Antero Midstream Corporation — 2019 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2019. Antero Midstream provides gathering, compression, processing-related interests, and water-handling services, primarily for Antero Resources in the Marcellus and Utica regions. On March 12, 2019, the company completed a simplification transaction and began consolidating Antero Midstream Partners from March 13. Consequently, reported 2019 results include the operating subsidiary for only part of the year, while 2018 reported results largely reflect the former parent’s incentive-distribution income. Pro forma results provide a more comparable, illustrative view and are not GAAP results.
Key financial metrics
| Metric | 2019 |
|---|---|
| Reported revenue | $792.6 million |
| Reported operating loss | $398.5 million |
| Reported net loss | $355.1 million; basic and diluted loss per share was $0.80 |
| Operating cash flow | $622.4 million |
| Cash and cash equivalents at year-end | $1.2 million |
| Long-term debt, net of issuance costs | $2.892 billion |
| Capital spending | $469 million total: $414 million expansion and $55 million maintenance |
| Pro forma revenue | $997.1 million, versus $957.4 million in 2018 |
| Pro forma net loss | $285.1 million, versus $312.9 million net income in 2018 |
| Pro forma Adjusted EBITDA | $829.6 million, versus $708.6 million in 2018; non-GAAP |
Pro forma Adjusted EBITDA increased 17% year over year; pro forma revenue rose 4%. These figures include the combined businesses as if the transaction had occurred at the start of each year. No directly comparable reported operating margin is presented; reported operating results were substantially affected by impairments and the change in consolidation.
Material changes and operating performance
- On a pro forma basis, gathering and processing revenue increased 23% to $638.5 million. Average low- and high-pressure gathering throughput each rose 23%, and compression throughput rose 37%, reflecting additional wells and infrastructure.
- Pro forma water-handling revenue declined 27% to $372.5 million. Fresh-water deliveries fell 28%, to 141 MBbl/d on average, and wells serviced by fresh-water delivery declined 27% to 118. Management cited reduced drilling and completion activity, water-efficiency initiatives, and greater blending/reuse.
- The Clearwater wastewater-treatment facility was idled in September 2019 after failing to operate to intended specifications. The company recorded approximately $463 million of related impairment charges and incurred $11.4 million of idling costs. An additional $298 million goodwill impairment was recorded for the fresh-water delivery and services reporting unit. Pro forma impairment expense totaled $768.9 million.
- Antero Resources produced an average 3.2 Bcfe/d in 2019, up 19% from 2018, but its announced 2020 drilling and completion budget is lower than 2019 spending.
Liquidity, debt, capital returns, and outlook
- At December 31, 2019, the revolving credit facility had $2.13 billion of lender commitments, with $960 million drawn and no letters of credit outstanding. It matures October 26, 2022. Remaining nominal commitments were approximately $1.17 billion, subject to financial covenants and other borrowing conditions. The company reported compliance with applicable covenants.
- Debt also includes $650 million principal of 5.375% notes due 2024 and $650 million each of 5.75% notes due 2027 and 2028. The filing reports $2.892 billion of total long-term debt after unamortized issuance costs. Pro forma net interest expense was $130.5 million.
- Current assets were $108.6 million and current liabilities were $242.1 million at year-end. The filing’s liquidity discussion says operating cash flows, balance-sheet cash, credit-facility borrowings, and capital-market transactions are expected to fund needs for at least the next 12 months.
- The 2020 capital budget is $300 million to $325 million. Antero Resources budgeted $1.15 billion for drilling and completions and planned an average of four rigs and 120–130 horizontal wells, substantially all on acreage dedicated to Antero Midstream.
- A share-repurchase program authorizes up to $300 million through June 30, 2021. The company repurchased approximately $125 million of shares in 2019, including 19.4 million shares from Antero Resources at about $5.16 per share; approximately $175 million of authorization remained.
- The board declared a $0.3075-per-share common dividend for the fourth quarter of 2019, payable in February 2020. The company paid $492 million in common-stock dividends during 2019.
- A $125 million fresh-water delivery milestone was reached and paid to Antero Resources in January 2020. Management did not expect to reach the separate 219-million-barrel threshold by December 31, 2020, based on Antero Resources’ budget.
- A December 2019 gathering-agreement amendment extends the term to 2038 and provides quarterly low-pressure gathering fee reductions from 2020–2023 if specified volume-growth targets are met. The compression, high-pressure gathering, and fresh-water fees were unchanged.
Risks, contingencies, and other notable disclosures
- Substantially all revenue is derived from Antero Resources, which owned 28.7% of the company at year-end. Lower commodity prices, reduced drilling or completions, customer financial distress, or nonperformance could reduce volumes, cash flow, and capital-return capacity. Fixed-fee contracts limit direct commodity-price exposure but do not remove volume and customer-credit risks.
- There are no water-service minimum volume commitments beginning in 2020. Gathering minimum-volume commitments apply only to certain requested new high-pressure lines and compressor stations, not to low-pressure gathering generally.
- The company expects Clearwater to remain idled for the foreseeable future and handles flowback and produced water through blending operations and third parties. The filing does not establish the ultimate outcome or value of the facility’s strategic evaluation.
- Other risks include leverage and refinancing needs, covenant limits, interest-rate exposure on floating-rate borrowings, Appalachian regional concentration, pipeline and environmental regulation, operational hazards, and dependence on third-party processing and transportation capacity. A 1% increase in the credit-facility interest rate was estimated to increase 2019 interest expense by $7 million.
- The company reported no material litigation, no recorded litigation or environmental contingency liabilities, and no off-balance-sheet arrangements. The auditor gave unqualified opinions on the financial statements and internal control; management also concluded controls were effective.
Most important facts for investors to verify
- Use the pro forma results, not reported year-over-year totals alone, when assessing underlying operating trends; verify the transaction adjustments and non-GAAP EBITDA reconciliation.
- Assess the sustainability of Antero Resources’ production and development plans, its financial capacity, and the company’s concentrated customer exposure.
- Track water volumes, blending/reuse effects, and the remaining $125 million milestone liability and payment terms.
- Review the Clearwater impairment assumptions, ongoing idling costs, alternative water-handling arrangements, and any further asset or goodwill charges.
- Confirm debt availability under covenant constraints, the 2022 revolver maturity, interest-rate sensitivity, and the funding capacity for the capital budget, dividends, and repurchases.
- Check actual 2020 throughput against the growth-incentive thresholds, which can reduce gathering fees, and compare Antero Resources’ realized drilling and completion activity with its announced plan.