | $ | | |||
Granted | — | — | ||||
Vested | ( | | ||||
Forfeited | — | — | ||||
Total AM LTIP RSUs awarded and unvested—March 31, 2022 | | $ | | |||
As of March 31, 2022, unamortized expense of $
(c) | Performance Share Unit Awards |
As of March 31, 2022, there was $
In 2019, the Company granted performance share units (“PSUs”) to certain of its employees and executive officers, a portion of which vest based on the Company’s actual return on invested capital (“ROIC”) (as defined in the award agreement) over a
(d) | Cash Awards |
In January 2020, the Company granted cash awards of $
16
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(10) Cash Dividends
The Company paid cash dividends for the quarter indicated as follows (in thousands, except per share data):
Dividends |
| ||||||||||
Period |
| Record Date |
| Dividend Date |
| Dividends |
| per Share | |||
Q4 2020 | February 3, 2021 | February 11, 2021 | $ | | $ | ||||||
* | February 16, 2021 | February 16, 2021 | | * | |||||||
Q1 2021 | April 28, 2021 | May 12, 2021 | | ||||||||
* | May 17, 2021 | May 17, 2021 | | * | |||||||
Q2 2021 | July 28, 2021 | August 11, 2021 | | ||||||||
* | August 16, 2021 | August 16, 2021 | | * | |||||||
Q3 2021 | October 27, 2021 | November 10, 2021 | | ||||||||
* | November 15, 2021 | November 15, 2021 | | * | |||||||
Total 2021 | $ | | |||||||||
Q4 2021 | January 26, 2022 | February 9, 2022 | $ | | $ | ||||||
* | February 14, 2022 | February 14, 2022 | | * | |||||||
Total 2022 | $ | | |||||||||
* | 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 April 13, 2022, the Board announced the declaration of a cash dividend on the shares of AM common stock of $
The Board also declared a cash dividend of $
(11) Equity and Earnings Per Common Share
(a) | Preferred Stock |
The Board authorized
17
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
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:
Three Months Ended March 31, | |||||||
(in thousands) |
| 2021 |
| 2022 |
| ||
Basic weighted average number of shares outstanding | | | |||||
Add: Dilutive effect of RSUs | | | |||||
Add: Dilutive effect of PSUs | | | |||||
Add: Dilutive effect of Series A Preferred Stock | | | |||||
Diluted weighted average number of shares outstanding | | | |||||
Weighted average number of outstanding equity awards excluded from calculation of diluted earnings per common share (1): | |||||||
RSUs | | | |||||
(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 or loss attributable to the Company by the basic weighted average number of shares 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 March 31, | |||||||
(in thousands, except per share amounts) |
| 2021 |
| 2022 |
| ||
Net income | $ | | | ||||
Less preferred stock dividends | ( | ( | |||||
Net income available to common shareholders | $ | | | ||||
Net income per share–basic | $ | | | ||||
Net income per share–diluted | $ | | | ||||
Weighted average common shares outstanding–basic | | | |||||
Weighted average common shares outstanding–diluted | | | |||||
18
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(12) Fair Value Measurement
(a) | Senior Unsecured Notes |
The fair value and carrying value of the Company’s Senior Notes is as follows:
(Unaudited) | |||||||||||||
December 31, 2021 | March 31, 2022 | ||||||||||||
(in thousands) | Fair Value (1) | Carrying Value (2) | Fair Value (1) | Carrying Value (2) | |||||||||
2026 Notes | $ | | | | |||||||||
2027 Notes | | | | ||||||||||
2028 Notes | | | | ||||||||||
2029 Notes | | | | ||||||||||
Total | $ | | | | | ||||||||
| (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. |
(b) | Other Assets and Liabilities |
The carrying values of accounts receivable and accounts payable as of December 31, 2021 and March 31, 2022 approximated fair value because of their short-term nature. The carrying value of the amounts under the Credit Facility as of December 31, 2021 and March 31, 2022 approximated fair value because the variable interest rates are reflective of current market conditions.
