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Antero Midstream
Business Strategy
Premier E&P Sponsor with Deep
Drilling Inventory and Diversified
Commodity Exposure
Disciplined Investment With
Unparalleled Visibility
Integrated Assets with
a Fixed-Fee Model
High Return on Invested Capital
Supports Return of Capital
to Shareholders
Peer-Leading Cash Flow
Per Share Growth
Strong Balance Sheet
with Ample Liquidity
LEADING SUSTAINABILITY
AND ESG METRICS
Cover photo: Underwood Compressor Station in Tyler County, WV
CORPORATE INFORMATION
BOARD OF DIRECTORS
PAUL M. RADY
Chairman and CEO
GLEN C. WARREN, JR.
President, CFO and Director
DAVID H. KEYTE
Lead Director
SENIOR MANAGEMENT
PAUL M. RADY
Chairman and CEO
GLEN C. WARREN, JR.
President, CFO and Director
MICHAEL N. KENNEDY
Chief Financial Offi cer and
Senior Vice President – Finance
Antero Resources
ALVYN A. SCHOPP
Chief Administrative Offi cer and
Regional Senior Vice President
STEVEN M. WOODWARD – Senior Vice
President – Business Development
W. PATRICK ASH
Senior Vice President – Reserves,
Planning and Midstream
PETER A. DEA
Director
W. HOWARD KEENAN, JR.
Director
BROOKS J. KLIMLEY
Director
JANINE J. MCARDLE
Director
JOHN C. MOLLENKOPF
Director
ROSE M. ROBESON
Director
DIANA O. HOFF
Senior Vice President – Operations
ROBERT H. KRCEK
Vice President – Midstream
YVETTE K. SCHULTZ
General Counsel and Vice President – Legal
TIMOTHY J.C. RADY
Vice President – Land
SHERI PEARCE
Chief Accounting Offi cer
and Director of Accounting
BRENDAN E. KRUEGER
Vice President – Finance and Treasurer
JOHN GIANNAULA
Vice President – Human Resources
and Administration
MARIA WOOD HENRY
Vice President – Geology
JUSTIN B. FOWLER
Vice President – Gas Marketing
and Transportation
DAVID A. CANNELONGO
Vice President – Liquids Marketing
and Transportation
AARON S. G. MERRICK
Vice President – Information Technology
TOFFAZZEL HAQUE
Vice President – Production
TROY R. ROACH
Vice President – Health, Safety,
and Environment
MICHAEL SMITH
Vice President – Logistics and
Cost Management
INVESTOR RELATIONS
ANTERO MIDSTREAM CORPORATION
1615 Wynkoop Street
Denver, Colorado 80202
(303) 357-7310 extension 6782
www.anteroresources.com
TRANSFER AGENT AND REGISTRAR
AMERICAN STOCK TRANSFER
& TRUST COMPANY, LLC
6201 15th Avenue
Brooklyn, New York 11219
(800) 937-5449
RESERVE AUDITOR
DEGOLYER AND MACNAUGHTON
Dallas, Texas
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
KPMG LLP Denver, Colorado
SHAREHOLDER INFORMATION
Our common shares are publicly traded
on the NYSE under the symbol “AM”
CORPORATE HEADQUARTERS
ANTERO MIDSTREAM CORPORATION
1615 Wynkoop Street
Denver, Colorado 80202
FORWARD-LOOKING STATEMENTS
The 2019 Annual Report includes “forward-looking statements.” Such forward-looking statements are subject to a number of risks and uncertainties, many of which are not under
Antero Midstream Corporation’s (“Antero Midstream”) control.
All statements, except for statements of historical fact, made herein regarding activities, events or developments Antero Midstream expects, believes or anticipates will or may
occur in the future, such as those regarding Antero Midstream’s cash fl ow coverage expectations, growth opportunities, 2020 and long-term fi nancial and operational outlooks
for Antero Midstream and Antero Resources Corporation (“Antero Resources”), future plans and future business lines for processing plants and fractionators, Antero Resources’
estimated production, Antero Resources’ expected future growth and Antero Resources’ ability to meet its drilling and development plan, are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although Antero Midstream believes that the plans, intentions and
expectations refl ected 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 or
initiatives with Antero Resources or with other third parties may materially impact the forecasted or targeted results described herein. Therefore, actual outcomes and results could
materially diff er from what is expressed, implied or forecast in such statements.
Antero Midstream cautions you that these forward-looking statements are subject to all of the risks and uncertainties incident to Antero Midstream’s business, most of which are
diffi cult to predict and many of which are beyond the Antero Midstream’s control. These risks include, but are not limited to, Antero Resources’ expected future growth, Antero
Resources’ ability to meet its drilling and development plan, potential shut-ins by Antero Resources to lack of downstream demand or storage capacity, commodity price volatility,
ability to execute Antero Midstream’s business strategy, competition and government regulations, actions taken by third-party producers, operators, processors and transporters,
infl ation, environmental risks, drilling and completion and other operating risks, regulatory changes, the uncertainty inherent in projecting future rates of production, cash fl ows
and access to capital, the timing of development expenditures, the impacts of world health events, including the coronavirus (COVID-19) pandemic, and the other risks described
under “Risk Factors” in Antero Midstream’s and Antero Resources’ Annual Reports on Form 10-K for the year ended December 31, 2019.
Any forward-looking statement speaks only as of the date on which such statement is made, and Antero Midstream does not undertake any obligation to correct or update any
forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.
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DEAR FELLOW
SHAREHOLDERS,
Antero Midstream had a transformational
year in 2019, closing the acquisition of Antero
Midstream Partners by Antero Midstream
GP and converting the Partnership into
a Corporation (C-Corp). The tax-efficient
transaction simplified the Antero family
structure, eliminated the incentive distribution
rights, and significantly enhanced the
shareholder rights and corporate governance.
In addition to the structural improvements
designed to increase shareholder value, we
continued to deliver on our organic growth
strategy in Appalachia servicing our primary
customer, Antero Resources (NYSE: AR).
During 2019 we generated peer-leading
volumetric, revenue, and cash flow growth
supported by Antero Resources’ liquids-rich
development in the Marcellus Shale in West
Virginia. Our integrated strategy of designing
and constructing a customized infrastructure
plan for Antero Resources resulted in high
asset utilization rates and attractive returns
on our invested capital. Specifically, our
compression and processing capacity was
98% and 88% utilized in 2019, respectively,
resulting in a 13% return on invested capital
for the year. This coordinated approach avoids
speculative investments and the competitive
acquisition markets.
In 2019, we continued to build out our core
gathering, compression and fresh water
delivery infrastructure in support of the 19%
net production growth achieved by Antero
Resources. In addition, during the second half
of 2019 we entered into a new business line
consisting of localized wastewater blending
and transportation operations. These services
re-use flowback and produced water in well
completions and drive significant cost savings
for Antero Resources. These savings have
contributed materially to Antero Resources’
ability to continue developing its world-class
resource base in a challenging commodity
price environment.
As a result of our integrated full-service
midstream strategy, Antero Midstream
generated 17% Adjusted EBITDA growth in
2019. This figure supported peer-leading year-
over-year distributable cash flow growth of 9%.
Antero Midstream successfully adjusted to
the commodity price environment and Antero
Resources’ development plan, resulting in
a significant capital investment reduction
during the year in 2019. In 2019 we invested
$644 million in capital, flat year over year and
a $130 million reduction from our original capital
budget of $750 million to $800 million. This
capital flexibility and discipline, combined with
our Adjusted EBITDA growth resulted in a strong
balance sheet with approximately $1.2 billion
in liquidity and a net debt to Adjusted
EBITDA ratio of 3.5x at year-end 2019.
$717
$830
$529
$404
$280
EBITDA
015
2
016
2
017
2
018
2
019
2
ANTERO MIDSTREAM / 01
35%
DCF Per Share Growth
187
High Pressure
Pipeline Miles
247
Low Pressure
Pipeline Miles
2.8 Bcf/d
Compression Capacity
1.1X
DCF Coverage
3.5X
Net Debt / EBITDA
29%
AR Ownership
Our 332 mile fresh water delivery network, the largest in
Appalachia, serviced 118 well completions in 2019. This fresh
water delivery system eliminated over 475,000 water
truck trips in 2019 alone, materially reducing
Antero’s environmental footprint
in Appalachia.
/ 02
ANTERO RESOURCES CORPORATION
Antero Resources was once again one of the
most active operators in Appalachia in 2019.
The company focused its development on its
liquids-rich acreage position in the Marcellus
shale dedicated to Antero Midstream. Antero’s
integrated strategy, firm transportation portfolio
and hedge position allowed it to continue
developing its resource base through the
commodity price downturn. In 2019, Antero
Resources averaged 3.2 Bcfe/d of net production,
generating 19% year-over-year net production
growth. This production included 161 MBbl/d of
NGLs and oil, or 30% of its total net production
by volume. At year-end 2019, Antero Resources
was the fifth largest natural gas producer and
the second largest NGL producer in the U.S.
GATHERING AND
COMPRESSION SERVICES
the Marcellus Shale, adding 37 miles of natural
gas gathering pipelines and 360 MMcf/d
of incremental compression capacity. As of
year-end 2019, we had 434 miles of natural
gas gathering pipelines and over 2.8 Bcf/d
of compression capacity. The strength of our
primary customer, Antero Resources, drives our
long-term project visibility and high utilization
rates on our gathering and compression
systems. Because we own and operate these
systems, the need to invest speculative capital
is eliminated in favor of pursuing the more
strategic investment of “just-in-time” capital.
WATER HANDLING AND
BLENDING SERVICES
In 2019, we continued to build out our water
handling and blending infrastructure footprint.
Similar to our gathering and compression
investment philosophy, we continue to
In keeping with the level of activity delivered by
Antero Resources, Antero Midstream invested
$315 million in gathering and compression
infrastructure in 2019. We focused our
investment primarily in West Virginia in
2,148
2,641
1,016
LOW PRESSURE GATHERING Volumes
cf/d)
015
M
(M
2
016
2
017
2
1,660
1,403
018
2
019
2
Compression Volumes
cf/d)
015
M
(M
2
1,186
016
2
2,599
2,112
1,770
1,316
017
2
018
2
019
2
ANTERO MIDSTREAM / 03
During 2019, the processing and fractionation joint venture added
400 MMcf/d of processing capacity at the Sherwood processing
complex in West Virginia, bringing the total joint venture capacity
to 1.4 Bcf/d as of year-end 2019.
/ 04
organically develop the water handling and
blending assets that support the completion
operations of Antero Resources. In 2019, Antero
Midstream added a combined 37 miles of fresh
water delivery pipelines in the Marcellus and
Utica Shale plays in West Virginia and Ohio,
respectively. Our 332 mile fresh water delivery
network, the largest in Appalachia, serviced
118 well completions in 2019. This fresh water
delivery system eliminated over 475,000 water
truck trips in 2019 alone, materially reducing
Antero’s environmental footprint in Appalachia.
PROCESSING AND
FRACTIONATION JOINT VENTURE
In 2019, Antero Midstream continued to develop
processing and fractionation infrastructure
through our 50/50 joint venture with MPLX
(NYSE: MPLX) in the core of the liquids-rich
Marcellus and Utica Shale plays. The joint
venture strengthens Antero Midstream’s full
value chain organic growth strategy while
aligning the largest core liquids-rich resource
base in Appalachia with the largest processing
complex in North America. During 2019, the
processing and fractionation joint venture
added 400 MMcf/d of processing capacity at
the Sherwood processing complex in West
Virginia, bringing the total joint venture capacity
to 1.4 Bcf/d as of year-end 2019. In addition, the
joint venture also elected to acquire an additional
20,000 Bbl/d of capacity at the Hopedale
fractionation complex in 2019, bringing the
total joint venture’s fractionation capacity to
40,000 Bbl/d. Looking ahead to 2020, the
joint venture expects to place online its first
processing plant at the Smithburg processing
complex located in the core of the Marcellus
Shale near the Sherwood processing complex.
THE POTENTIAL FOR 2020
The year ahead represents an exciting
opportunity for Antero Midstream as we enter
our first full year as a simplified C-Corp with
no incentive distribution rights and enhanced
corporate governance. Our strong balance
NYMEX Natural Gas Price
Dividend Per Unit
$0.30 $0.31 $0.31
$0.25
$0.23
$0.22
$0.21
$3.85
$0.19
$0.18
$0.17
$0.16
$0.15
$0.14
$0.13
$0.12
$0.12
$0.15
$0.13
$0.14
$0.12
Q3
2015
Q2
2015
Q1
Q2
2015
2016
Dividend Consistency through Commodity Volatility
Q4
2016
Q3
2016
Q1
2016
Q3
2017
Q2
2017
Q1
2017
Q4
2015
Q4
2017
Q2
Q1
Q1
Q3
2018 2018 2018 2018 2019
Q4
Q2
2019
Q3
2019
Q4
2019
ANTERO MIDSTREAM / 05
of 0.28% and the industry target of below 1%
by 2025. Finally, highlighting our commitment
to Environmental, Safety and Governance
leadership (ESG), both Antero Resources
and Antero Midstream have established ESG
committees on their respective Board of
Directors. Thanks to continuous improvement
in our safety and environmental performance,
Antero is viewed as a safe and environmentally
responsible operator.
