Antero Midstream and AMGP Report Second Quarter 2017 Financial and Operational Results

• Net income increased by 75% to $87 million, or $0.39 per limited partner unit compared to the prior year quarter
• Adjusted EBITDA increased by 59% to $139 million compared to the prior year quarter
• Distribution per unit increased by 28% to $0.32 compared to the prior year quarter, representing the 10^th consecutive quarterly distribution increase since the IPO in 2014
• Distributable cash flow increased by 41% to $110 million compared to prior year quarter, resulting in DCF coverage of 1.5x
• Low pressure and high pressure gathering volumes increased by 24% and 38%, respectively, compared to the prior year quarter
• Compression volumes increased by 81% compared to the prior year quarter
• First Joint Venture processing plant filled to capacity at an average throughput of 216 MMcf/d for the second quarter
• Fresh water delivery volumes increased by 64% compared to the prior year quarter
• Debt to trailing twelve months EBITDA was 1.9x with over $1.2 billion of liquidity
• AMGP declared a $0.027 per unit cash distribution, reflecting a pro-rated distribution for the second quarter following the closing of the AMGP initial public offering on May 9^th, 2017

Recent Developments

Antero Midstream Distribution for the Second Quarter of 2017

The Board of Directors of Antero Midstream Partners GP LLC, the general partner of Antero Midstream, declared a cash distribution of $0.32 per unit for the second quarter of 2017. The distribution represents a 28% increase compared to the prior year quarter and a 7% increase sequentially.  The distribution is Antero Midstream's tenth consecutive quarterly distribution increase since its initial public offering in November 2014 and will be payable on August 16, 2017 to unitholders of record as of August 3, 2017.

Completion of AMGP Initial Public Offering

On May 9, 2017, AMGP announced the closing of its initial public offering of 37,250,000 common shares representing limited partner interests in AMGP previously held by Antero Resources Investment LLC ("ARI").  Total gross proceeds to ARI, before underwriters' fees and estimated expenses, were approximately $875 million.  No proceeds were retained by AMGP.

AMGP 2017 Distribution Guidance and Long-term Outlook

The Board of Directors of AMGP GP LLC, the general partner of AMGP, declared a cash distribution of $0.027 per share for the second quarter of 2017.  The distribution reflects a pro-rated distribution from the closing of the AMGP initial public offering on May 9, 2017 through June 30, 2017. The distribution will be payable on August 23, 2017 to shareholders of record as of August 3, 2017. 

On June 15, 2017, AMGP announced distribution guidance of $0.15 to $0.17 for the year ended December 31, 2017, which includes the previously announced pro-rated distribution of $0.027 for the second quarter of 2017.  AMGP is targeting distributions per share of $0.43 to $0.46 for 2018, $0.70 to $0.76 for 2019, and $1.06 to $1.16 for 2020, driven by Antero Midstream's compound annual distribution growth target per unit of 28% to 30% through 2020.  AMGP's guidance and long-term targets assume 1.0x DCF coverage and exclude the impact of any future debt or equity offerings, acquisitions, or divestitures at either Antero Midstream or AMGP.

Antero Midstream Second Quarter 2017 Financial Results

Low pressure gathering volumes for the second quarter of 2017 averaged 1,683 MMcf/d, a 24% increase from the second quarter of 2016 and a 1% increase sequentially.  Compression volumes for the second quarter of 2017 averaged 1,192 MMcf/d, an 81% increase from the second quarter of 2016 and a 16% increase sequentially.  High pressure gathering volumes for the second quarter of 2017 averaged 1,734 MMcf/d, a 38% increase from the second quarter of 2016 and a 10% increase sequentially.  The increase in gathering and compression volumes was driven by production growth from Antero Resources in Antero Midstream's area of dedication.  In the second quarter of 2017, which was the first full quarter of operations for the Antero Midstream / MPLX joint venture (the "Joint Venture"), processing volumes averaged 216 MMcf/d and fractionation volumes averaged 4,039 Bbl/d.  Fresh water delivery volumes averaged 173 MBbl/d during the quarter, a 64% increase compared to the prior year quarter and a 17% increase sequentially.