(13) Investments in Unconsolidated Affiliates
The Company has a
The Company has a
The Company’s net income includes its proportionate share of the net income of the Joint Venture and Stonewall. When the Company records its proportionate share of net income, it increases equity income in the unaudited condensed consolidated statements of operations and comprehensive income and the carrying value of that investment on its 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 Board of Directors and participation in policy-making decisions of Stonewall and the Joint Venture.
19
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 | ||||||||||
MarkWest | in Unconsolidated | |||||||||
(in thousands) |
| Stonewall |
| Joint Venture |
| Affiliates | ||||
Balance as of December 31, 2021 | $ | | | | ||||||
Equity in earnings of unconsolidated affiliates (1) | | | | |||||||
Distributions from unconsolidated affiliates | ( | ( | ( | |||||||
Balance as of March 31, 2022 | $ | | | | ||||||
| (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
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
20
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(b) | Reportable Segments Financial Information |
The summarized operating results of the Company’s reportable segments are as follows:
Three Months Ended March 31, 2021 | |||||||||||||
Gathering and | Water | Consolidated | |||||||||||
(in thousands) |
| Processing |
| Handling |
| Unallocated (1) | Total |
| |||||
Revenues: | |||||||||||||
Revenue–Antero Resources | $ | | | — | | ||||||||
Revenue–third-party | — | | — | | |||||||||
Amortization of customer relationships | ( | ( | — | ( | |||||||||
Total revenues | | | — | | |||||||||
Operating expenses: | |||||||||||||
Direct operating | | | — | | |||||||||
General and administrative | | | | | |||||||||
Facility idling | — | | — | | |||||||||
Depreciation | | | — | | |||||||||
Impairment of property and equipment | | | — | | |||||||||
Accretion of asset retirement obligations | — | | — | | |||||||||
Loss on asset sale | | — | — | | |||||||||
Total operating expenses | | | | | |||||||||
Operating income | $ | | | ( | | ||||||||
Equity in earnings of unconsolidated affiliates | $ | | — | — | | ||||||||
Additions to property and equipment | $ | | | — | | ||||||||
| (1) | Certain expenses that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis. |
Three Months Ended March 31, 2022 | |||||||||||||
Gathering and | Water | Consolidated | |||||||||||
(in thousands) |
| Processing |
| Handling |
| Unallocated (1) | Total |
| |||||
Revenues: | |||||||||||||
Revenue–Antero Resources | $ | | | — | | ||||||||
Revenue–third-party | — | | — | | |||||||||
Amortization of customer relationships | ( | ( | — | ( | |||||||||
Total revenues | | | — | | |||||||||
Operating expenses: | |||||||||||||
Direct operating | | | — | | |||||||||
General and administrative | | | | | |||||||||
Facility idling | — | | — | | |||||||||
Depreciation | | | — | | |||||||||
Accretion of asset retirement obligations | — | | — | | |||||||||
Gain on asset sale | ( | ( | — | ( | |||||||||
Total operating expenses | | | | | |||||||||
Operating income | $ | | | ( | | ||||||||
Equity in earnings of unconsolidated affiliates | $ | | — | — | | ||||||||
Additions to property and equipment, net | $ | | | — | | ||||||||
| (1) | Certain expenses that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis. |
21
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, | March 31, | ||||||||||||
(in thousands) | 2021 | 2022 | |||||||||||
Gathering and Processing | $ | | | ||||||||||
Water Handling | | | |||||||||||
Unallocated (1) | | | |||||||||||
Total assets | $ | | | ||||||||||
| (1) | Certain assets that are not directly attributable to gathering and processing and water handling are managed and evaluated on a consolidated basis. |
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. The information provided below supplements, but does not form part of, our unaudited condensed consolidated financial statements. This discussion contains forward-looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on items that could impact our future operating performance or financial condition, see “Item 1A. Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law. In this section, references to “Antero Midstream,” “AM,” the “Company,” “we,” “us,” and “our” refer to Antero Midstream Corporation and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.