THE PEOPLE OF
ANTERO MIDSTREAM
We want to express our appreciation for the
dedication and hard work of our talented
employees. They are the core of our continued
focus and momentum in generating costs
savings value creation that underpin our
business model, ultimately to the benefit of our
shareholders. The entrepreneurial approach
and expertise of our employees in assembling
and executing world-class midstream projects
represent Antero Midstream’s true strength and
competitive advantage. We also appreciate the
guidance and support of our Board of Directors.
We thank you, our shareholders, for investing
in our Company and look forward to further
success in 2020 and in the years to come.
PAUL M. RADY
Chairman and CEO
GLEN C. WARREN, JR.
President
sheet, as evidenced by our below peer average
leverage of 3.5x and $1.2 billion of liquidity,
positions us to deliver on our 2020 capital
program with no need to access the capital
markets. We plan to invest $215 to $240 million
in gathering, processing, fractionation, and
water handling and treatment infrastructure in
2020. Our operational focus will remain resolute
with the goals of improving our capital efficiency
and delivering on our full value chain organic
growth strategy. Our commitment to support the
growth profile of Antero Resources, enables us
to continue to achieve peer-leading cash flow
growth in 2020 and beyond.
HEALTH, SAFETY
AND THE ENVIRONMENT
Antero’s commitment to health, safety
and the environment is a core value of our
organization. We have a culture dedicated
to safety and environmental stewardship.
This reduces risk, enhances productivity, and
elevates our reputation in the communities in
which we operate. We invest heavily in safety
training and coaching of our employees and
contractors. We promote risk assessment and
encourage visible safety leadership, and we
sponsor emergency preparedness programs.
On the environmental front, Antero Midstream
is committed to methane leak reduction
opportunities through our membership in the
EPA Natural Gas Star Program. The program
implements methane loss reduction projects
and reporting methane emissions per unit of
production to the EPA every year. We also
report our yearly greenhouse gas emissions as
a rate per unit of production and our methane
leak loss rate. We are proud to state that Antero
Resources’ and Antero Midstream’s combined
GHG emissions intensity positions the Antero
family as a peer leader in the oil & gas industry.
Further, Antero Midstream’s methane leak loss
rate was just 0.02% in 2019, which is well ahead
of the ONE Future gas production segment goal
/ 06
FORM 10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 001-38075
ANTERO MIDSTREAM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1615 Wynkoop Street
Denver Colorado
(Address of principal executive offices)
61-1748605
(IRS Employer
Identification No.)
80202
(Zip Code)
(303) 357-7310
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01
AM
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer
Emerging growth company ☐ Accelerated filer
Smaller reporting company ☐
Non-accelerated filer
If an emerging growth company, indicate by checkmark if the registrant has elected to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes No
The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 28, 2019, the last business day of the registrant’s most
recently completed second fiscal quarter, was approximately $2.8 billion based on the $11.46 per share closing price of Antero Midstream Corporation’s common stock
as reported on that day on the New York Stock Exchange.
The registrant had 484,084,523 shares of common stock outstanding as of February 7, 2020.
Documents incorporated by reference: Portions of the registrant’s proxy statement for its annual meeting of stockholders to be filed pursuant to Regulation 14A
within 120 days after the registrant’s fiscal year end are incorporated by reference into Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
PART I
Items 1 and 2.
Item 1A.
Item 1B.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Business and Properties
Risk Factors
Unresolved Staff Comments
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Page
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2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this Annual Report on Form 10-K may contain forward-looking statements. Forward-looking
statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future
events. Words such as “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,”
“anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking
statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based
on our current expectations and assumptions about future events and are based on currently available information as to the outcome
and timing of future events. When considering these forward-looking statements, investors should keep in mind the risk factors and
other cautionary statements in this Annual Report on Form 10-K. These forward-looking statements are management’s belief, based
on currently available information, as to the outcome and timing of future events. Factors that could cause our actual results to differ
materially from the results contemplated by such forward-looking statements include:
Antero Resources Corporation’s (“Antero Resources”) expected production and development plan;
our ability to execute our business strategy;
our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects,
working capital requirements and the repayment or refinancing of indebtedness;
our ability to realize the anticipated benefits of our investments in unconsolidated affiliates;
natural gas, natural gas liquids (“NGLs”) and oil prices;
our ability to complete the construction of or purchase new gathering and compression, processing, water handling or
other assets on schedule, at the budgeted cost or at all, and the ability of such assets to operate as designed or at expected
levels;
our ability to successfully complete our share repurchase program;
competition and government regulations;
actions taken by third-party producers, operators, processors and transporters;
legal or environmental matters;
costs of conducting our operations;
general economic conditions;
credit markets;
operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control;
uncertainty regarding our future operating results; and
our other plans, objectives, expectations and intentions contained in this Annual Report on Form 10-K.
We caution investors that these forward-looking statements are subject to all of the risks and uncertainties incidental to our
business, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to,
commodity price volatility, inflation, environmental risks, Antero Resources’ drilling and completion and other operating risks,
regulatory changes, the uncertainty inherent in projecting Antero Resources’ future rates of production, cash flows and access to
capital, the timing of development expenditures, and the other risks described under the heading “Risk Factors” in this Annual Report
on Form 10-K.
Should one or more of the risks or uncertainties described in this Annual Report on Form 10-K occur, or should underlying
assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking
statements.
3
All forward-looking statements, expressed or implied, included in this Annual Report on Form 10-K are expressly qualified
in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent
written or oral forward-looking statements that we or persons acting on our behalf may issue.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements to reflect
events or circumstances after the date of this Annual Report on Form 10-K.
GLOSSARY OF COMMONLY USED TERMS
The following are abbreviations and definitions of certain terms used in this document, which are commonly used in our
industry:
“Bbl.” One stock tank barrel, of 42 U.S. gallons liquid volume, used herein in reference to crude oil, condensate, NGLs, or
water.
“Bbl/d.” Bbl per day.
“Bcf.” One billion cubic feet of natural gas.
“Bcfe.” One billion cubic feet of natural gas equivalent with one barrel of oil, condensate, or NGLs converted to six
thousand cubic feet of natural gas.
“Bcfe/d.” Bcfe per day.
“DOT.” Department of Transportation.
“Dry gas.” A natural gas containing insufficient quantities of hydrocarbons heavier than methane to allow their commercial
extraction or to require their removal in order to render the gas suitable for fuel use.
“EPA.” Environmental Protection Agency.
“Expansion capital.” Cash expenditures to construct new midstream infrastructure and those expenditures incurred in order
to extend the useful lives of our assets, reduce costs, increase revenues or increase system throughput or capacity from current levels,
including well connections that increase existing system throughput.
“FERC.” Federal Energy Regulatory Commission.
“Field.” An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual
geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the
surface and the underground productive formations.
“High pressure pipelines.” Pipelines gathering or transporting natural gas that has been dehydrated and compressed to the
pressure of the downstream pipelines or processing plants.
“Hydrocarbon.” An organic compound containing only carbon and hydrogen.
“Joint Venture.” The joint venture entered into on February 6, 2017 between Antero Midstream Partners L.P. (“Antero
Midstream Partners”), which is our wholly owned subsidiary, and MarkWest Energy Partners, L.P. (“MarkWest”), a wholly owned
subsidiary of MPLX, LP (“MPLX”), to develop processing and fractionation assets in Appalachia.
“Low pressure pipelines.” Pipelines gathering natural gas at or near wellhead pressure that has yet to be compressed (other
than by well pad gas lift compression or dedicated well pad compressors) and dehydrated.
“Maintenance capital.” Cash expenditures (including expenditures for the construction or development of new capital assets
or the replacement, improvement or expansion of existing capital assets) made to maintain, over the long term, our operating capacity
or revenue.
“MBbl.” One thousand Bbls.
4
“MBbl/d.” One thousand Bbls per day.
“Mcf.” One thousand cubic feet of natural gas.
“MMBtu.” One million British thermal units.
“MMcf.” One million cubic feet of natural gas.
“MMcf/d.” One million cubic feet per day.
“Natural gas.” Hydrocarbon gas found in the earth, composed of methane, ethane, butane, propane and other gases.
“NGLs.” Natural gas liquids. Hydrocarbons found in natural gas that may be extracted as purity products such as ethane,
propane, isobutene and normal butane, and natural gasoline.
“NYMEX.” New York Mercantile Exchange.
“Oil.” Crude oil and condensate.
“SEC.” United States Securities and Exchange Commission.
“Tcfe.” One trillion cubic feet of natural gas equivalent with one barrel of oil, condensate, or NGLs converted to six
thousand cubic feet of natural gas.
“Throughput.” The volume of product transported or passing through a pipeline, plant, terminal or other facility.
5
PART I
References in this Annual Report on Form 10-K to the “Company,” “ARMM,” “we,” “our,” “us” or like terms, when
referring to periods prior to May 4, 2017, refer to our predecessor, Antero Resources Midstream Management LLC and its
consolidated subsidiaries, which did not include Antero Midstream Partners LP (“Antero Midstream Partners”) or its consolidated
subsidiaries. References to the “Company,” “AMGP,” “we,” “our,” “us” or like terms, when referring to periods beginning on
May 4, 2017 and ending on March 12, 2019, refer to our predecessor, Antero Midstream GP LP and its consolidated subsidiaries,
which did not include Antero Midstream Partners or its consolidated subsidiaries. References to the “Company,” “Antero
Midstream,” “AMC,” “we,” “our,” “us” or like terms, when referring to periods beginning on March 13, 2019 and prospectively,
refer to Antero Midstream Corporation and its consolidated subsidiaries, including Antero Midstream Partners and its subsidiaries.
References in this Annual Report on Form 10-K to the Company’s, Antero Midstream’s, AMC’s or our (i) indebtedness refer to the
indebtedness of Antero Midstream Partners and (ii) operational or capital spending information refer to the operational or capital
spending information of (1) for all periods prior to March 12, 2019, Antero Midstream Partners and its consolidated subsidiaries, and
(2) for all periods on or after March 13, 2019, Antero Midstream and its consolidated subsidiaries, including Antero Midstream
Partners and its subsidiaries.
Items 1 and 2. Business and Properties
Our Company and Organization Structure
Antero Midstream Corporation was originally formed as Antero Resources Midstream Management LLC in 2013 to become
the general partner of Antero Midstream Partners. On May 4, 2017, ARMM converted from a limited liability company to a limited
partnership under the laws of the State of Delaware and changed its name to Antero Midstream GP LP (“AMGP”) in connection with
its initial public offering. On March 12, 2019, pursuant to the Simplification Agreement, dated as of October 9, 2018, by and among
AMGP, Antero Midstream Partners and certain of their affiliates (the “Simplification Agreement”), (i) AMGP was converted from a
limited partnership to a corporation under the laws of the State of Delaware and changed its name to Antero Midstream Corporation
(the “Conversion”), (ii) an indirect, wholly owned subsidiary of Antero Midstream was merged with and into Antero Midstream
Partners, with Antero Midstream Partners surviving the merger as an indirect, wholly owned subsidiary of Antero Midstream (the
“Merger”), and (iii) Antero Midstream exchanged (the “Series B Exchange” and, together with the Conversion, the Merger and the
other transactions pursuant to the Simplification Agreement, the “Transactions”) each issued and outstanding Series B Unit (the
“Series B Units”) representing a membership interest in Antero IDR Holdings LLC (“IDR Holdings”) for 176.0041 shares of its
common stock, par value $0.01 per share.
We are a growth-oriented midstream energy company formed to own, operate and develop midstream energy assets to
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 Marcellus and Utica Shale plays.
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 Marcellus and Utica Shales 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. In addition, we also provide fluid
handling services for flowback and produced water, including blending, storage, and transportation operations. These operations,
along with our fresh water delivery systems, support well completion and production operations for Antero Resources. These services
are provided by us directly or through third-parties with which we contract.
We utilize our midstream infrastructure assets to provide gathering, compression, processing, fractionation and integrated
water services, including fresh water delivery services and other fluid handling services to Antero Resources under long-term, fixed-
fee contracts, limiting our direct exposure to commodity price risk. As of December 31, 2019, all of Antero Resources’ approximate
594,000 gross acres (541,000 net acres) are dedicated to us for gathering, compression and water services, except for approximately
140,000 gross acres subject to third-party gathering and compression commitments. We also own a 15% equity interest in the
gathering system of Stonewall Gas Gathering LLC (“Stonewall”) and a 50% equity interest in the Joint Venture to develop processing
and fractionation assets in Appalachia with MarkWest. In connection with our entry into the Joint Venture with MarkWest, we
released to the Joint Venture our right to provide certain processing and fractionation services on 195,000 gross acres held by Antero
Resources in Ritchie, Tyler and Wetzel Counties in West Virginia. Under its agreements with us, and subject to any pre-existing
dedications or other third-party commitments, Antero Resources has dedicated to us all of its current and future acreage in West
Virginia, Ohio and Pennsylvania for gathering and compression services and all of its acreage within defined service areas in West
Virginia and Ohio for water services. We also have certain rights of first offer with respect to gathering, compression, processing, and
6
fractionation services, and water services for acreage located outside of the existing dedicated areas. The gathering and compression
agreement expires in 2038, and the water services agreement expires in 2035. Both agreements are subject to automatic annual
renewal with rights by either party to terminate on or before the 180th day prior to the anniversary of such effective date.