For the three months ended June 30, 2017, the Partnership reported revenues of $194 million, comprised of $99 million from the Gathering and Processing segment and $95 million from the Water Handling and Treatment segment. Revenues increased 42% compared to the prior year quarter, driven by growth in throughput volumes and fresh water delivery volumes. Water Handling and Treatment segment revenues include $36 million from wastewater handling and high rate water transfer services provided to Antero Resources, which is billed at cost plus 3%. 

Direct operating expenses for the Gathering and Processing and Water Handling and Treatment segments were $10 million and $42 million, respectively, for a total of $52 million compared to $43 million in direct operating expenses in the prior year quarter. Water Handling and Treatment direct operating expenses include $35 million from produced water handling and high rate water transfer services.  General and administrative expenses including equity-based compensation were $15 million, a $2 million increase compared to the second quarter of 2016.  General and administrative expenses excluding equity-based compensation were $8 million during the second quarter of 2017, a $1 million increase compared to the second quarter of 2016.  Total operating expenses were $101 million, including $30 million of depreciation and $4 million of accretion of contingent acquisition consideration.

Net income for the second quarter of 2017 was $87 million, a 75% increase compared to the prior year quarter. Net income per limited partner unit was $0.39 per unit, a 44% increase compared to the prior year quarter. Adjusted EBITDA was $139 million, a 59% increase compared to the prior year quarter. The increase in net income and Adjusted EBITDA is primarily driven by increased throughput volumes and fresh water delivery volumes. Adjusted EBITDA for the quarter included $6 million in distributions from Stonewall Gathering LLC ("Stonewall") and did not include distributions from the processing and fractionation joint venture.  Antero Midstream expects distributions from Stonewall to be approximately $10 to $15 million and distributions from the processing and fractionation joint venture to be approximately $10 million in 2017, both in line with previously provided guidance.  Cash interest paid was $2 million. Cash reserved for bond interest during the quarter was $9 million and cash reserved for payment of income tax withholding upon vesting of Antero Midstream equity-based compensation awards was $2 million. Maintenance capital expenditures during the quarter totaled $16 million and distributable cash flow was $110 million, resulting in a DCF coverage ratio of 1.5x.

Commenting on the outlook for Antero Midstream, Paul Rady, Chairman and CEO said, "The second quarter highlights the benefits of Antero Midstream's integrated full value chain strategy, as Antero's advanced completions drove record gathering, compression and fresh water delivery volumes for Antero Midstream. Additionally, Antero Midstream's processing and fractionation investment is beginning to build significant momentum, as the Joint Venture's first processing plant, Sherwood 7, was fully utilized during the second quarter and we recently placed on line the Joint Venture's second processing plant, Sherwood 8, which is already fully utilized.  The Joint Venture's next plant, Sherwood 9 (200 MMcf/d), is expected to be in service in January of 2018."

The following table reconciles net income to adjusted EBITDA and distributable cash flow as used in this release (in thousands):

Commenting on Antero Midstream's quarterly results, Michael Kennedy, CFO of Antero Midstream said, "Antero Midstream reported another strong quarter with operating revenues and adjusted EBITDA increasing by 42% and 59% over the prior year quarter, respectively. Importantly, the strong second quarter results and peer leading distribution growth and DCF coverage keep us on track to achieve our 2017 guidance. Antero Midstream remains well capitalized, with debt to trailing twelve months adjusted EBITDA of 1.9x and over $1.2 billion of liquidity."

Gathering and Processing — Current compression capacity is approximately 1.4 Bcf/d in the Marcellus and Utica combined and was over 83% utilized on average in the second quarter. Additionally, Antero Midstream connected 28 wells to its gathering system during the quarter.  Antero Resources is currently operating six drilling rigs on Antero Midstream dedicated acreage.