Overview
We are a growth-oriented midstream energy company formed to own, operate and develop midstream energy assets to primarily service Antero Resources’ production and completion activity. We believe that our strategically located assets and our relationship with Antero Resources have allowed us to become a leading midstream energy company serving the Appalachian Basin and present opportunities to expand our midstream services to other operators in the Appalachian Basin. Our assets consist of gathering pipelines, compressor stations and interests in processing and fractionation plants that collect and process production from Antero Resources’ wells in the Appalachian Basin in West Virginia and Ohio. Our assets also include two independent water handling systems that deliver water from the Ohio River and several regional waterways. These water handling systems consist of permanent buried pipelines, surface pipelines and water storage facilities, as well as pumping stations, blending facilities and impoundments. Portions of these water handling systems are also utilized to transport flowback and produced water. These services are provided by us directly or through third-parties with which we contract.
COVID-19 Pandemic
Since the start of the COVID-19 pandemic, governments have 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 and our ability to access the capital markets.
We have continued to operate throughout the 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 these protocols have not reduced Antero Resources’ production and our throughput in a significant manner. A substantial portion of our non-field level employees currently operate in remote work from home arrangements, and 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 (i) protect the health and safety of our employees and contract workers and (ii) determine when a return to in-office working arrangements will be appropriate.
Neither our nor Antero Resources’ supply chain has experienced any significant interruptions due to the COVID-19 pandemic. 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 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.
23
As the global economy continues to recover from the effects of the COVID-19 pandemic, economic indicators have continued to strengthen. However, the economy has begun to experience elevated inflation levels as a result of global supply and demand imbalances. For example, the United States Bureau of Labor and Statistics (“BLS”) Consumer Price Index (“CPI”) for all urban consumers increased 9% from March 2021 to March 2022 as compared to the average historical 10-year rate of 2%. Additionally, employment activity has also begun to strengthen as demonstrated by the United States BLS unemployment rate declining from a high of 15% in April 2020 to 4% in March 2022. Inflationary pressures and labor shortages could result in increases to our operating and capital costs that are not fixed, renegotiation of contracts and/or supply agreements and higher labor costs, among others. These economic variables are beyond our control and may adversely impact our business, financial condition, results of operations and future cash flows.
Growth Incentive Fee Program with Antero Resources
Our gathering and compression agreement with Antero Resources includes a growth incentive fee program whereby we agreed to provide quarterly fee reductions to Antero Resources 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. If actual low pressure volumes are below the lowest threshold for the respective period, Antero Resources will not earn a reduction in low pressure gathering fees. The 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 |
For the three months ended March 31, 2022, Antero Resources delivered low pressure gathering volumes of 2,930 MMcf/d, and as a result, earned a quarterly fee reduction during the period. During the three months ended March 31, 2021, Antero Resources did not earn any fee reductions.
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 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 water from sources including the Ohio River, local reservoirs and several regional waterways and (ii) other fluid handling services, which include high rate transfer, wastewater transportation, disposal and blending.
