Antero Midstream Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the supplied text does not provide a standalone fourth-quarter income statement or cash-flow comparison.
Business context
Antero Midstream owns and operates gathering, compression and water-handling infrastructure, principally in West Virginia and Ohio, and holds interests in processing and fractionation assets. Substantially all revenue is generated from Antero Resources, which owned 29.1% of Antero Midstream at year-end. Long-term gathering and compression and water-services agreements extend to 2038 and 2035, respectively. Antero Midstream also owns 50% of a processing and fractionation joint venture with MarkWest and 15% of Stonewall Gas Gathering.
Key financial metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue | $898.2 million | $900.7 million | Down $2.5 million |
| Operating income (loss) | $555.3 million | $(117.6) million | Improved substantially |
| Net income (loss) | $331.6 million | $(122.5) million | Improved substantially |
| Adjusted EBITDA | $876.4 million | $850.2 million | Up 3% |
| Operating cash flow | $709.8 million | $753.4 million | Down $43.6 million |
| Cash used in investing activities | $(233.2) million | $(219.2) million | Higher use of cash |
| Cash used in financing activities | $(477.2) million | $(534.7) million | Lower use of cash |
| Capital expenditures | $262 million | Not stated here | — |
At year-end, total assets were $5.54 billion, total liabilities $3.26 billion and stockholders’ equity $2.29 billion. Cash was nil. Long-term debt had a carrying value of $3.12 billion and total principal of $3.15 billion. The company had $547 million drawn on its $1.25 billion revolving credit facility, with no letters of credit outstanding; stated commitments therefore exceeded borrowings by approximately $703 million, subject to facility terms and covenants. The company reported compliance with applicable debt covenants.
Operating income was approximately 62% of revenue and net income approximately 37% of revenue, calculated from reported annual totals. Adjusted EBITDA is a non-GAAP measure and should not be treated as a substitute for GAAP earnings or cash flow.
Changes versus FY2020
- Revenue was nearly flat overall: gathering and processing revenue rose 6% to $712.7 million, while water-handling revenue declined 18% to $185.6 million.
- Water volumes fell: fresh-water delivery volumes decreased 14%, other fluid-handling volumes 19%, and wells serviced by fresh-water delivery fell from 91 to 75. Management attributed lower water revenue mainly to fewer completed wells and lower third-party fluid-handling costs/services.
- Gathering and compression throughput was mixed: low-pressure gathering declined 1%, high-pressure gathering 2%, while compression increased 2%. Facility downtime in the third quarter affected volumes; additional connected wells partly offset the impact.
- Net income turned positive largely as FY2020 included $575.5 million of goodwill impairment and $98.2 million of property-and-equipment impairment, versus $5.0 million of impairment in FY2021. FY2021 also included $21.8 million of debt-extinguishment loss.
- Interest expense rose 19% to $175.3 million. General and administrative expense excluding equity compensation increased 28% to $50.3 million; management cited Clearwater-related legal costs, higher wages and allocated costs.
- Operating cash flow declined despite higher Adjusted EBITDA, reflecting lower water revenue, higher interest and G&A costs, and working-capital changes.
Debt, liquidity, outlook and material items
- In June 2021, the company issued $750 million of 5.375% senior notes due 2029 and redeemed $650 million of 5.375% notes due 2024 at a premium. The redemption and related write-offs contributed to the $21.8 million extinguishment loss.
- In October 2021, it replaced its prior revolver with a $1.25 billion facility maturing October 2026, subject to an earlier maturity provision if 2026 notes remain outstanding in November 2025. Year-end debt also included notes due 2026, 2027, 2028 and 2029.
- The board approved a 2022 capital budget of $275 million to $300 million. Management said cash from operations, the revolver and capital-market transactions should meet working-capital needs, planned capital spending, dividends and repurchases for at least the next 12 months; this is a forward-looking expectation, not a guarantee.
- Antero Midstream spent $471.7 million on common-stock dividends during 2021; the common dividend rate was reduced from $0.3075 to $0.225 per share beginning with the first-quarter 2021 dividend. A $0.225 per-share dividend for Q4 2021 was declared in January 2022 and paid in February. No shares were repurchased under the public program during 2021; approximately $150 million of authorization remained.
- Antero Resources announced a 2022 drilling and completion budget of $675 million to $700 million and plans for 60 to 65 net Appalachian wells. Midstream volumes and water demand depend heavily on its drilling, production and completion activity. Antero Midstream’s own capital budget may be adjusted if conditions or customer plans change.
- The Clearwater wastewater facility remained idled, with $4.0 million of idling costs in 2021. A consolidated lawsuit with Veolia concerning the facility was being tried in early 2022. Antero sought approximately $450 million, or alternatively approximately $370 million, while Veolia sought approximately $118 million; the filing states that no final judgment had been rendered.
- Management highlighted inflation, labor and supply-cost pressures. Other material risks include customer concentration and non-payment, natural production decline, limited minimum-volume commitments, commodity-driven changes to Antero Resources’ development plans, regulatory and environmental costs, extreme weather, cybersecurity, interest-rate exposure and access to capital.
- Environmental and pipeline-safety rules were evolving, including new gas-gathering-line requirements and proposed methane standards. The company was assessing their impact and did not expect its exposure to differ from similarly situated midstream companies. It reported no material environmental compliance or remediation expenditures in 2021.
Important facts for investors to verify
- Review the audited financial statements and debt footnotes for debt maturities, interest rates, covenant headroom and the revolver’s actual borrowing availability.
- Assess Antero Resources’ financial condition, 2022 drilling execution and production trends, given the customer concentration and dependence of midstream volumes on its activity.
- Track water-handling volumes and revenue, the impact of fewer completed wells, and the sustainability of the gathering and compression fee and rebate structure.
- Check subsequent court filings and outcomes in the Veolia litigation, including any damages, settlement or facility-related costs.
- Compare the approved 2022 capital budget and dividend plans with realized operating cash flow, working-capital needs and debt-service costs.
- Evaluate regulatory developments, inflation and labor costs, and whether the company’s stated liquidity outlook and capital-return plans remain achievable.