Under a secondment agreement and a services agreement, Antero Resources seconds employees to us to provide operational
services with respect to our assets and certain corporate, general and administrative services.
In connection with our entrance into the water services agreement, we agreed to pay Antero Resources (a) $125 million in
cash if we delivered 176 million barrels or more of fresh water during the period between January 1, 2017 and December 31, 2019 and
(b) an additional $125 million in cash if we deliver 219 million barrels or more of fresh water during the period between January 1,
2018 and December 31, 2020. As of December 31, 2019, we had delivered 176 million barrels of fresh water, which entitled Antero
Resources to $125 million pursuant to clause (a) above. As a result, in January 2020, we paid Antero Resources $125 million. In the
two-year period ended December 31, 2019, we delivered 123 million of the 219 million barrels of fresh water, and we do not expect to
deliver at least 219 million barrels by December 31, 2020 based on Antero Resources’ 2020 budget.
Our gathering and compression assets consist of high and low pressure gathering pipelines, compressor stations, and
processing and fractionation plants that collect and process natural gas and NGLs from Antero Resources’ wells in West Virginia and
Ohio. Our water handling assets include two independent systems that deliver fresh water from sources including the Ohio River,
local reservoirs and several regional waterways. The fresh water delivery services systems consist of permanent buried pipelines,
surface pipelines and fresh water storage facilities, as well as pumping stations and impoundments to transport fresh water throughout
the systems used to deliver water to Antero Resources’ well completions. As of December 31, 2019, we had the ability to store
5.8 million barrels of fresh water in 38 impoundments. Additionally, we own water blending and storage assets to support other fluid
handling services that we provide to Antero Resources for well completion and production activities. We also own water treatment
assets including the Antero Clearwater Facility, waste water pits and a related landfill used for the disposal of salt therefrom
(collectively, the “Clearwater Facility”), which we idled in September 2019. For additional information, please read “—
Developments and Highlights—Idling of the Clearwater Facility.”
Due to the extensive geographic distribution of our water pipeline systems in both West Virginia and Ohio, we are able to
provide, and have in the past provided, water delivery services to other oil and gas producers operating within and adjacent to Antero
Resources’ operating area in an effort to further leverage the use of our existing system.
Our operations are located in the United States and are organized into two reporting segments: (1) gathering and processing
and (2) water handling. Financial information for our reporting segments is located under Note 17—Reporting Segments to our
consolidated financial statements.
Developments and Highlights
2019 Capital Investments
For the year ended December 31, 2019, our total capital spending was $469 million, which included $414 million of
expansion capital and $55 million of maintenance capital. We spent an aggregate of $315 million for gathering and compression
infrastructure. The additional gathering and compression infrastructure included 37 miles of pipelines in the Marcellus and Utica
Shales combined. Additionally, we invested an aggregate of $154 million in water infrastructure to construct 47 miles of additional
buried fresh water pipelines and surface pipelines. Substantially all capital spending was invested in the Marcellus Shale. We also
invested $179 million in our unconsolidated affiliates.
7
2020 Capital Budget
During 2020, we plan to expand our existing Marcellus and Utica Shale gathering, processing and fresh water delivery
infrastructure to accommodate Antero Resources’ development plans. Antero Resources announced that it plans to operate an average
of four drilling rigs and complete between 120 and 130 horizontal wells, substantially all of which are expected to be located on
acreage dedicated to us. Antero Resources’ announced 2020 drilling and completion capital budget is $1.15 billion. Our 2020 capital
budget is a range of $300 million to $325 million.
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 will 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 the gathering and compression for four additional 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 tier for the
respective calendar years, Antero Resources will not receive a reduction in low pressure gathering fees.
Calendar Year 2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Calendar Years 2021-2023
Threshold 1
Threshold 2
Threshold 3
Return of Capital Program
Low Pressure Gathering
Volume Growth Incentive
Targets (MMcf/d)
Quarterly Fee
Reduction
(in millions)
>2,700
>2,700
>2,800
>2,900
>2,900 and <3,150
>3,150 and <3,400
>3,400
$12
$12
$12
$12
$12
$15.5
$19
On August 12, 2019, our Board of Directors (the “Board”) authorized a share repurchase program to opportunistically
repurchase up to $300 million of shares of our outstanding common stock through June 30, 2021. During the year ended December
31, 2019, we repurchased 22.9 million shares for approximately $125 million under this program. This included 19.4 million shares
from Antero Resources at a price of $5.16 per share in December 2019, and we currently have approximately $175 million of share
repurchase capacity remaining under this program.
On January 15, 2020, the Board declared a cash dividend on the shares of our common stock of $0.3075 per share for the
quarter ended December 31, 2019. The dividend will be payable on February 12, 2020 to stockholders of record as of January 31,
2020.
The Board also declared a cash dividend of $138 thousand on our shares of Series A Non-Voting Perpetual Preferred Stock,
par value $0.01 (the “Series A Preferred Stock”) to be paid on February 14, 2020 in accordance with the terms of the Series A
Preferred Stock, which are discussed in Note 14—Equity and Earnings Per Common Share to our consolidated financial statements.
8
Idling of the Clearwater Facility
On September 18, 2019, we commenced a strategic evaluation of the Clearwater Facility. Based on the preliminary results of
our evaluation and ongoing discussions with the Clearwater Facility’s contractor, the Clearwater Facility was idled. We expect the
Clearwater Facility to continue to be idled for the foreseeable future. The decision to idle the Clearwater Facility was driven by its
inability to operate at its intended specifications. Accordingly, we recorded impairment charges related to the Clearwater Facility of
$409 million for property and equipment, $42 million of goodwill and $12 million in customer relationships during the year ended
December 31, 2019. See Note 4—Clearwater Facility Impairment to our consolidated financial statements. We incurred $11 million
in facility idling costs for the care and maintenance of the Clearwater Facility during the period from September 18, 2019 through
December 31, 2019. Since idling the Clearwater Facility, we have satisfied our obligation to handle Antero Resources’ flowback and
produced water through our blending operations and third parties.
Closing of Simplification Transaction
On March 12, 2019, AMGP and Antero Midstream Partners completed certain simplification transactions pursuant to the
Simplification Agreement, dated as of October 9, 2018, by and among AMGP, Antero Midstream Partners and certain of their
affiliates (the “Transactions”). The Merger has been accounted for as an acquisition by AMGP of Antero Midstream Partners under
ASC 805, Business Combinations, and accounted for as a business combination, with the assumed assets and liabilities of Antero
Midstream Partners recorded at fair value.
Financial Results as Reported
For the year ended December 31, 2019, we generated cash flows from operations of $622 million and a net loss of $355
million. This compares to cash flows from operations of $84 million and net income of $67 million for the year ended December 31,
2018. For the year ended December 31, 2019, we consolidated the results of Antero Midstream Partners and its subsidiaries after
March 12, 2019, whereas for the year ended December 31, 2018 and for the period from January 1, 2019 through March 12, 2019, our
source of income and cash flow was solely from the incentive distribution rights of Antero Midstream Partners.
Credit Facility
Antero Midstream Partners, as borrower (the “Borrower”), has a senior secured revolving credit facility (the “Credit
Facility”) with a consortium of banks. We will fund our operations through our operating cash flows, cash on our balance sheet,
borrowings under the Credit Facility and capital market transactions. We increased lender commitments under the Credit Facility
from $2.0 billion to $2.13 billion on November 19, 2019. At December 31, 2019, we had $960 million outstanding and no letters of
credit outstanding under the Credit Facility. The maturity date of the Credit Facility is October 26, 2022. See “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity—Debt
Agreements—Antero Midstream Partners Revolving Credit Facility” for a description of the Credit Facility.
Our Assets
The following table provides information regarding our gathering and processing systems as of December 31, 2019:
Marcellus
Utica
Total
Low-Pressure
Pipeline (miles)
High-Pressure
Pipeline (miles)
Compression
Capacity (MMcf/d)
173
74
247
151
36
187
2,505
320
2,825
The following table provides information regarding our water handling systems as of December 31, 2019:
Marcellus
Utica
Total
Buried Fresh
Water Pipeline
(miles)
Surface Fresh
Water Pipeline
(miles)
149
54
203
98
31
129
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Our Relationship with Antero Resources
Antero Resources has a 28.7% ownership interest in us. Antero Resources is our most significant customer and is one of the
largest producers of natural gas and NGLs in the Appalachian Basin, where it produced, on average, 3.2 Bcfe/d net (30% liquids)
during 2019, an increase of 19% as compared to 2018. As of December 31, 2019, Antero Resources’ estimated net proved reserves
were 18.9 Tcfe, which were comprised of 61% natural gas, 38% NGLs, and 1% oil. As of December 31, 2019, Antero Resources’
drilling inventory consisted of 2,385 identified potential horizontal well locations (approximately 1,685 of which were located on
acreage dedicated to us) for gathering and compression and water handling services, which provides us with significant opportunities
for growth as Antero Resources’ active drilling program continues and its production increases. Antero Resources’ announced 2020
drilling and completion budget is $1.15 billion, and includes plans to operate an average of four drilling rigs, primarily in the
Marcellus Shale. Antero Resources relies significantly on us to deliver the midstream infrastructure necessary to accommodate its
production growth. For additional information regarding our contracts with Antero Resources, please read “—Contractual
Arrangement with Antero Resources.”
We derive substantially all of our revenue from Antero Resources. Any development that materially and adversely affects
Antero Resources’ operations, financial condition or market reputation could have a material adverse impact on us. Accordingly, we
are indirectly subject to the business risks of Antero Resources. For additional information, please read “Item 1A. Risk Factors—
Risks Related to Our Business.”
Operational and Managerial Arrangements with Antero Resources
Gathering and Compression
Pursuant to the gathering and compression agreement with Antero Resources, Antero Resources has dedicated all of its
current and future acreage in West Virginia, Ohio and Pennsylvania to Antero Midstream Partners for gathering and compression
except for acreage attributable to third-party commitments in effect prior to the agreement, or acreage Antero Resources acquires that
is subject to pre-existing dedications. In December 2019, we and Antero Resources agreed to extend the initial term of the agreement
to 2038 and established a growth incentive fee program whereby low pressure gathering fees will be reduced from 2020 through 2023
to the extent Antero Resources achieves certain volumetric targets. For a discussion of Antero Resources’ existing third-party
commitments and pre-existing dedications, please read “—Antero Resources’ Existing Third-Party Commitments.” We also have an
option to gather and compress natural gas produced by Antero Resources on any acreage it acquires in the future outside of West
Virginia, Ohio and Pennsylvania on the same terms and conditions. Under the gathering and compression agreement, we receive a
low pressure gathering fee per Mcf, a high-pressure gathering fee per Mcf, and a compression fee per Mcf, in each case subject to
CPI-based adjustments. If and to the extent Antero Resources requests that we construct new high pressure lines and compressor
stations, the gathering and compression agreement contains minimum volume commitments that require Antero Resources to utilize or
pay for 75% and 70%, respectively, of the capacity of such new construction for 10 years. Additional high pressure lines and
compressor stations installed on our own initiative are not subject to such volume commitments. These minimum volume
commitments on new infrastructure are intended to support the stability of our cash flows.
Water Handling Services
Pursuant to the water services agreement, we provide certain water handling services to Antero Resources within an area of
dedication in defined service areas in Ohio and West Virginia. We also have certain rights of first offer with respect to water services
for acreage located outside of the existing dedicated areas. Antero Resources agreed to pay us for all water handling services provided
by us in accordance with the terms of the water services agreement. As of the start of 2020, there are no minimum volume
commitments under this agreement. Under the agreement, Antero Resources will pay a fixed fee per barrel in West Virginia and Ohio
and all other locations for fresh water deliveries by pipeline directly to the well site. Antero Resources also agreed to pay us a fixed
fee per barrel for wastewater treatment at the Clearwater Facility, which was idled in the third quarter of 2019 and we expect will
remain idled for the foreseeable future. Additionally, we provide or manage other fluid handling services for well completion and
production operations in Antero Resources’ operating areas. The fees for such services are all subject to CPI adjustments. In addition,
we also provide fluid handling services for flowback and produced water, including blending, storage, and transportation operations.
These operations, along with our fresh water delivery systems, support well completion and production operations for Antero
Resources. These services are provided by us directly or through third-parties with which we contract. For flowback and produced
water services provided by third-parties, Antero Resources reimburses our third-party out-of-pocket costs plus 3%. For flowback and
produced water services provided by us, we charge Antero Resources a cost of service fee. On February 12, 2019, Antero Resources
and Antero Midstream Partners amended and restated the water services agreement to, among other things, make certain clarifying
changes with respect to the CPI adjustments. The initial term of the water services agreement runs to 2035.
10
Gas Processing and NGL Fractionation
The Joint Venture was formed in February 2017 to develop processing and fractionation assets in Appalachia. We have a
right-of-first-offer agreement with Antero Resources for the provision of processing and fractionation services pursuant to which
Antero Resources, subject to certain exceptions, may not procure any gas processing or NGL fractionation services with respect to its
production (other than production subject to a pre-existing dedication) without first offering us the right to provide such services. For
additional information, please read “—Antero Resources’ Existing Third-Party Commitments.”