24
Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2022
The operating results of our reportable segments are as follows:
Three Months Ended March 31, 2021 | |||||||||||||
| Gathering and |
| Water |
|
| Consolidated | |||||||
(in thousands) |
| Processing |
| Handling |
| Unallocated (1) |
| Total | |||||
Revenues: | |||||||||||||
Revenue–Antero Resources | $ | 185,161 | 56,603 | — | 241,764 | ||||||||
Revenue–third-party | — | 25 | — | 25 | |||||||||
Amortization of customer relationships | (9,271) | (8,397) | — | (17,668) | |||||||||
Total revenues | 175,890 | 48,231 | — | 224,121 | |||||||||
Operating expenses: | |||||||||||||
Direct operating | 17,236 | 22,078 | — | 39,314 | |||||||||
General and administrative (excluding equity-based compensation) | 5,924 | 6,620 | 1,374 | 13,918 | |||||||||
Equity-based compensation | 2,725 | 1,060 | 227 | 4,012 | |||||||||
Facility idling | — | 1,179 | — | 1,179 | |||||||||
Depreciation | 14,713 | 12,137 | — | 26,850 | |||||||||
Impairment of property and equipment | 1,218 | 161 | — | 1,379 | |||||||||
Accretion of asset retirement obligations | — | 119 | — | 119 | |||||||||
Loss on asset sale | 3,763 | — | — | 3,763 | |||||||||
Total operating expenses | 45,579 | 43,354 | 1,601 | 90,534 | |||||||||
Operating income | 130,311 | 4,877 | (1,601) | 133,587 | |||||||||
Other income (expense): | |||||||||||||
Interest expense, net | — | — | (42,866) | (42,866) | |||||||||
Equity in earnings of unconsolidated affiliates | 20,744 | — | — | 20,744 | |||||||||
Total other income (expense) | 20,744 | — | (42,866) | (22,122) | |||||||||
Income before income taxes | 151,055 | 4,877 | (44,467) | 111,465 | |||||||||
Income tax expense | — | — | (28,024) | (28,024) | |||||||||
Net income and comprehensive income | $ | 151,055 | 4,877 | (72,491) | 83,441 | ||||||||
Adjusted EBITDA (2) | $ | 219,288 | |||||||||||
| (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.” |
25
Three Months Ended March 31, 2022 | |||||||||||||
Gathering and |
| Water |
|
| Consolidated | ||||||||
(in thousands) |
| Processing |
| Handling |
| Unallocated (1) |
| Total | |||||
Revenues: | |||||||||||||
Revenue–Antero Resources | $ | 194,443 | 53,321 | — | 247,764 | ||||||||
Revenue–third-party | — | 395 | — | 395 | |||||||||
Gathering—low pressure rebate | (12,000) | — | — | (12,000) | |||||||||
Amortization of customer relationships | (9,271) | (8,397) | — | (17,668) | |||||||||
Total revenues | 173,172 | 45,319 | — | 218,491 | |||||||||
Operating expenses: | |||||||||||||
Direct operating | 17,182 | 24,830 | — | 42,012 | |||||||||
General and administrative (excluding equity-based compensation) | 7,565 | 6,272 | 1,262 | 15,099 | |||||||||
Equity-based compensation | 2,136 | 469 | 227 | 2,832 | |||||||||
Facility idling | — | 1,148 | — | 1,148 | |||||||||
Depreciation | 15,807 | 12,493 | — | 28,300 | |||||||||
Accretion of asset retirement obligations | — | 64 | — | 64 | |||||||||
Gain on asset sale | (31) | (87) | — | (118) | |||||||||
Total operating expenses | 42,659 | 45,189 | 1,489 | 89,337 | |||||||||
Operating income | 130,513 | 130 | (1,489) | 129,154 | |||||||||
Other income (expense): | |||||||||||||
Interest expense, net | — | — | (44,279) | (44,279) | |||||||||
Equity in earnings of unconsolidated affiliates | 23,232 | — | — | 23,232 | |||||||||
Total other income (expense) | 23,232 | — | (44,279) | (21,047) | |||||||||
Income before income taxes | 153,745 | 130 | (45,768) | 108,107 | |||||||||
Income tax expense | — | — | (28,067) | (28,067) | |||||||||
Net income and comprehensive income | $ | 153,745 | 130 | (73,835) | 80,040 | ||||||||
Adjusted EBITDA (2) | $ | 209,030 | |||||||||||
| (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.” |
26
The operating data for Antero Midstream is as follows:
Three Months Ended | Amount of | ||||||||||||
March 31, | Increase | Percentage | |||||||||||
| 2021 |
| 2022 |
| or Decrease |
| Change | ||||||
Operating Data: | |||||||||||||
Gathering—low pressure (MMcf) | 256,802 | 263,727 | 6,925 | 3 | % | ||||||||
Compression (MMcf) | 243,562 | 253,474 | 9,912 | 4 | % | ||||||||
Gathering—high pressure (MMcf) | 253,091 | 259,042 | 5,951 | 2 | % | ||||||||
Fresh water delivery (MBbl) | 9,400 | 7,874 | (1,526) | (16) | % | ||||||||
Other fluid handling (MBbl) | 3,951 | 4,203 | 252 | 6 | % | ||||||||
Wells serviced by fresh water delivery | 24 | 21 | (3) | (13) | % | ||||||||
Gathering—low pressure (MMcf/d) | 2,853 | 2,930 | 77 | 3 | % | ||||||||
