Antero Midstream Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Antero Midstream owns and operates gathering, compression, processing-related investments, and water-handling infrastructure, primarily serving Antero Resources in the Appalachian Basin. Nearly all revenue is derived from Antero Resources.
Financial results and liquidity
- Revenue: $243.7 million, compared with $256.5 million pro forma for Q1 2019, down 5%. The filed Q1 2019 results are not directly comparable because Antero Midstream Partners was consolidated only from March 13, 2019. Gathering and processing revenue was $153.9 million; water-handling revenue was $89.8 million.
- Profitability: GAAP operating loss was $519.2 million and net loss was $392.9 million, or $0.81 per share. Results included $575.5 million of goodwill impairment and $89.1 million of property and equipment impairment. The income tax benefit was $144.8 million.
- Adjusted EBITDA: $217.3 million, up 7% from $202.5 million pro forma in Q1 2019. This is a non-GAAP measure; the filing cautions that it is not a substitute for GAAP results.
- Cash flow and investment: Operating cash flow was $120.7 million. Investing activities used $77.4 million, including $68.0 million of property and equipment additions and $11.7 million of affiliate investments. Financing activities used $44.6 million. Cash was zero at quarter-end.
- Debt and liquidity: Long-term debt carrying value was $3.104 billion. Revolver borrowings were $1.171 billion against $2.13 billion of lender commitments, with no letters of credit outstanding. The facility matures October 2022; the company reported compliance with its covenants. Current assets were $151.4 million, including a $56.5 million income tax receivable; current liabilities were $83.6 million.
- Capital returns: The company paid $149.0 million in dividends during the quarter and repurchased 4.7 million shares for $15.8 million, averaging $3.36 per share. The board declared a $0.3075-per-share common dividend for Q1, payable May 12, 2020.
Changes and operating trends
- On a pro forma basis, gathering and processing revenue declined 2%, while water-handling revenue declined 22%. Lower water-handling revenue reflected the Clearwater Facility idling and lower third-party-billed fluid-handling costs; fresh-water delivery revenue increased.
- Gathering volumes rose 7% at low pressure and 9% at high pressure; compression volumes rose 13%. Fresh-water delivery volumes increased 21%. These comparisons use pro forma Q1 2019 operating data.
- Adjusted EBITDA increased despite lower revenue, primarily due to higher throughput and lower direct operating costs. The Q1 2020 $12 million gathering-fee rebate to Antero Resources under the growth incentive program reduced revenue.
- The company paid Antero Resources $125 million in January 2020 related to contingent acquisition consideration; it reported that no further amount was expected to be earned.
Outlook, risks, and unusual items
- The 2020 capital budget was reduced to $210–$240 million, from an original $300–$325 million and a previously revised $250–$275 million. Antero Resources reduced its 2020 drilling and completion budget to $750 million from $1.15 billion.
- Management said available operating cash flow, cash, and revolver capacity were expected to fund operations, capital needs, dividends, and share repurchases for at least the next 12 months. It also said capital spending and shareholder returns would continue to be evaluated amid uncertain market conditions.
- COVID-19, lower commodity prices, and oil and NGL storage constraints could lead Antero Resources to defer drilling, curtail or shut in production, reducing gathering volumes and water-handling activity. The filing reported no significant supply-chain interruption or material operational impact to date.
- The CARES Act NOL carryback provision supported recognition of a $55 million income tax refund receivable. The filing also recorded impairment of all remaining gathering and processing goodwill and $89.1 million of freshwater delivery assets; management said it did not anticipate further impairment at that time.
- The Clearwater Facility remained idled, with $8.7 million of care-and-maintenance costs in Q1. Antero Treatment sued Veolia, seeking at least $457 million in damages or, alternatively, at least $230 million in restitution. Veolia filed counterclaims, including an alleged unpaid contract balance of approximately $26 million; the company disputes Veolia’s claims. The filing reports no other material litigation.
- Other risks include dependence on Antero Resources as the primary customer, floating-rate revolver exposure, regulatory and permitting uncertainty, and potential project delays or higher costs.
Investor verification priorities
- Check Antero Resources’ production, drilling plans, liquidity, and ability to meet its contractual obligations, given the company’s customer concentration.
- Track gathering and water volumes, storage constraints, and any production curtailments against the assumptions underlying the capital budget.
- Assess revolver availability and covenant headroom, debt maturities, interest-rate exposure, and the sustainability of dividends and repurchases.
- Review the assumptions behind the impairments and monitor whether further asset write-downs, idling costs, or reduced project spending arise.
- Follow the Veolia litigation, including potential recovery, counterclaims, and any effect on Clearwater-related assets or liabilities.
- Compare future results with the pro forma 2019 baseline; reported Q1 2019 GAAP results are not a like-for-like operating comparison.