Secondment and Services Agreements
Pursuant to a secondment agreement and a services agreement, Antero Resources seconds employees to us to provide
operational services with respect to our assets and certain corporate, general and administrative services in exchange for
reimbursement of any direct expenses and an allocation of any indirect expenses attributable to its provision of such services. These
agreements extend through 2039.
Antero Resources’ Existing Third-Party Commitments
Excluded Acreage
Antero Resources previously dedicated a portion of its acreage in the Marcellus Shale to certain third parties’ gathering and
compression services. We refer to this acreage dedication as the “excluded acreage.” As of December 31, 2019, the excluded acreage
consisted of approximately 140,000 of Antero Resources’ existing gross leasehold acreage, which included approximately 700 of
Antero Resources’ 2,385 potential horizontal well locations. As part of its five year drilling plan, Antero Resources expects to drill
most of its wells on acreage dedicated to us.
Other Commitments
In addition to the excluded acreage, Antero Resources has entered into take-or-pay contracts with volume commitments for
certain third parties’ high pressure gathering and compression services. Specifically, those volume commitments consist of up to an
aggregate of 750 MMcf/d on four high pressure gathering pipelines and 1,020 MMcf/d on nine compressor stations.
Acreage Dispositions
In addition to the excluded acreage and Antero Resources’ other commitments with third parties, each of the gathering and
compression agreement, water services agreement and right of first offer agreement between Antero Resources and us permit Antero
Resources to sell, transfer, convey, assign, grant, or otherwise dispose of dedicated properties free of the dedication under such
agreements, provided that the number of net acres of dedicated properties so disposed of, when added to the number of net acres of
dedicated properties previously disposed of free of the dedication since the respective effective dates of the agreements, does not
exceed the aggregate number of net acres of dedicated properties acquired by Antero Resources since such effective dates.
Accordingly, under certain circumstances, Antero Resources may dispose of a significant number of net acres of dedicated properties
free from dedication without our consent, and we have no control over the timing or extent of such dispositions.
Title to Properties
Our real property is classified into two categories: (1) parcels that we own in fee and (2) parcels in which our interest derives
from leases, easements, rights-of-way, permits or licenses from landowners or governmental authorities, permitting the use of such
land for our operations. Portions of the land on which our pipelines and major facilities are located are owned by us in fee title, and
we believe that we have satisfactory title to these lands. The remainder of the land on which our pipelines and major facilities are
located are held by us pursuant to surface leases between us, as lessee, and the fee owner of the lands, as lessors. We have leased or
owned these lands without any material challenge known to us relating to the title to the land upon which the assets are located, and
we believe that we have satisfactory leasehold estates or fee ownership of such lands. We have no knowledge of any challenge to the
underlying fee title of any material lease, easement, right-of-way, permit or license held by us or to our title to any material lease,
easement, right-of-way, permit or lease, and we believe that we have satisfactory title to all of its material leases, easements,
rights-of-way, permits and licenses.
11
Seasonality
Demand for natural gas generally decreases during the spring and fall months and increases during the summer and winter
months. However, seasonal anomalies such as mild winters or mild summers sometimes lessen this fluctuation. In addition, certain
natural gas end users, utilities and marketers utilize natural gas storage facilities and purchase some of their anticipated winter
requirements during the spring, summer and fall, thereby smoothing demand for natural gas. This can also lessen seasonal demand
fluctuations. These seasonal anomalies can increase demand for our services during the summer and winter months and decrease
demand for our services during the spring and fall months.
Competition
As a result of our relationship with Antero Resources, we do not compete for the portion of Antero Resources’ existing
operations for which we currently provide midstream services and will not compete for future portions of Antero Resources’
operations that are dedicated to us pursuant to: (i) our gathering and compression agreement; (ii) our water handling services
agreement; and (iii) our right-of-first-offer agreement with Antero Resources for the provision of processing and fractionation
services. For a description of this contract, please read “—Our Relationship with Antero Resources—Contractual Arrangements with
Antero Resources.” However, we face competition in attracting third-party volumes to our gathering and compression and water
handling systems. In addition, these third parties may develop their own gathering and compression and water handling systems in
lieu of employing our assets.
Regulation of Operations
Regulation of pipeline gathering services may affect certain aspects of our business and the market for our services.
Gathering Pipeline Regulation
Section 1(b) of the Natural Gas Act of 1938, or NGA, exempts natural gas gathering facilities from regulation by the FERC,
under the NGA. Although the FERC has not made any formal determinations with respect to any of our facilities, we believe that the
natural gas pipelines in our gathering systems meet the traditional tests the FERC has used to establish whether a pipeline is a
gathering pipeline not subject to FERC jurisdiction. The distinction between FERC-regulated transmission services and federally
unregulated gathering services, however, has been the subject of substantial litigation, and the FERC determines whether facilities are
gathering facilities on a case-by-case basis, so the classification and regulation of some our gathering facilities and intrastate
transportation pipelines may be subject to change based on future determinations by the FERC, the courts, or Congress. If the FERC
were to consider the status of an individual facility and determine that the facility is not a gathering pipeline and the pipeline provides
interstate transmission service, the rates for, and terms and conditions of, services provided by such facility would be subject to
regulation by the FERC under the NGA or the Natural Gas Policy Act of 1978, or NGPA. Such FERC-regulation could decrease
revenue, increase operating costs, and, depending upon the facility in question, could adversely affect our results of operations and
cash flows. In addition, if any of our facilities were found to have provided services or otherwise operated in violation of the NGA or
NGPA, this could result in the imposition of civil penalties as well as a requirement to disgorge charges collected for such service in
excess of the rate established by the FERC.
Unlike natural gas gathering under the NGA, there is no exemption for the gathering of crude oil or NGLs under the
Interstate Commerce Act, or ICA. Whether a crude oil or NGL shipment is in interstate commerce under the ICA depends on the
fixed and persistent intent of the shipper as to the crude oil’s or NGL’s final destination, absent a break in the interstate movement.
Antero Midstream believes that the crude oil and NGL pipelines in its gathering system meet the traditional tests the FERC has used to
determine that a pipeline is not providing transportation service in interstate commerce subject to FERC ICA jurisdiction. However,
the determination of the interstate or intrastate character of shipments on Antero Midstream’s crude oil and NGL pipelines depends on
the shipper’s intentions and the transportation of the crude oil or NGLs outside of Antero Midstream’s system, and may change over
time. If the FERC were to consider the status of an individual facility and the character of a crude oil or NGL shipment, and
determine that the shipment is in interstate commerce, the rates for, and terms and conditions of, transportation services provided by
such facility would be subject to regulation by the FERC under the ICA. Such FERC regulation could decrease revenue, increase
operating costs, and, depending on the facility in question, could adversely affect Antero Midstream’s results of operations and cash
flows. In addition, if any of Antero Midstream’s facilities were found to have provided services or otherwise operated in violation of
the ICA, this could result in the imposition of administrative and civil remedies and criminal penalties, as well as a requirement to
disgorge charges collected for such services in excess of the rate established by the FERC.
12
State regulation of gathering facilities generally includes various safety, environmental and, in some circumstances,
nondiscriminatory take requirements and complaint-based rate regulation. States in which we operate may adopt ratable take and
common purchaser statutes, which would require our gathering pipelines to take natural gas without undue discrimination in favor of
one producer over another producer or one source of supply over another similarly situated source of supply. The regulations under
these statutes may have the effect of imposing some restrictions on our ability as an owner of gathering facilities to decide with whom
we contract to gather natural gas. States in which we operate may also adopt a complaint-based regulation of natural gas gathering
activities, which allows natural gas producers and shippers to file complaints with state regulators in an effort to resolve grievances
relating to gathering access and rate discrimination. We cannot predict whether such regulation will be adopted and whether such a
complaint will be filed against us in the future. Failure to comply with state regulations can result in the imposition of administrative,
civil and criminal remedies. To date, there has been no adverse effect to our system due to state regulations.
Our gathering operations could be adversely affected should they be subject in the future to more stringent application of
state regulation of rates and services. Our gathering operations also may be, or become, subject to additional safety and operational
regulations relating to the design, installation, testing, construction, operation, replacement and management of gathering facilities.
Additional rules and legislation pertaining to these matters are considered or adopted from time to time. We cannot predict what
effect, if any, such changes might have on our operations, but the industry could be required to incur additional capital expenditures
and increased costs depending on future legislative and regulatory changes.
The Energy Policy Act of 2005, or EPAct 2005, amended the NGA and NGPA to prohibit fraud and manipulation in natural
gas markets. The FERC subsequently issued a final rule making it unlawful for any entity, in connection with the purchase or sale of
natural gas or transportation service subject to FERC’s jurisdiction, to defraud, make an untrue statement or omit a material fact or
engage in any practice, act or course of business that operates or would operate as a fraud. The FERC’s anti-manipulation rules apply
to intrastate sales and gathering activities only to the extent that there is a “nexus” to FERC-jurisdictional transactions. EPAct 2005
also provided the FERC with the authority to impose civil penalties of up to approximately $1 million (adjusted annually for inflation)
per day per violation. On January 2, 2020, FERC issued an order (Order No. 865) increasing the maximum civil penalty amounts
under the NGA and NGPA to adjust for inflation. FERC may now assess civil penalties under the NGA and NGPA of up to
$1,291,894 per violation per day.
Pipeline Safety Regulation
Some of our gas pipelines are subject to regulation by the Pipeline and Hazardous Materials Safety Administration, or
PHMSA, pursuant to the Natural Gas Pipeline Safety Act of 1968, or NGPSA, with respect to natural gas, and the Hazardous Liquids
Pipeline Safety Act of 1979, or HLPSA, with respect to crude oil and NGLs. Both the NGPSA and the HLPSA were amended by the
Pipeline Safety Act of 1992, the Accountable Pipeline Safety and Partnership Act of 1996, the Pipeline Safety Improvement Act of
2002, or PSIA, as reauthorized and amended by the Pipeline Inspection, Protection, Enforcement and Safety Act of 2006, or the
PIPES Act, and the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011, or 2011 Pipeline Safety Act. The NGPSA
and HLPSA regulate safety requirements in the design, construction, operation and maintenance of natural gas, crude oil and NGL
pipeline facilities, while the PSIA establishes mandatory inspections for all U.S. crude oil, NGL and natural gas transmission pipelines
in high-consequence areas, or high consequence areas (HCAs).
The PHMSA has developed regulations that require pipeline operators to implement integrity management programs,
including more frequent inspections and other measures to ensure pipeline safety in HCAs. The regulations require operators,
including us, to:
perform ongoing assessments of pipeline integrity;
identify and characterize applicable threats to pipeline segments that could impact a HCA;
improve data collection, integration and analysis;
repair and remediate pipelines as necessary; and
implement preventive and mitigating actions.
The 2011 Pipeline Safety Act, among other things, increased the maximum civil penalty for pipeline safety violations and
directed the Secretary of Transportation to promulgate rules or standards relating to expanded integrity management requirements,
automatic or remote-controlled valve use, excess flow valve use, leak detection system installation and testing to confirm the material
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strength of pipe operating above 30% of specified minimum yield strength in HCAs. Consistent with the act, PHMSA finalized rules
that increased the maximum administrative civil penalties for violation of the pipeline safety laws and regulations to $200,000 per
violation per day, with a maximum of $2,000,000 for a series of violations. Those maximum civil penalties have increased to
$218,647 per violation per day, with a maximum of $2,186,465 for a series of violations, to account for inflation. The PHMSA has
also issued a final rule applying safety regulations to certain rural low-stress hazardous liquid pipelines that were not covered
previously by some of its safety regulation.
Following legislation enacted by Congress, PHMSA has issued or proposed regulations that either seek to impose new
obligations on pipeline operations or expand existing pipeline safety requirements to previously unregulated pipelines. For example,
in October 2019, PHMSA published three final rules on pipeline safety. The Enhanced Emergency Order Procedures rule (effective
December 2, 2019) implements an existing statutory authorization for PHMSA to issue emergency orders related to pipeline safety if
unsafe conditions or practices, or a combination thereof, constitutes or causes an imminent hazard. The Safety of Hazardous Liquid
Pipelines rule (effective July 1, 2020) expands PHMSA’s regulation of the safety of hazardous liquid pipelines by extending reporting
requirements to certain hazardous liquid gravity flow and rural gathering pipelines, establishing new requirements for integrity
management programs for hazardous liquid pipelines in HCAs and certain other hazardous liquid pipelines, and expanding various
inspection and leak detection requirements. The Safety of Gas Transmission Pipelines rule (effective July 1, 2020) requires operators
of certain gas transmission pipelines to reconfirm the Maximum Allowable Operating Pressure (MAOP) of their lines and establishes
a new “Moderate Consequence Area” for determining regulatory requirements for gas transmission pipeline segments outside of
HCAs. The rule also establishes new requirements for conducting baseline assessments and incorporates industry standards and
guidelines as well as new requirements for integrity management programs. We are in the process of assessing the impact of these
rules on our future costs of operations and revenue from operations, but we do not expect our operations to be affected by these new
rules any differently than other similarly situated midstream companies.
PHMSA has also been working on two additional rules related to gas pipeline safety. The rule entitled “Pipeline Safety:
Safety of Gas Transmission Pipelines, Repair Criteria, Integrity Management Improvements, Cathodic Protection, Management of
Change, and Other Related Amendments” is expected to adjust the repair criteria for pipelines in HCAs, create new criteria for
pipelines in non-HCAs, and strengthen integrity management assessment requirements. The rule entitled “Safety of Gas Gathering
Pipelines” is expected to require all gas gathering pipeline operators to report incidents and annual pipeline data and to extend
regulatory safety requirements to certain gas gathering pipelines in rural areas. These additional rulemakings are expected to be
effective by mid-2020.