Compression (MMcf/d) | 2,706 | 2,816 | 110 | 4 | % | ||||||||
Gathering—high pressure (MMcf/d) | 2,812 | 2,878 | 66 | 2 | % | ||||||||
Fresh water delivery (MBbl/d) | 104 | 87 | (17) | (16) | % | ||||||||
Other fluid handling (MBbl/d) | 44 | 47 | 3 | 7 | % | ||||||||
Average Realized Fees: | |||||||||||||
Average gathering—low pressure fee ($/Mcf) | $ | 0.33 | 0.34 | 0.01 | 3 | % | |||||||
Average compression fee ($/Mcf) | $ | 0.20 | 0.21 | 0.01 | 3 | % | |||||||
Average gathering—high pressure fee ($/Mcf) | $ | 0.20 | 0.21 | 0.01 | 3 | % | |||||||
Average fresh water delivery fee ($/Bbl) | $ | 3.97 | 4.07 | 0.10 | 3 | % | |||||||
Joint Venture Operating Data: | |||||||||||||
Processing—Joint Venture (MMcf) | 128,538 | 136,242 | 7,704 | 6 | % | ||||||||
Fractionation—Joint Venture (MBbl) | 3,431 | 3,077 | (354) | (10) | % | ||||||||
Processing—Joint Venture (MMcf/d) | 1,428 | 1,514 | 86 | 6 | % | ||||||||
Fractionation—Joint Venture (MBbl/d) | 38 | 34 | (4) | (11) | % | ||||||||
| * | Not meaningful or applicable. |
Revenues. Total revenues decreased by 3%, from $224 million, including amortization of customer relationships of $18 million, for the three months ended March 31, 2021, to $218 million, including amortization of customer relationships of $18 million, for the three months ended March 31, 2022. Gathering and processing revenues decreased by 2%, from $176 million for the three months ended March 31, 2021 to $173 million for the three months ended March 31, 2022. Water handling revenues decreased by 6%, from $48 million for the three months ended March 31, 2021 to $45 million for the three months ended March 31, 2022. These fluctuations primarily resulted from the following:
Gathering and Processing
| ● | Low pressure gathering revenue decreased $9 million period over period due to the $12 million rebate earned by Antero Resources during the three months ended March 31, 2022, partially offset by increased throughput volumes of 7 Bcf, or 77 MMcf/d, and a 3% increase in the low pressure gathering rate as a result of the annual CPI-based adjustment. Low pressure gathering volumes increased between periods primarily due to the 72 additional wells connected to our system since March 31, 2021. |
| ● | Compression revenue increased $3 million period over period due primarily due to increased throughput volumes of 10 Bcf, or 110 MMcf/d, and a 3% increase in the compression rate as a result of the annual CPI-based adjustment. Compression volumes increased between periods primarily due to the 72 additional wells connected to our system since March 31, 2021, and one new compressor that came online in December 2021. |
| ● | High pressure gathering revenue increased $3 million period over period due to increased throughput volumes of 6 Bcf, or 66 MMcf/d, and a 3% increase to the high pressure gathering rate as a result of the annual CPI-based adjustment. The high pressure gathering volumes increased period over period primarily due to the 72 new wells connected to our system since March 31, 2021. |
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Water Handling
| ● | Fresh water delivery revenue decreased $5 million period over period primarily due to decreased fresh water delivery volumes of 2 MMBbl, or 17 MBbl/d, as a result of a decrease in the number of wells completed, partially offset by a 3% increase to the fresh water delivery rate as a result of the annual CPI-based adjustment. |
| ● | Other fluid handling services revenue increased $2 million primarily due to an increased water blending services between periods. |
Direct operating expenses. Total direct operating expenses increased by 7%, from $39 million for the three months ended March 31, 2021 to $42 million for the three months ended March 31, 2022. Gathering and processing direct operating expenses remained consistent at $17 million for the three months ended March 31, 2021 and 2022. Water handling direct operating expenses increased by 12%, from $22 million for the three months ended March 31, 2021 to $25 million for the three months ended March 31, 2022. The increase in total direct operating expenses and water handling direct operating expenses was primarily due to $3 million in higher fresh water delivery direct operating expenses between periods as a result of resuming fresh water deliveries in the Utica for Antero Resources’ development program during the first quarter of 2022.