Water Handling and Treatment — Antero Midstream's Marcellus and Utica fresh water delivery systems serviced 44 well completions during the second quarter of 2017, a 42% increase from the prior year quarter and 29% increase sequentially.  Antero Resources is currently operating five completion crews on Antero Midstream dedicated acreage. During the quarter, Antero Midstream continued construction on the Antero Clearwater Facility, which is expected to be placed into service in the fourth quarter of 2017 and have up to 60,000 Bbl/d of treating capacity.

Balance Sheet and Liquidity

As of June 30, 2017, Antero Midstream had $18 million in cash and $305 million drawn on its $1.5 billion bank credit facility, resulting in approximately $1.2 billion of liquidity.  Antero Midstream's net debt to trailing twelve months adjusted EBITDA was 1.9x as of June 30, 2017.  For a reconciliation of consolidated net debt to consolidated total debt, the most comparable GAAP measure, please read "Non-GAAP Financial Measures."

Capital Investments

Capital expenditures, excluding investments in the processing and fractionation joint venture, were $146 million in the second quarter of 2017 as compared to $90 million in the second quarter of 2016.  Capital invested in gathering systems and facilities was $88 million and capital invested in water handling and treatment assets was $58 million, including $46 million invested in the Antero Clearwater Facility. Investments in unconsolidated affiliates for the processing and fractionation joint venture were $31 million during the quarter.

AMGP Second Quarter 2017 Financial Results

AMGP's equity in earnings from Antero Midstream Partners, which reflects the cash distributions from Antero Midstream, was $15.3 million.  Net loss for the second quarter of 2017 was $3.3 million as compared to net income of $1.6 million for the prior year quarter.  AMGP's net loss and cash available for distribution for the three months ending June 30, 2017 included non-recurring and non-tax deductible general and administrative expenses related to the AMGP initial public offering. These general and administrative expenses are not included in the post-IPO period, as presented below.

AMGP's cash distributions from Antero Midstream were $8.5 million for the period following the closing of the AMGP initial public offering on May 9, 2017 through June 30, 2017, net of $0.3 million of cash distributions on Series B units. General and administrative expenses and income taxes were $0.3 million and $3.2 million, respectively, resulting in cash available for distribution of $5.0 million.

The following table reconciles cash distributions from Antero Midstream and AMGP cash distribution per common share as presented in this release (in thousands):

Conference Call

A joint conference call for Antero Midstream and AMGP is scheduled on Thursday, August 3, 2017 at 10:00 am MT to discuss the quarterly results.  A brief Q&A session for security analysts will immediately follow the discussion of the results for the quarter.  To participate in the call, dial in at 1-888-347-8204 (U.S.), 1-855-669-9657 (Canada), or 1-412-902-4229 (International) and reference "Antero Midstream".  A telephone replay of the call will be available until Friday, August 11, 2017 at 10:00 am MT at 1-844-512-2921 (U.S.) or 1-412-317-6671 (International) using the passcode 10108843.

Presentation

To access the live webcast and view the related earnings conference call presentation, visit Antero Midstream's website at www.anteromidstream.com or AMGP's website at www.anteromidstreamgp.com.  The webcast will be archived for replay on Antero Midstream's website and AMGP's website until Friday, August 11, 2017 at 10:00 am MT.  Information on Antero Midstream's website and AMGP's website does not constitute a portion of this press release.

Non-GAAP Financial Measures

Antero Midstream views Adjusted EBITDA as an important indicator of the Partnership's performance.  Antero Midstream defines Adjusted EBITDA as Net Income before interest expense, depreciation expense, accretion of contingent acquisition consideration, equity-based compensation expense, excluding equity in earnings of unconsolidated affiliates, and including cash distributions from unconsolidated affiliates.