States are largely preempted by federal law from regulating pipeline safety for interstate lines but most are certified by the
DOT to assume responsibility for enforcing federal intrastate pipeline regulations and inspection of intrastate pipelines. States may
adopt stricter standards for intrastate pipelines than those imposed by the federal government for interstate lines; however, states vary
considerably in their authority and capacity to address pipeline safety. State standards may include requirements for facility design
and management in addition to requirements for pipelines. We do not anticipate any significant difficulty in complying with
applicable state laws and regulations.
We regularly review all existing and proposed pipeline safety requirements and work to incorporate the new requirements
into procedures and budgets. We expect to incur increasing regulatory compliance costs, based on the intensification of the regulatory
environment and upcoming changes to regulations as outlined above, consistent with other similarly situated midstream companies.
In addition to regulatory changes, costs may be incurred if there is an accidental release of a commodity transported by our system, or
a regulatory inspection identifies a deficiency in our required programs and corrective action is required.
Regulation of Environmental and Occupational Safety and Health Matters
General
Our natural gas gathering and compression and water handling activities are subject to stringent and complex federal, state
and local laws and regulations relating to the protection of the environment, natural resources and worker safety. As an owner or
operator of these facilities, we must comply with these laws and regulations at the federal, state and local levels. These laws and
regulations can restrict or impact our business activities in many ways, such as:
requiring the installation of pollution-control equipment, imposing emission or discharge limits or otherwise restricting
the way we operate resulting in additional costs to our operations;
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limiting or prohibiting construction activities in areas, such as air quality nonattainment areas, wetlands, coastal regions
or areas inhabited by endangered or threatened species;
delaying system modification or upgrades during review of permit applications and revisions;
requiring investigatory and remedial actions to mitigate discharges, releases or pollution conditions associated with our
operations or attributable to former operations; and
enjoining the operations of facilities deemed to be in non-compliance with permits issued pursuant to or regulatory
requirements imposed by such environmental laws and regulations.
Failure to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement
measures, including the assessment of monetary penalties and natural resource damages. Certain environmental statutes impose strict
joint and several liability for costs required to clean up and restore sites where hazardous substances, hydrocarbons or solid wastes
have been disposed or otherwise released. Moreover, neighboring landowners and other third parties may file common law claims for
personal injury and property damage allegedly caused by the release of hazardous substances, hydrocarbons or solid waste into the
environment.
The trend in environmental regulation has been to place more restrictions and limitations on activities that may affect the
environment and thus, there can be no assurance as to the amount or timing of future expenditures for environmental compliance or
remediation and actual future expenditures may be different from the amounts we currently anticipate. As with the midstream
industry in general, complying with current and anticipated environmental laws and regulations can increase our capital costs to
construct, maintain and operate equipment and facilities. While these laws and regulations affect our maintenance capital
expenditures and net income, we do not believe they will have a material adverse effect on our business, financial position, results of
operations or cash flows, nor do we believe that they will affect our competitive position since the operations of our competitors are
generally similarly affected. In addition, we believe that the various activities in which we are presently engaged that are subject to
environmental laws and regulations are not expected to materially interrupt or diminish our operational ability to gather natural gas
and provide water handling services. We cannot assure you, however, that future events, such as changes in existing laws or
enforcement policies, the promulgation of new laws or regulations, or the development or discovery of new facts or conditions will not
cause us to incur significant costs. Below is a discussion of the material environmental laws and regulations that relate to our
business.
Hydraulic Fracturing Activities
Hydraulic fracturing is an important and common practice that is used to stimulate production of natural gas and/or oil from
dense subsurface rock formations. The hydraulic fracturing process involves the injection of water, sand, and chemicals under
pressure through a cased and cemented wellbore into targeted subsurface formations to fracture the surrounding rock and stimulate
production. Our primary customer, Antero Resources, uses the water we deliver to it for hydraulic fracturing as part of its completion
operations as does most of the U.S. onshore oil and natural gas industry. Hydraulic fracturing is typically regulated by state oil and
gas commissions and similar agencies; however, in recent years the EPA, has asserted limited authority over hydraulic fracturing and
has issued or sought to propose rules related to the control of air emissions, disclosure of chemicals used in the process, and the
disposal of flowback and produced water resulting from the process. Some states, including those in which we operate, have adopted,
and other states are considering adopting, regulations that could impose more stringent disclosure and/or well construction
requirements on hydraulic fracturing operations. For example, in July 2015, the Ohio Department of Natural Resources issued final
rules for horizontal drilling well-pad construction. The Ohio legislature has also adopted laws requiring oil and natural gas operators
to disclose chemical ingredients used to hydraulically fracture wells and to conduct pre-drilling baseline water quality sampling of
certain water wells near a proposed horizontal well. Local governments also may seek to adopt ordinances within their jurisdictions
regulating the time, place and manner of drilling activities in general or hydraulic fracturing activities in particular. Some states and
municipalities have sought to ban hydraulic fracturing altogether. We cannot predict whether any such federal, state, or local legal
restrictions relating to the hydraulic fracturing process will ever be enacted in areas where our customers operate and if so, what the
effects of such restrictions would be. If additional levels of regulation and permits were required through the adoption of new laws
and regulations at the federal state or local level, that could lead to delays, increased operating costs and process prohibitions that
could reduce the volumes of water and natural gas that move through our systems, which in turn could materially adversely affect our
revenues and results of operations.
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Hazardous Waste
Antero Midstream and Antero Resources’ operations generate solid wastes, including small quantities of hazardous wastes,
that are subject to the federal Resource Conservation and Recovery Act, or RCRA, and comparable state laws, which impose
requirements for the handling, storage, treatment and disposal of hazardous waste. RCRA currently exempts many natural gas
gathering and field processing wastes from classification as hazardous waste. Specifically, RCRA excludes from the definition of
hazardous waste produced waters and other wastes intrinsically associated with the exploration, development, or production of crude
oil and natural gas, including residual constituents derived from those exempt wastes. However, these oil and gas exploration and
production wastes may still be regulated under state solid waste laws and regulations, and it is possible that certain oil and natural gas
exploration and production wastes now classified as exploration and production-exempt non-hazardous waste could be classified as
hazardous waste in the future. Stricter regulation of wastes generated during our or our customer’s operations could result in
increased costs for our operations or the operations of our customers, which could in turn reduce demand for our services, increase our
waste disposal costs, and adversely affect our business.
The Clearwater Facility operates pursuant to West Virginia Department of Environmental Protection (“DEP”) permits for the
management of stormwater and wastewater and the disposal and management of solid waste. The produced water, flowback water,
and other waste associated with shale development treated at the Clearwater Facility are exempt from RCRA hazardous waste
regulations. Likewise, the input (residual salt derived from the wastewater treated at the Clearwater Facility) and output (leachate
derived from precipitation run-off contacting the non-hazardous salt) to and from the landfill also qualify as exploration and
production-exempt non-hazardous wastes because they derive from non-hazardous exempt material. However, in the event that
hazardous non-exempt waste streams are introduced to and mix with the exempt waste at the Clearwater Facility, or if we otherwise
fail to handle or treat such exempt materials pursuant to our West Virginia DEP permits, we may be subject to penalties and/or
corrective action measures. Additionally, in the event that we dispose of sludges containing naturally occurring radioactive material
(generated at the Clearwater Facility) at the landfill or other third-party facility that is not authorized to receive such radioactive waste,
we may be subject to significant liabilities in the form of administrative, civil or criminal penalties and/or remedial obligations to
remove previously disposed radioactive wastes and remediate contaminated property. The Clearwater Facility was idled in the third
quarter of 2019 and we expect will remain idled for the foreseeable future.
Site Remediation
The Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, also known as the Superfund
law and comparable state laws impose liability without regard to fault or the legality of the original conduct, on certain classes of
persons responsible for the release of hazardous substances into the environment. Such classes of persons include the current and past
owners or operators of sites where a hazardous substance was released, and companies that disposed or arranged for disposal of
hazardous substances at offsite locations, such as landfills. Although petroleum as well as natural gas is excluded from CERCLA’s
definition of “hazardous substance,” in the course of our ordinary operations, our operations generate wastes that may be designated as
hazardous substances. CERCLA authorizes the EPA, states, and, in some cases, third parties to take actions in response to releases or
threatened releases of hazardous substances into the environment and to seek to recover from the classes of responsible persons the
costs they incur to address the release. Under CERCLA, we could be subject to strict joint and several liabilities for the costs of
cleaning up and restoring sites where hazardous substances have been released into the environment and for damages to natural
resources.
We currently own or lease, and may have in the past owned or leased, properties that have been used for the gathering and
compression of natural gas and the gathering and transportation of oil. Although we typically used operating and disposal practices
that were standard in the industry at the time, petroleum hydrocarbons or wastes may have been disposed of or released on or under
the properties owned or leased by it or on or under other locations where such substances have been taken for disposal. Such
petroleum hydrocarbons or wastes may have migrated to property adjacent to our owned and leased sites or the disposal sites. In
addition, some of the properties may have been operated by third parties or by previous owners whose treatment and disposal or
release of petroleum hydrocarbons or wastes was not under our control. These properties and the substances disposed or released on
them may be subject to CERCLA, RCRA and analogous state laws. Under such laws, we could be required to remove previously
disposed wastes, including waste disposed of by prior owners or operators; remediate contaminated property, including groundwater
contamination, whether from prior owners or operators or other historic activities or spills; or perform remedial operations to prevent
future contamination. We are not currently a potentially responsible party in any federal or state Superfund site remediation and there
are no current, pending or anticipated Superfund response or remedial activities at or implicating our facilities or operations.
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Air Emissions
The federal Clean Air Act, and comparable state laws, regulate emissions of air pollutants from various industrial sources,
including natural gas processing plants and compressor stations, and also impose various emission limits, operational limits and
monitoring, reporting and recordkeeping requirements on air emission sources. Failure to comply with these requirements could result
in monetary penalties, injunctions, conditions or restrictions on operations, and potentially criminal enforcement actions. These laws
are frequently subject to change. For example, in October 2015, the EPA lowered the National Ambient Air Quality Standard, or
NAAQS, for ozone from 75 to 70 parts per billion, and completed attainment/non-attainment designations in July 2018. State
implementation of the revised NAAQS could result in stricter permitting requirements, delay or prohibit our ability to obtain such
permits, and result in increased expenditures for pollution control equipment, the costs of which could be significant. Applicable laws
and regulations require pre-construction permits for the construction or modification of certain projects or facilities with the potential
to emit air emissions above certain thresholds. These pre-construction permits generally require use of best available control
technology, or BACT, to limit air emissions. In addition, in June 2016, the EPA finalized rules under the federal Clean Air Act
regarding criteria for aggregating multiple sites into a single source for air-quality permitting purposes applicable to the oil and gas
industry. This rule could cause small facilities (such as tank batteries and compressor stations), on an aggregate basis, to be deemed a
major source, thereby triggering more stringent air permitting requirements, which in turn could result in operational delays or require
us to install costly pollution control equipment. Several EPA new source performance standards, or NSPS, and national emission
standards for hazardous air pollutants, or NESHAP, also apply to our facilities and operations. These NSPS and NESHAP standards
impose emission limits and operational limits as well as detailed testing, recordkeeping and reporting requirements on the “affected
facilities” covered by these regulations. Several of our facilities are “major” facilities requiring Title V operating permits which
impose semi-annual reporting requirements.
Water Discharges
The Federal Water Pollution Control Act, or the Clean Water Act, and comparable state laws impose restrictions and strict
controls regarding the discharge of pollutants, including produced waters and other oil and natural gas wastes, into federal and state
waters. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the
EPA or the state. The discharge of dredge and fill material in regulated waters, including wetlands, is also prohibited, unless
authorized by a permit issued by the U.S. Army Corps of Engineers. These laws and any implementing regulations provide for
administrative, civil, and criminal penalties for any unauthorized discharges of oil and other substances in reportable quantities and
may impose substantial potential liability for the costs of removal, remediation, and damages. In September 2015, the EPA and U.S.
Army Corps of Engineers issued a final rule defining the scope of the EPA’s and the Corps’ jurisdiction over waters of the U.S. (the
“WOTUS rule”). Following the change in U.S. Presidential Administrations, there have been several attempts to modify or eliminate
this rule. For example, on January 23, 2020, the EPA and the Corps finalized the Navigable Waters Protection Rule, which narrows
the definition of “waters of the United States” relative to the prior 2015 rulemaking. However, legal challenges to the new rule are
expected, and multiple challenges to the EPA’s prior rulemakings remain pending. As a result of these developments, the scope of
jurisdiction under the CWA is uncertain at this time. To the extent any rule expands the scope of the CWA’s jurisdiction in areas
where we operate, we could face increased costs and delays with respect to obtaining permits for dredge and fill activities in wetland
areas.