General and administrative (excluding equity-based compensation) expenses. General and administrative expenses (excluding equity-based compensation expense) increased 8%, from $14 million for the three months ended March 31, 2021 to $15 million for three months ended March 31, 2022 primarily due to increased legal costs associated with the Veolia legal matter between periods. See “Item 1. Legal Proceedings” below for additional information.
Equity-based compensation expenses. Equity-based compensation expenses decreased 29%, from $4 million for the three months ended March 31, 2021, to $3 million for the three months ended March 31, 2022 primarily due to lower expense allocated to us for awards granted prior to March 12, 2019.
Facility idling expenses. Facility idling expenses remained consistent at $1 million for the three months ended March 31, 2021 and 2022, respectively.
Impairment of property and equipment expense. Impairment of property and equipment expense of $1 million for the three months ended March 31, 2021 was primarily a lower of cost or market adjustment for pipe inventory. There were no impairments of property and equipment during the three months ended March 31, 2022.
Depreciation expense. Total depreciation expense remained relatively consistent at $27 million and $28 million for the three months ended March 31, 2021 and 2022, respectively.
Loss (gain) on asset sale. Loss on asset sale of $4 million for the three months ended March 31, 2021 primarily relates to the sale of excess pipe inventory during the period. Gain on asset sale for the three months ended March 31, 2022 relates to the sale of miscellaneous equipment and excess pipe inventory during the period.
Interest expense. Interest expense increased by 3%, from $43 million for the three months ended March 31, 2021 to $44 million for the three months ended March 31, 2022 primarily due to the issuance of $750 million of 5.375% senior notes due 2029 on June 8, 2021, partially offset by the redemption of all $650 million of the 5.375% senior notes due 2024 on June 8, 2021.
Equity in earnings of unconsolidated affiliates. Equity in earnings in unconsolidated affiliates increased by 12%, from $21 million for the three months ended March 31, 2021 to $23 million for the three months ended March 31, 2022 primarily due to an increase in the level of volume 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.
Income tax expense. Income tax expense remained consistent for the three months ended March 31, 2021 and 2022 at $28 million, which reflects effective tax rates of 25.1% and 26.0%, respectively. The increase in the effective tax rate is primarily related to a higher amount of our taxable income being apportioned to West Virginia.
Net income. Net income decreased by 4%, from $83 million for the three months ended March 31, 2021 to $80 million for the three months ended March 31, 2022 primarily due to (i) lower gathering, compression and water handling revenues, (ii) higher water handling direct operating expenses, (iii) higher general and administrative costs, excluding equity-based compensation expense, and (iv) higher interest expense, partially offset by higher equity in earnings of unconsolidated affiliates between periods.
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Adjusted EBITDA. Adjusted EBITDA decreased by 5%, from $219 million for the three months ended March 31, 2021 to $209 million for the three months ended March 31, 2022. The decrease between periods was primarily due to (i) lower gathering, compression and water handling revenues, (ii) higher water handling direct operating expenses and (iii) higher 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, read “—Non-GAAP Financial Measures” below.