Antero Midstream uses Adjusted EBITDA to assess:

• the financial performance of the Partnership's assets, without regard to financing methods in the case of Adjusted EBITDA, capital structure or historical cost basis;
• its operating performance and return on capital as compared to other publicly traded partnerships in the midstream energy sector, without regard to financing or capital structure; and
• the viability of acquisitions and other capital expenditure projects.

The Partnership defines Distributable Cash Flow as Adjusted EBITDA less interest paid, income tax withholding payments and cash reserved for payments of income tax withholding upon vesting of equity-based compensation awards, cash reserved for bond interest and ongoing maintenance capital expenditures paid.  Antero Midstream uses Distributable Cash Flow as a performance metric to compare the cash generating performance of the Partnership from period to period and to compare the cash generating performance for specific periods to the cash distributions (if any) that are expected to be paid to unitholders.  Distributable Cash Flow does not reflect changes in working capital balances.

Adjusted EBITDA and Distributable Cash Flow are non-GAAP financial measures.  The GAAP measure most directly comparable to Adjusted EBITDA and Distributable Cash Flow is Net Income.  The non-GAAP financial measures of Adjusted EBITDA and Distributable Cash Flow should not be considered as alternatives to the GAAP measure of Net Income.  Adjusted EBITDA and Distributable Cash Flow are not presentations 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 and Adjusted EBITDA.  You should not consider Adjusted EBITDA and Distributable Cash Flow in isolation or as a substitute for analyses of results as reported under GAAP.  Antero Midstream's definition of Adjusted EBITDA and Distributable Cash Flow may not be comparable to similarly titled measures of other partnerships.

The following table reconciles consolidated total debt to consolidated net debt as used in this release (in thousands):

The following table reconciles net income to adjusted EBITDA for the twelve months ended June 30, 2017 as used in this release (in thousands):

Antero Midstream is a limited partnership that owns, operates and develops midstream gathering, compression, processing and fractionation assets as well as integrated water assets that primarily service Antero Resources Corporation's properties located in West Virginia and Ohio. Holders of Antero Midstream common units will receive a Schedule K-1 with respect to distributions received on the common units.

AMGP is a Delaware limited partnership that has elected to be classified as an entity taxable as a corporation for U.S. federal income tax purposes.  Holders of AMGP common shares will receive a Form 1099 with respect to distributions received on the common shares.  AMGP owns the general partner of Antero Midstream and indirectly owns the incentive distribution rights in Antero Midstream.

This release includes "forward-looking statements" within the meaning of federal securities laws.  Such forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Partnership's and AMGP's control.  All statements, other than historical facts included in this release, are forward-looking statements.  All forward-looking statements speak only as of the date of this release and are based upon a number of assumptions.  Although the Partnership and AMGP each believe that the plans, intentions and expectations reflected in or suggested by the forward-looking statements are reasonable, there is no assurance that the assumptions underlying these forward-looking statements will be accurate or the plans, intentions or expectations expressed herein will be achieved.  For example, future acquisitions, dispositions or other strategic transactions may materially impact the forecasted or targeted results described in this release.  Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements.  Nothing in this release is intended to constitute guidance with respect to Antero Resources.

Antero Midstream and AMGP caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond the Partnership's and AMGP's control, incident to the gathering and processing and fresh water and waste water treatment businesses.  These risks include, but are not limited to, Antero Resources' expected future growth, Antero Resources' ability to meet its drilling and development plan, commodity price volatility, ability to execute the Partnership's business strategy, competition and government regulations, actions taken by third-party producers, operators, processors and transporters, inflation, environmental risks, drilling and completion and other operating risks, regulatory changes, the uncertainty inherent in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, and the other risks described under "Risk Factors" in Antero Midstream's Annual Report on Form 10-K for the year ended December 31, 2016.

For more information, contact Michael Kennedy – CFO of Antero Midstream and AMGP at (303) 357-6782 or [email protected].

SOURCE Antero Midstream; Antero Midstream GP LP

Related Links

http://www.anteromidstreamgp.com