Pursuant to these laws and regulations, we may be required to obtain and maintain approvals or permits for the discharge of
wastewater or storm water and are required to develop and implement spill prevention, control and countermeasure plans, also referred
to as “SPCC plans,” in connection with on-site storage of significant quantities of oil. These laws and regulations provide for
administrative, civil, and criminal penalties for any discharges not authorized by the permit and may impose substantial potential
liability for the costs of removal, remediation, and damages. We believe that compliance with such permits will not have a material
adverse effect on our business operations.
Occupational Safety and Health Act
We are also subject to the requirements of the federal Occupational Safety and Health Act, as amended, or OSHA, and
comparable state laws that regulate the protection of the health and safety of employees. In addition, OSHA’s hazard communication
standard, the Emergency Planning and Community Right to Know Act and implementing regulations and similar state statutes and
regulations require that information be maintained about hazardous materials used or produced in our operations and that this
information be provided to employees, state and local government authorities and citizens. We do not believe that noncompliance
with worker health and safety requirements will have a material adverse effect on our business or operations.
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Endangered Species
The federal Endangered Species Act, or ESA, provides for the protection of endangered and threatened species. Pursuant to
the ESA, if a species is listed as threatened or endangered, restrictions may be imposed on activities adversely affecting that species’
habitat. Similar protections are offered to migratory birds under the Migratory Bird Treaty Act. We conduct operations and have
pipeline construction and maintenance projects in areas where certain species that are listed as threatened or endangered are known to
exist and where other species that potentially could be listed as threatened or endangered under the ESA may exist. The U.S. Fish and
Wildlife Service, or the USFWS, may designate critical habitat and suitable habitat areas that it believes are necessary for survival of a
threatened or endangered species. A critical habitat or suitable habitat designation could result in further material restrictions to
federal land use and may materially delay or prohibit access to protected areas for natural gas and oil development. Moreover, as a
result of a settlement, the USFWS was required to make a determination as to whether more than 250 species classified as endangered
or threatened should be listed under the ESA by the completion of the agency’s 2017 fiscal year. For example, in April 2015, the
USFWS listed the northern long-eared bat, whose habitat includes the areas in which we operate, as a threatened species under the
ESA; however, on January 28, 2020, the U.S. District Court for the District of Columbia ordered the USFWS to reconsider its decision
to list the northern long-eared bat as threatened instead of endangered. The designation of previously unprotected species as
threatened or endangered, or redesignation of a threatened species as endangered, in areas where we conduct operations could cause us
to incur increased costs arising from species protection measures or could result in limitations on our pipeline construction activities or
the exploration and production activities of Antero Resources, any of which could have an adverse impact on our results of operations.
Climate Change
In response to findings that emissions of greenhouse gases (“GHGs”) present an endangerment to public health and the
environment, the EPA has adopted regulations under existing provisions of the federal Clean Air Act, that, among other things,
establish Prevention of Significant Deterioration, or PSD, pre-construction permits, and Title V operating permits for GHG emissions
from certain large stationary sources that are already potential major sources of criteria pollutant emissions regulated under the statute.
Under these regulations, facilities required to obtain PSD permits must meet BACT standards for their GHG emissions established by
the states or, in some cases, by the EPA, for those emissions. The EPA has also adopted rules requiring the monitoring and reporting
of GHG emissions from specified sources in the United States, including, among others, certain onshore oil and natural gas processing
and fractionating facilities. In June 2016, the EPA finalized new regulations, known as Subpart OOOOa, that set emissions standards
for methane and volatile organic compounds from new and modified oil and natural gas production and natural gas processing and
transmission facilities. Following the change in presidential administrations, there have been attempts to modify these regulations.
Most recently, in August 2019, the EPA proposed amendments to the 2016 standards that, among other things, would remove sources
in the transmission and storage segment from the oil and natural gas source category and rescind the methane-specific requirements
applicable to sources in the production and processing segments of the industry. As an alternative, the EPA also proposed to rescind
the methane-specific requirements that apply to all sources in the oil and natural gas industry, without removing the transmission and
storage sources from the current source category. Under either alternative, the EPA plans to retain emissions limits for VOCs. Legal
challenges to any final rulemaking that rescinds the 2016 standards are expected. As a result of these developments, future
implementation of the 2016 standards is uncertain at this time. However, given the long-term trend toward increasing regulation,
future federal GHG regulations of the oil and gas industry remain a possibility, and several states have separately imposed their own
regulations on methane emissions from oil and gas production activities. These rules (and any additional regulations) could impose
new compliance costs and permitting burdens on natural gas operations.
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In the United States, no comprehensive climate change legislation has been implemented at the federal level. However,
governmental, scientific, and public concern over the threat of climate change arising from GHG emissions has resulted in increasing
political risks in the United States, including climate change related pledges made by certain candidates seeking the office of the
President of the United States in 2020. Two critical declarations made by one or more candidates running for the Democratic
nomination for President include threats to take actions banning hydraulic fracturing of oil and natural gas wells and banning new
leases for production of minerals on federal properties, including onshore lands and offshore waters. Other actions that could be
pursued by presidential candidates may include the imposition of more restrictive requirements for the establishment of pipeline
infrastructure or the permitting of LNG export facilities, as well as the reversal of the United States’ withdrawal from the Paris
Agreement in November 2020. Litigation risks are also increasing, as a number of cities and other local governments have sought to
bring suit against the largest oil and natural gas exploration and production companies in state or federal court, alleging, among other
things, that such companies created public nuisances by producing fuels that contributed to global warming effects, such as rising sea
levels, and therefore are responsible for roadway and infrastructure damages as a result, or alleging that the companies have been
aware of the adverse effects of climate change for some time but defrauded their investors by failing to adequately disclose those
impacts.
Notwithstanding potential risks related to climate change, the International Energy Agency estimates that oil and gas will
continue to represent a major share of global energy use through 2040, and other private sector studies project continued growth in
demand for the next two decades. However, recent activism directed at shifting funding away from companies with energy-related
assets could result in limitations or restrictions on certain sources of funding for the energy sector. Increased scrutiny because of
climate change related concern could result in a loss of certain investors. In addition, institutional lenders may, of their own accord,
elect not to provide funding for fossil fuel energy companies based on climate change related concerns, which could affect our access
to capital for potential growth projects. Moreover, activist shareholders have introduced proposals that may seek to force companies
to adopt aggressive emission reduction targets or to shift away from more carbon-intensive activities. While we cannot predict the
outcomes of such proposals, they could ultimately make it more difficult for companies to engage in exploration and production
activities.
Finally, it should be noted that a number of scientists have concluded that increasing concentrations of GHGs in the Earth’s
atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms,
droughts and floods and other climatic events; if any such effects were to occur, it is uncertain if they would have an adverse effect on
our financial condition and operations.
Although we have not experienced any material adverse effect from compliance with environmental requirements, there is no
assurance that this will continue. We did not have any material capital or other non-recurring expenditures in connection with
complying with environmental laws or environmental remediation matters in 2019, nor do we anticipate that such expenditures will be
material in 2020.
Our Officers and Employees Provide Services to Both Antero Resources and Us
All of our executive officers and other personnel who provide corporate, general and administrative services to our business
are, when providing services to us, concurrently employed by Antero Resources and us pursuant to the terms of a services
agreement. In addition, our operational personnel are seconded to us by Antero Resources pursuant to the terms of a secondment
agreement and individuals are concurrently employed by Antero Resources and us during such secondment. As of December 31,
2019, approximately 547 people were concurrently employed by us and Antero Resources pursuant to these arrangements. We and
Antero Resources consider our relations with these employees to be satisfactory.
Legal Proceedings
Our operations are subject to a variety of risks and disputes normally incident to our business. As a result, we may, at any
given time, be a defendant in various legal proceedings and litigation arising in the ordinary course of business. See “Item 3. Legal
Proceedings.”
We maintain insurance policies with insurers in amounts and with coverage and deductibles that we, with the advice of our
insurance advisors and brokers, believe are reasonable and prudent. We cannot, however, assure you that this insurance will be
adequate to protect us from all material expenses related to potential future claims for personal and property damage or that these
levels of insurance will be available in the future at economical prices.
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Address, Website and Availability of Public Filings
Our principal executive offices are at 1615 Wynkoop Street, Denver, Colorado 80202. Our telephone number is (303) 357-
7310. Our website is located at www.anteromidstream.com.
We file or furnish our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-
K and amendments to such reports and other documents with the SEC under the Exchange Act. The SEC also maintains an internet
website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers, including us,
that file electronically with the SEC.
We also make available free of charge our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current
Reports on Form 8-K and amendments to such reports as soon as reasonably practicable after we file such material with, or furnish it
to, the SEC. These documents are located www.anteromidstream.com under the “Investors” link.
Information on our website is not incorporated into this Annual Report on Form 10-K or our other filings with the SEC and is
not a part of them.
Item 1A. Risk Factors
We are subject to certain risks and hazards due to the nature of the business activities we conduct. The risks described in this
Annual Report on Form 10-K could materially and adversely affect our business, financial condition, cash flows and results of
operations. We may experience additional risks and uncertainties not currently known to us. Furthermore, as a result of developments
occurring in the future, conditions that we currently deem to be immaterial may also materially and adversely affect our business,
financial condition, cash flows and results of operations.
Because substantially all of our revenue is derived from Antero Resources, any development that materially and adversely
affects Antero Resources’ operations, financial condition or market reputation could have a material and adverse impact on
us.
Antero Resources is our most significant customer and has accounted for substantially all of our revenue since inception, and
we expect to derive most of our revenues from Antero Resources in the near term. As a result, any event, whether in our area of
operations or otherwise, that adversely affects Antero Resources’ production, drilling and completion schedule, financial condition,
leverage, market reputation, liquidity, results of operations or cash flows may adversely affect our business and results of operations.
Accordingly, we are indirectly subject to the business risks of Antero Resources, including, among others:
a reduction in or slowing of Antero Resources’ development program, which would directly and adversely impact
demand for our gathering and compression services and our water handling services;
a reduction in or slowing of Antero Resources’ well completions, which would directly and adversely impact demand for
our water handling services;
the volatility of natural gas, NGLs and oil prices, which could have a negative effect on the value of Antero Resources’
properties, its development program and its ability to finance its operations;
the availability of capital on an economic basis to fund Antero Resources’ exploration and development activities and to
service and/or refinance its debt, as well as to fund its capital expenditure programs;
Antero Resources’ ability to replace its oil and gas reserves;
Antero Resources’ drilling and operating risks, including potential environmental liabilities;
transportation and processing capacity constraints and interruptions; and
adverse effects of governmental and environmental regulation.
Further, we are subject to the risk of non-payment or non-performance by Antero Resources, including with respect to our
gathering and compression and water handling services agreements. We cannot predict the extent to which Antero Resources’
business would be impacted if conditions in the energy industry deteriorate, nor can we estimate the impact such conditions would
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have on Antero Resources’ ability to execute its drilling and development program or perform under our gathering and compression
and water handling services agreements. The low commodity price environment has negatively impacted natural gas producers
causing some producers in the industry significant economic stress, including, in certain cases, to file for bankruptcy protection or to
renegotiate contracts. To the extent that any customer, including Antero Resources, is in financial distress or commences bankruptcy
proceedings, contracts with these customers may be subject to renegotiation or rejection under applicable provisions of the United
States Bankruptcy Code. Any material non-payment or non-performance by Antero Resources could adversely affect our business and
operating results.
Also, due to our relationship with Antero Resources, our ability to access the capital markets, or the pricing or other terms of
any capital markets transactions, may be adversely affected by any impairment to Antero Resources’ financial condition or adverse
changes in its credit ratings.
Any material limitation of our ability to access capital could limit our ability to obtain future financing under favorable terms,
or at all, or could result in increased financing costs in the future. Similarly, material adverse changes at Antero Resources could
negatively impact our share price, limiting our ability to raise capital through equity issuances or debt financing, or could negatively
affect our ability to engage in, expand, or pursue our business activities, and prevent us from engaging in certain transactions that
might otherwise be considered beneficial to us.
Please see Item 1A, “Risk Factors” in Antero Resources’ Annual Report on Form 10-K for the year ended December 31,
2019 (which is not, and shall not be deemed to be, incorporated by reference herein) for a full disclosure of the risks associated with
Antero Resources’ business.
Because of the natural decline in production from existing wells, our success depends, in part, on Antero Resources’ ability to
replace declining production and our ability to secure new sources of natural gas from Antero Resources or third parties.
Additionally, our water handling services are directly associated with Antero Resources’ well completion activities and water
needs, which are largely driven by the amount of water used in completing each well. Finally, under certain circumstances,
Antero Resources may dispose of acreage dedicated to us free from such dedication without our consent. Any decrease in
volumes of natural gas that Antero Resources produces, any decrease in the number of wells that Antero Resources completes,
or any decrease in the number of acres that are dedicated to us could adversely affect our business and operating results.