Capital Resources and Liquidity
Sources and Uses of Cash
Capital resources and liquidity are provided by operating cash flow and available borrowings under our senior secured revolving credit facility (the “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 our common stock of $0.2250 per share for the quarter ended March 31, 2022. The dividend will be payable on May 11, 2022 to stockholders of record as of April 27, 2022. Our Board also declared a cash dividend of $137 thousand on the shares of Series A Preferred Stock, which will be paid on May 16, 2022 in accordance with their terms, which are discussed in Note 11—Equity and Earnings Per Common Share. As of March 31, 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 and quarterly cash dividends to our stockholders will be funded from cash flows internally generated from our operations or borrowings under the Credit Facility.
As of March 31, 2022, we did not have any off-balance sheet arrangements.
Cash Flows
The following table summarizes our cash flows for the three months ended March 31, 2021 and 2022:
Three Months Ended March 31, | |||||||
(in thousands) |
| 2021 |
| 2022 | |||
Net cash provided by operating activities | $ | 165,701 | 184,664 | ||||
Net cash used in investing activities | (27,653) | (84,146) | |||||
Net cash used in financing activities | (138,427) | (100,518) | |||||
Net decrease in cash and cash equivalents | $ | (379) | — | ||||
Operating Activities. Net cash provided by operating activities was $166 million and $185 million for the three months ended March 31, 2021 and 2022, respectively. The increase in cash flows provided by operations for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily the result of lower cash used for working capital, excluding income tax receivable, between periods, partially offset by lower gathering, compression and water handling revenues, higher water handling direct operating expenses and higher general and administrative costs. Additionally, we received income tax refunds during the three months ended March 31, 2021 of $17 million 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 three months ended March 31, 2022.
Investing Activities. Net cash flows used in investing activities was $28 million and $84 million for the three months ended March 31, 2021 and 2022, respectively. The increase in cash flows used in investing activities was primarily due to a $56 million increase in capital spending for expansion of our gathering system between periods.
Financing Activities. Net cash used in financing activities was $138 million and $101 million for the three months ended March 31, 2021 and 2022, respectively. The decrease in cash flows used in financing activities between periods was primarily due to reduced dividends to stockholders of $39 million, partially offset by lower borrowings of $2 million on our Credit Facility.
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2022 Capital Investment
The Board approved a 2022 capital budget with a range of $275 million to $300 million, which includes growth capital supporting the increased volumes expected from Antero Resources’ drilling partnership. Our capital budgets may be adjusted as business conditions 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 may also defer a significant portion of our budgeted capital expenditures to achieve 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 capital expenditures in response to changes in Antero Resources’ development plans, changes in prices, availability of financing, acquisition costs, industry conditions, the timing of regulatory approvals, success or lack of success in Antero Resources’ drilling activities, contractual obligations, internally generated cash flows and other factors both within and outside our control.
For the three months ended March 31, 2022, our capital expenditures were $95 million, including $78 million for our gathering and compression system and $17 million for our water handling facilities.
Debt Agreements
See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements and to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2021 Form 10-K for information on our debt agreements.
Non-GAAP Financial Measures
We use Adjusted EBITDA as an important indicator of our performance. We define Adjusted EBITDA as net income before net interest expense, income tax expense, depreciation, impairment, accretion of asset retirement obligations, equity-based compensation, excluding equity in earnings of unconsolidated affiliates, amortization of customer relationships, 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.
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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 March 31, | |||||||
(in thousands) |
| 2021 |
| 2022 | |||
Net income | $ | 83,441 | 80,040 | ||||
Interest expense, net | 42,866 | 44,279 | |||||
Income tax expense | 28,024 | 28,067 | |||||
Depreciation expense | 26,850 | 28,300 | |||||
Amortization of customer relationships | 17,668 | 17,668 | |||||
Equity-based compensation | 4,012 | 2,832 | |||||
Impairment | 1,379 | — | |||||
Accretion of asset retirement obligations | 119 | 64 | |||||
Equity in earnings of unconsolidated affiliates | (20,744) | (23,232) | |||||
Distributions from unconsolidated affiliates | 31,910 | 31,130 | |||||
Loss (gain) on asset sale | 3,763 | (118) | |||||
Adjusted EBITDA | $ | 219,288 | 209,030 | ||||
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of our unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our financial statements. We provide expanded discussion of our more significant accounting policies, estimates and judgments in the 2021 Form 10-K. We believe these accounting policies reflect our more significant estimates and assumptions used in preparation of our financial statements.
