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. 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 delivery systems that deliver fresh
water from the Ohio River and several regional waterways. These fresh water
delivery systems consist of permanent buried pipelines, surface pipelines and
fresh water storage facilitates, as well as pumping stations and impoundments to
transport the fresh water throughout the pipelines. These services are provided
by us directly or through third-parties with which we contract. Our assets also
include other flowback and produced water treatment facilities that we use to
provide water treatment services to Antero Resources.
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
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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 Facility
On October 26, 2021, we entered into an amended and restated senior secured
revolving credit facility with lender commitments of $1.25 billion, which
matures on October 26, 2026; provided that if on November 17, 2025 any of the
7.875% senior unsecured notes due May 15, 2026 (the "2026 Notes") are
outstanding, 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 "-Capital Resources and Liquidity-Debt Agreements-Senior Secured
Revolving Credit Facility ") to $1.25 billion to better align with our expected
future liquidity needs. See Note 7-Long-Term Debt to the unaudited condensed
consolidated financial statements and "-Capital 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 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 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 Debt to the unaudited condensed consolidated financial statements
for more information.
Redemption of Senior Notes
On June 8, 2021, we redeemed all of 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.
Growth Incentive Fee Program With Antero Resources
On December 8, 2019, we and Antero Resources amended the existing gathering and
compression agreement to establish a 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 extend the primary term of such agreement by an additional four years
to November 10, 2038. The following table summarizes the low pressure gathering
growth incentive targets through 2023. If actual low pressure volumes are below
the lowest threshold for the respective period, Antero Resources will not
receive a reduction in low pressure gathering fees.
Low Pressure Gathering Quarterly Fee
Volume Growth Incentive Reduction
Targets (MMcf/d) (in millions)
Calendar Years 2021-2023
Threshold 1 >2,900 and <3,150 $12.0
Threshold 2 >3,150 and <3,400 $15.5
Threshold 3 >3,400 $19.0For the three months ended September 30, 2021, Antero Resources delivered low
pressure gathering volumes of 2,880 MMcf/d, and as a result, no quarterly fee
reduction was earned during the period. During the nine months ended
September 30, 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
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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) other fluid handling services, which include high rate transfer,
wastewater transportation, disposal and blending.
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