The natural gas volumes that support our gathering business depend on the level of production from wells connected to our
systems, which may be less than expected and will naturally decline over time. To the extent Antero Resources reduces its
development activity or otherwise ceases to drill and complete new wells, revenues for our gathering and compression and water
handling services will be directly and adversely affected. Our ability to maintain water handling services revenues is substantially
dependent on continued completion activity by Antero Resources or third parties over time, as well as the volumes of water used in
and produced from such activity. In addition, natural gas volumes from completed wells will naturally decline and our cash flows
associated with these wells will also decline over time. In order to maintain or increase throughput levels on our gathering systems,
we must obtain new sources of natural gas from Antero Resources or third parties. The primary factors affecting our ability to obtain
additional sources of natural gas include (i) the success of Antero Resources’ drilling activity in our areas of operation, (ii) Antero
Resources’ acquisition of additional acreage, including acquisitions that offset any dispositions by Antero Resources, (iii) Antero
Resources’ ability to replace declining production and (iv) our ability to obtain dedications of acreage from third parties. Demand for
our fresh water delivery services, which make up a substantial portion of our water handling services revenues, is dependent on water
used in Antero Resources’ completion activities. To the extent that Antero Resources or other fresh water delivery customers reduce
the number of completion stages per well or use less water in their completions, the demand for our fresh water delivery services
would be reduced.
We have no control over Antero Resources’ or other producers’ levels of development and completion activity in our areas of
operation, the amount of oil and gas reserves associated with wells connected to our systems or the rate at which production from a
well declines. In addition, our water handling business is dependent upon active development in our areas of operation. In order to
maintain or increase throughput levels on our water handling systems, we must service new wells. We have no control over Antero
Resources or other producers or their development plan decisions, which are affected by, among other things:
the availability and cost of capital;
prevailing and projected natural gas, NGLs and oil prices;
demand for natural gas, NGLs and oil;
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quantities of reserves;
geologic considerations;
environmental or other governmental regulations, including the availability of drilling permits and the regulation of
hydraulic fracturing; and
the costs of producing the gas and the availability and costs of drilling rigs and other equipment.
The daily spot prices for NYMEX Henry Hub natural gas ranged from a high of $4.25 per MMBtu to a low of $1.75 per
MMBtu in 2019, and the daily spot prices for NYMEX West Texas Intermediate crude oil ranged from a high of $66.24 per barrel to a
low of $46.31 per barrel during the same period. In addition, the market price for natural gas in the Appalachian Basin continues to be
lower relative to NYMEX Henry Hub as a result of the significant increases in the supply of natural gas in the Northeast region in
recent years. Because Antero Resources’ production and reserves predominantly consist of natural gas (approximately 61% of
equivalent proved reserves), changes in natural gas prices have significantly greater impact on Antero Resources’ financial results than
oil prices. NGLs are made up of ethane, propane, isobutane, normal butane and natural gasoline, all of which have different uses and
different pricing characteristics, which adds further volatility to the pricing of NGLs. Due to the volatility of commodity prices, we
are unable to predict future potential movements in the market prices for natural gas, oil and NGLs at Antero Resources’ ultimate sales
points and thus cannot predict the ultimate impact of prices on our operations.
These lower prices have compelled most natural gas and oil producers, including Antero Resources, to reduce the level of
exploration, drilling and production activity and 2020 capital budgets. For example, Antero Resources’ 2020 capital budget is
between $1.15 billion, compared to 2019 capital expenditures of $1.3 billion. This will have a significant effect on our capital
resources, liquidity and expected operating results. Natural gas and oil prices directly affect Antero Resources’ production. If prices
decrease further, it could reduce our revenues, cash flows and results of operations. Sustained reductions in development or
production activity in our areas of operation could lead to reduced utilization of our services and cash flows.
Due to these and other factors, even if reserves are known to exist in areas served by our assets, producers have chosen, and
may choose in the future, not to develop those reserves. Reductions in development activity, including Antero Resources’ reduction in
lateral lengths or use of water in its completions, could result in our inability to maintain the current levels of throughput on our
systems or reduce the demand for our water handling services on a per well basis, which could in turn reduce our revenue and cash
flows and adversely affect our ability to return capital to our stockholders through dividends and/or repurchases of shares of our
common stock.
Finally, each of the gathering and compression agreement, water services agreement and right of first offer agreement
between us and Antero Resources permits Antero Resources to sell, transfer, convey, assign, grant, or otherwise dispose of dedicated
properties free of the dedication under such agreements, provided that the number of net acres of dedicated properties so disposed of,
when added to the number of net acres of dedicated properties previously disposed of free of the dedication since the respective
effective dates of the agreements, does not exceed the aggregate number of net acres of dedicated properties acquired by Antero
Resources since such effective dates. Accordingly, under certain circumstances, Antero Resources may dispose of a significant
number of net acres of dedicated properties free from dedication without our consent, and we have no control over the timing or extent
of such dispositions. Any such dispositions could adversely affect our business and operating results. Even if the disposed of
property remains dedicated to us, the goals and intention of acquiror with respect to such property may differ significantly from those
of Antero Resources. For example, a subsequent owner of a property could choose to invest less capital in the development of such
property or to otherwise drill fewer wells than Antero Resources. There can be no assurance that a subsequent owner of dedicated
properties would choose to, or be able to, grow or maintain current rates of production from the properties, which could adversely
impact us.
The gathering and compression agreement only includes minimum volume commitments under certain circumstances.
The gathering and compression agreement includes minimum volume commitments only on new high pressure pipelines and
compressor stations constructed subsequent to November 2014 at Antero Resources’ request. The high pressure pipelines and
compressor stations that existed prior to November 2014 are not supported by minimum volume commitments from Antero
Resources. There are no minimum volume commitments on the low pressure pipelines. Any decrease in the current levels of
throughput on our gathering and compression systems could reduce our revenue and cash flows.
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We will be required to make substantial capital expenditures to increase our asset base. If we are unable to obtain needed
capital or financing on satisfactory terms, we may be unable to expand our business operations and/or our financial leverage
could increase.
In order to increase our asset base, we will need to make expansion capital expenditures. If we do not make sufficient or
effective expansion capital expenditures, we may be unable to expand our business operations, which could adversely affect our
business and operating results. To fund our expansion capital expenditures and investment capital expenditures, we expect to use cash
from our operations or incur borrowings. Alternatively, we may sell additional shares of common stock or other securities to fund our
capital expenditures. Our ability to obtain bank financing or our ability to access the capital markets for future equity or debt offerings
may be limited by our or Antero Resources’ financial condition at the time of any such financing or offering and the covenants in our
existing debt agreements, as well as by general economic conditions, contingencies and uncertainties that are beyond our control. In
addition, incurring additional debt may significantly increase our interest expense and financial leverage, and issuing shares of
common stock may result in significant stockholder dilution. Neither Antero Resources or any of its affiliates is committed to
providing any direct or indirect support to fund our growth.
Our gathering and compression and water handling systems are concentrated in the Appalachian Basin, making us vulnerable
to risks associated with operating in one major geographic area.
We rely primarily on revenues generated from our gathering and compression and water handling systems, which are all
located in the Marcellus and Utica Shales. As a result of this concentration, we may be disproportionately exposed to the impact of
regional supply and demand factors, delays or interruptions of production from wells in this area caused by, and associated with,
governmental regulation, state and local political activities, market limitations, availability of equipment and personnel, or interruption
of the compression, processing or transportation of natural gas, NGLs or oil.
Our construction or purchase of new gathering and compression, processing, water handling or other assets may not be
completed on schedule, at the budgeted cost or at all, may not operate as designed or at the expected levels, may not result in
revenue increases and may be subject to regulatory, environmental, political, legal and economic risks, all of which could
adversely affect our financial condition, cash flows and results of operations.
The construction of additions or modifications to our existing systems and the construction or purchase of new assets
involves numerous regulatory, environmental, political and legal uncertainties beyond our control and may require the expenditure of
significant amounts of capital. Financing may not be available on economically acceptable terms or at all. If we undertake these
projects, we may not be able to complete them on schedule, at the budgeted cost or at all, or they may not operate as designed or at the
expected levels. Moreover, our revenues may not increase immediately upon the expenditure of funds on a particular project. For
example, the construction of our water treatment facility took longer than planned and the facility ran at operating rates below the
designed capacity and did not meet certain completion milestones under the terms of the construction contract. As a result, in
September 2019, we decided to idle such facility for the foreseeable future. Following such idling, we recorded aggregate non-cash
impairment charges of approximately $463 million and expect to incur additional idling costs going forward. In addition, we may
construct facilities to capture anticipated future production growth in an area in which such growth does not materialize. As a result,
new gathering and compression, water handling or other assets may not be able to attract enough throughput to achieve our expected
investment return, which could adversely affect our financial condition and results of operations. In addition, adding to our existing
assets may require us to obtain new rights-of-way prior to constructing new pipelines or facilities. We may be unable to timely obtain
such rights-of-way to connect new natural gas supplies to our existing gathering pipelines or capitalize on other attractive expansion
opportunities. Additionally, it may become more expensive for us to obtain new rights-of-way or to expand or renew existing rights-
of-way. If the cost of renewing or obtaining new rights-of-way increases, our cash flows could be adversely affected.
We may be unable to make attractive acquisitions or successfully integrate acquired businesses, and any inability to do so may
disrupt our business and hinder our ability to grow.
In the future, we may acquire businesses that complement or expand our current business. We may not be able to identify
attractive acquisition opportunities. Even if we do identify attractive acquisition opportunities, we may not be able to complete the
acquisition or do so on commercially acceptable terms.
The success of any completed acquisition will depend on our ability to effectively integrate the acquired business into our
existing operations. The process of integrating acquired businesses may involve unforeseen difficulties and may require a
disproportionate amount of our managerial and financial resources. In addition, possible future acquisitions may be larger and for
purchase prices significantly higher than those paid for earlier acquisitions. No assurance can be given that we will be able to identify
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suitable acquisition opportunities, negotiate acceptable terms, obtain financing for acquisitions on acceptable terms or successfully
acquire identified targets. Our failure to achieve consolidation savings, to successfully integrate the acquired businesses and assets
into our existing operations or to minimize any unforeseen operational difficulties could have a material adverse effect on our
business, financial condition and results of operations.
In addition, our revolving credit facility and the indentures governing our senior notes impose certain limitations on our
ability to enter into mergers or combination transactions. Our revolving credit facility and the indentures governing our senior notes
also limit our ability to incur certain indebtedness, which could indirectly limit our ability to engage in acquisitions of businesses.
We own a 50% interest in the Joint Venture, which is operated by MarkWest Energy. While we have the ability to influence
certain business decisions affecting the Joint Venture, the success of our investment in the Joint Venture will depend on
MarkWest’s operation of the Joint Venture.
On February 6, 2017, we entered into the Joint Venture with MarkWest. While we and MarkWest each own a 50% interest
in the Joint Venture, MarkWest is the primary operator of the Joint Venture, and we depend on MarkWest for the day-to-day
operations of the Joint Venture. Our lack of control over the Joint Venture’s day-to-day operations and the associated costs of
operations could result in receiving lower cash distributions from the Joint Venture than currently anticipated. In addition, differences
in views among the owners of the Joint Venture could result in delayed decisions or in failures to agree on significant matters,
potentially adversely affecting the business and results of operations or prospects of the Joint Venture and, in turn, the amount of cash
from the Joint Venture operations distributed to us.
If the Joint Venture is not successful or if the Joint Venture does not perform as expected, our future financial performance
may be negatively impacted.
We may be exposed to certain risks in connection with our ownership interest in the Joint Venture, including regulatory,
environmental and litigation risks. If such risks or other anticipated or unanticipated liabilities were to materialize, any desired
benefits of our entry into the Joint Venture may not be fully realized, if at all, and its future financial performance may be negatively
impacted.
In addition, the Joint Venture may result in other difficulties including, among other things:
diversion of our management’s attention from other business concerns;
managing regulatory compliance and corporate governance matters;
an increase in our indebtedness; and
potential environmental or other regulatory compliance matters or liabilities and/or title issues, including certain
liabilities arising from the operation of the Joint Venture assets prior to the closing of the Joint Venture.
Interruptions in operations at any of the Joint Venture’s facilities may adversely affect its operations and our gathering and
processing and water handling operations.
The Joint Venture assets consist of processing plants in West Virginia and a one-third interest in two fractionators in Ohio
(the “MarkWest fractionators”). Any significant interruption at these facilities would adversely affect the Joint Venture’s operations.
Because a significant portion of Antero Resources’ production is processed by the Joint Venture, any significant interruption at these
facilities would also adversely affect our midstream operations.
We do not operate the MarkWest fractionators, and the operations of the MarkWest’s and Joint Venture’s processing
facilities and the MarkWest fractionators could be partially or completely shut down, temporarily or permanently, as the result of
circumstances not within its control, such as:
unscheduled turnarounds or catastrophic events, including damages to facilities, related equipment and surrounding
properties caused by earthquakes, tornadoes, hurricanes, floods, fires, severe weather, explosions and other natural
disasters;
restrictions imposed by governmental authorities or court proceedings;
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labor difficulties that result in a work stoppage or slowdown;
a disruption in the supply of gas to MarkWest’s or the Joint Venture’s processing and fractionation plants and associated
facilities;
disruption in the supply of power, water and other resources necessary to operate MarkWest’s or the Joint Venture’s
facilities;
damage to MarkWest’s or the Joint Venture’s facilities resulting from gas that does not comply with applicable
specifications; and
inadequate fractionation capacity or market access to support production volumes, including lack of availability of rail
cars, barges, pipeline capacity, or market constraints, including reduced demand or limited markets for certain NGL
products.
In addition, MarkWest’s fractionation operations in the Marcellus and Utica regions are integrated, and as a result, it is
possible that an interruption of these operations in other regions may impact operations in the regions in which the Joint Venture’s
facilities are located.