New Accounting Pronouncements
See Note 2—Summary of Significant Accounting Policies to the unaudited condensed consolidated financial statements for information on new accounting pronouncements.
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.
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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 March 31, 2022, we had $557 million of borrowings and no letters of credit outstanding under the Credit Facility. A 1.0% increase in the Credit Facility interest rate would have resulted in an estimated $1 million increase in interest expense for the three months ended March 31, 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.
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 March 31, 2022 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 March 31, 2022 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”) relating to the Clearwater Facility.
On March 13, 2020, Antero Treatment LLC (“Antero Treatment”), a wholly owned subsidiary of the Company, filed suit against Veolia in the district court of Denver County, Colorado, asserting claims of fraud, breach of contract and other related claims. Antero Treatment alleges that Veolia failed to meet its contractual obligations to design and build a “turnkey” wastewater disposal facility under a Design/Build Agreement dated August 18, 2015 (the “DBA”), and that Veolia fraudulently concealed certain miscalculations and design flaws during contract negotiations and continued to conceal and fraudulently misrepresent the impact of certain design changes post-execution of the DBA. On March 13, 2020, Veolia filed a separate suit against the Company, Antero Resources, and certain of the Company’s wholly owned subsidiaries (collectively, the “Antero Defendants”) in Denver County, Colorado. In its lawsuit, Veolia asserted breach of contract and equitable claims against the Antero Defendants for alleged failures under the DBA. Veolia’s suit was consolidated into the action filed by Antero Treatment.
Veolia and the Antero Defendants each filed partial motions to dismiss and motions for summary judgment directed at certain claims asserted by the opposing party. A bench trial on the remaining claims was held from January 24 through February 10, 2022 and concluded on February 24, 2022. At trial, Antero Treatment sought damages from Veolia of 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, totaling approximately $370 million. Also at trial, Veolia sought monetary damages of approximately $118 million, including alleged 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. A final judgment on the claims has not yet been 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 2021 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 | |||||||||||
Total Number of | Dollar Value of | ||||||||||
Total Number | Average Price | Shares Purchased | Shares that May | ||||||||
of Shares | Paid per | as Part of Publicly | Yet be Purchased | ||||||||
Period |
| Purchased (1) | Share | Announced Plans (2) | Under the Plan |
| |||||
January 1, 2022 – January 31, 2022 | 132,041 | $ | 10.07 | — | $ | 149,767,409 | |||||
February 1, 2022 – February 28, 2022 | — | — | — | N/A | |||||||
March 1, 2022 – March 31, 2022 | — | — | — | N/A | |||||||
Total | 132,041 | $ | 10.07 | — | $ | 149,767,409 | |||||
| (1) | The total number of shares purchased represents shares of our common stock transferred to us in order to satisfy tax withholding obligations incurred upon the vesting of equity awards held by our employees. |
| (2) | In August 2019, the Board authorized a $300 million share repurchase program, which was extended through June 30, 2023 during the first quarter of 2021. During the three months ended March 31, 2022, we did not make any repurchases under this program. |
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Item 6. Exhibits
Exhibit Number | Description of Exhibit | |
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
31.1 | * | |
31.2 | * | |
32.1 | * | |
32.2 | * | |
101 | * | The following financial information from this Quarterly Report on Form 10-Q of Antero Midstream Corporation for the quarter ended March 31, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text. |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
The exhibits marked with the asterisk symbol (*) are filed or furnished with this Quarterly Report on Form 10-Q.
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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.
ANTERO MIDSTREAM CORPORATION | |
By: | /s/ Brendan E. Krueger |
BRENDAN E. KRUEGER | |
Chief Financial Officer, Treasurer and Vice President of Finance | |
Date: | April 27, 2022 |
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