If additional takeaway pipelines or other future pipeline projects are not completed, Antero Resources’, and correspondingly,
the Company’s, future growth may be limited.
Antero Resources has secured sufficient long-term firm takeaway capacity in each of its core operating areas to accommodate
its current development plans, including through major pipelines that are in existence and through third-party trucking services;
however, any failure of any future pipeline to be completed, any unavailability of existing takeaway pipelines or the failure of any
third party to perform under its service contracts, could cause Antero Resources to curtail its future development and production plans.
Sustained reductions in development or production activity in our areas of operation could lead to reduced demand for our services,
which could adversely affect our operating margin and cash flows.
Recent action and the possibility of future action on trade by U.S. and foreign governments has increased the costs of certain
equipment and materials used in the construction of our assets and has created uncertainty in global markets, which may
adversely affect our income from operations and cash flows.
The construction of gathering pipelines, compressor stations, processing and fractionation facilities and water handling assets
is subject to construction cost overruns due to costs and availability of equipment and materials such as steel. If third party providers
of steel products essential to our capital improvements and additions are unable to obtain raw materials, including steel, at historical
prices, they may raise the price we pay for such products. On March 8, 2018, the President of the United States issued two
proclamations directing the imposition of ad valorem tariffs of 25% on certain imported steel products and 10% on certain imported
aluminum products from most countries, with limited exceptions. On May 31, 2018, the U.S. announced that it would also impose
steel and aluminum tariffs on Canada, Mexico, and the 28 member countries of the European Union. Argentina, Australia, Brazil, and
South Korea implemented measures to address the impairment to U.S. national security attributable to steel and/or aluminum imports
that were deemed satisfactory to the United States. On May 19, 2019, the U.S. announced that Canada and Mexico had also
implemented satisfactory measures to address the threatened impairment to U.S. national security caused by steel and aluminum
imports from those countries. As a result, imports of steel from Argentina, Australia, Brazil, Canada, Mexico, and South Korea and
aluminum from Argentina, Australia, Canada, and Mexico have been exempted from the imposition of tariff-based remedies, but the
United States has implemented quantitative restrictions in the form of absolute quotas for steel article imports from Argentina, Brazil
and South Korea and aluminum products from Argentina, meaning that imports in excess of the allotted quota will be disallowed. In
addition, effective August 13, 2018, the United States announced that it would impose a 50% ad valorem tariff on steel articles
imported from Turkey, which remained in effect until May 21, 2019, at which time a 25% ad valorem tariff on steel articles imported
from Turkey was reimposed, consistent with the tariff on imports from most countries. Following these proclamations, domestic
prices for steel have risen and are expected to continue to rise. On January 24, 2020, the United States announced that an additional
25% ad valorem tariff would be imposed on certain derivative steel article imports from all countries except Argentina, Australia,
Brazil, Canada, Mexico, and South Korea, and that an additional 10% ad valorem tariff would be imposed on certain derivative
aluminum article imports from all countries except Argentina, Australia, Canada, and Mexico. These price increases may result in
increased costs associated with the continued build-out of our assets, as well as projects under development. Because we generate
substantially all of our revenue under agreements with Antero Resources that provide for fixed fee structures, we will generally be
unable to pass these cost increases along to our customers, and our income from operations and cash flows may be adversely affected.
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A shortage of equipment and skilled labor in the Appalachian Basin could reduce equipment availability and labor
productivity and increase labor costs, which could have a material adverse effect on our business and results of operations.
Gathering and compression and water handling services require special equipment and laborers skilled in multiple
disciplines, such as equipment operators, mechanics and engineers, among others. If Antero Resources experiences shortages of
skilled labor or there is a lack of necessary equipment in the Appalachian Basin in the future, our allocation of labor costs and overall
productivity could be materially and adversely affected. If our allocation of labor prices increase or if Antero Resources experiences
materially increased health and benefit costs for employees, our business and results of operations could be materially and adversely
affected.
If third-party pipelines or other midstream facilities interconnected to our gathering and compression systems become
partially or fully unavailable, our operating margin and cash flows could be adversely affected.
Our gathering and compression assets connect to other pipelines or facilities owned and operated by unaffiliated third parties.
The continuing operation of third-party pipelines, compressor stations and other midstream facilities is not within our control. These
pipelines, plants and other midstream facilities may become unavailable because of testing, turnarounds, line repair, maintenance,
reduced operating pressure, lack of operating capacity, regulatory requirements and curtailments of receipt or deliveries due to
insufficient capacity or because of damage from severe weather conditions or other operational issues. If any such increase in costs
occurs or if any of these pipelines or other midstream facilities become unable to receive or transport natural gas, our operating margin
and cash flows could be adversely affected.
Our exposure to commodity price risk may change over time.
We currently generate all of our revenues pursuant to fee-based contracts under which we are paid based on the volumes of
natural gas that we gather, process and compress and water that we handle and treat, rather than the underlying value of the
commodity. Consequently, our existing operations and cash flows have little direct exposure to commodity price risk. Although we
intend to enter into similar fee-based contracts with new customers in the future, our efforts to negotiate such contractual terms may
not be successful. In addition, we may acquire or develop additional midstream assets in a manner that increases our exposure to
commodity price risk. Future exposure to the volatility of natural gas, NGL and oil prices, especially in light of the recent declines,
could have a material adverse effect on our business, financial condition and results of operations.
The fees charged to our customers may not escalate sufficiently to cover increases in costs, or the agreements may be amended
with less favorable terms, may not be renewed or may be suspended in some circumstances.
Our costs may increase at a rate greater than the fees we charge to our customers. Furthermore, Antero Resources and our
other customers may not renew their contracts with us, or may from time to time seek to renegotiate with us the amount and/or the
structure of fees we charge. Additionally, some of our customers’ obligations under their agreements with us may be permanently or
temporarily reduced due to certain events, some of which are beyond our control, including force majeure events wherein the supply
of natural gas, NGLs, crude oil or refined products are curtailed or cut-off due to events outside our control, and in some cases, certain
of those agreements may be terminated in their entirety if the duration of such events exceeds a specified period of time. If the
escalation of fees is insufficient to cover increased costs, or if our customers do not renew or extend their contracts with us, or if our
customers suspend or terminate their contracts with us, our financial results would suffer.
Restrictions in our existing and future debt agreements could adversely affect our business, financial condition and results of
operations.
Our revolving credit facility limits our ability to, among other things:
incur or guarantee additional debt;
redeem or repurchase units or make distributions under certain circumstances;
make certain investments and acquisitions;
incur certain liens or permit them to exist;
enter into certain types of transactions with affiliates;
26
merge or consolidate with another company; and
transfer, sell or otherwise dispose of assets.
The indentures governing our senior notes contains similar restrictive covenants. In addition, our revolving credit facility
also contains covenants requiring us to maintain certain financial ratios. Our ability to meet those financial ratios and tests can be
affected by events beyond our control, and we cannot assure you that we will meet any such ratio or test. Additionally, we may not be
able to borrow the full amount of commitments under our revolving credit facility if doing so would cause us to breach a financial
covenant.
The provisions of our revolving credit facility and the indentures governing our senior notes may affect our ability to obtain
future financing and pursue attractive business opportunities and our flexibility in planning for, and reacting to, changes in business
conditions. In addition, a failure to comply with the provisions of our revolving credit facility or the indentures governing our senior
notes could result in a default or an event of default that could enable our lenders or noteholders to declare the outstanding principal of
that debt, together with accrued and unpaid interest, to be immediately due and payable. If our obligations to repay our debt are
accelerated, our assets may be insufficient to repay such debt in full, and you could experience a partial or total loss of your
investment. Please read “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Liquidity and Capital Resources.”
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to
satisfy our obligations under our indebtedness or to refinance, which may not be successful.
Our ability to make scheduled payments on, or to refinance, our indebtedness obligations, including our revolving credit
facility and our senior notes, depends on our financial condition and operating performance, which are subject to prevailing economic
and competitive conditions and certain financial, business and other factors beyond our control. We may not be able to maintain a
level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our
indebtedness, including the senior notes.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or
delay investments and capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness, including
the senior notes. Our ability to restructure or refinance our indebtedness will depend on the condition of the capital markets, including
the market for senior unsecured notes, and our financial condition at such time. Any refinancing of our indebtedness, including acting
on our previously announced plan to refinance borrowings under our revolving credit facility with long-term senior notes, could be at
higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.
The terms of existing or future debt instruments, including the indentures governing our senior notes, may restrict us from adopting
some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a
timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. In
the absence of sufficient cash flows and capital resources, we could face substantial liquidity problems and might be required to
dispose of material assets or operations to meet our debt service and other obligations. Our revolving credit facility and the indentures
governing our senior notes place certain restriction on our ability to dispose of assets and our use of the proceeds from such
disposition. We may not be able to consummate those dispositions, and the proceeds of any such disposition may not be adequate to
meet any debt service obligations then due. These alternative measures may not be successful and may not permit us to meet our
scheduled debt service obligations.
If our assets become subject to FERC regulation or federal, state or local regulations or policies change, or if we fail to comply
with market behavior rules, our financial condition, cash flows and results of operations could be materially and adversely
affected.
Our gathering and transportation operations are exempt from regulation by the FERC, under the NGA. Section 1(b) of the
NGA, exempts natural gas gathering facilities from regulation by the FERC under the NGA. Although the FERC has not made any
formal determinations with respect to any of our facilities, we believe that the natural gas pipelines in our gathering systems meet the
traditional tests the FERC has used to establish whether a pipeline is a gathering pipeline not subject to FERC jurisdiction. The
distinction between FERC- regulated transmission services and federally unregulated gathering services, however, has been the
subject of substantial litigation, and the FERC determines whether facilities are gathering facilities on a case-by-case basis, so the
classification and regulation of our gathering facilities may be subject to change based on future determinations by the FERC, the
courts, or Congress. If the FERC were to consider the status of an individual facility and determine that the facility or services
provided by it are not exempt from FERC regulation under the NGA, the rates for, and terms and conditions of, services provided by
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such facility would be subject to regulation by the FERC under the NGA or the NGPA. Such regulation could decrease revenue,
increase operating costs, and, depending upon the facility in question, could adversely affect our financial condition, cash flows and
results of operations.
State regulation of natural gas gathering facilities and intrastate transportation pipelines generally includes various safety,
environmental and, in some circumstances, nondiscriminatory take and common purchaser requirements, as well as complaint-based
rate regulation. Other state regulations may not directly apply to our business, but may nonetheless affect the availability of natural
gas for purchase, compression and sale.
Moreover, FERC regulations indirectly impact our businesses and the markets for products derived from these businesses.
The FERC’s policies and practices across the range of its natural gas regulatory activities, including, for example, its policies on open
access transportation, market manipulation, ratemaking, gas quality, capacity release and market center promotion, indirectly affect
the intrastate natural gas market. Should we fail to comply with any applicable FERC administered statutes, rules, regulations and
orders, we could be subject to substantial penalties and fines, which could have a material adverse effect on our financial condition,
cash flows and results of operations. The FERC has civil penalty authority under the NGA and NGPA to impose penalties for current
violations of up to $1,291,894 per day for each violation and disgorgement of profits associated with any violation.
For more information regarding federal and state regulation of our operations, please read “Business—Regulation of
Operations.”
Increased regulation of hydraulic fracturing could result in reductions or delays in production by our customers, which could
reduce the throughput on our gathering and processing systems and the number of wells for which we provide water handling
services, which could adversely impact our revenues.
All of Antero Resources’ natural gas, NGLs and oil production is developed from unconventional sources, such as shale
formations. These reservoirs require hydraulic fracturing completion processes to release the liquids and natural gas from the rock so
it can flow through casing to the surface. Hydraulic fracturing is a well stimulation process that utilizes large volumes of water and
sand (or other proppant) combined with fracturing chemical additives that are pumped at high pressure to crack open previously
impenetrable rock to release hydrocarbons. Hydraulic fracturing is typically regulated by state oil and gas commissions and similar
agencies, but the EPA has asserted federal regulatory authority pursuant to the SDWA over certain hydraulic fracturing activities
involving the use of diesel fuels and issued permitting guidance in February 2014 regarding such activities. In addition, the EPA
finalized rules in June 2016 that prohibit the discharge of wastewater from hydraulic fracturing operations to publicly owned
wastewater treatment plants.
Certain governmental reviews have been conducted or are underway that focus on environmental aspects of hydraulic
fracturing practices. For example, in December 2016, the EPA released its final report on the potential impacts of hydraulic fracturing
on drinking water resources. The final report concluded that “water cycle” activities associated with hydraulic fracturing may impact
drinking water resources under certain limited circumstances. Because the report did not find a direct link between hydraulic
fracturing itself and contamination of groundwater resources, this years-long study report does not appear to provide any basis for
further regulation of hydraulic fracturing at the federal level.
In addition, Congress has from time to time considered legislation to provide for federal regulation of hydraulic fracturing
under the SDWA and to require disclosure of the chemicals used in the hydraulic fracturing process. At the state level, several states
have adopted or are considering legal requirements that could impose more stringent permitting, disclosure, and well construction
requirements on hydraulic fracturing activities. At the state level, several states have adopted or are considering adopting regulations
that could impose more stringent disclosure and/or well construction requirements on hydraulic fracturing operations. For example, in
July 2015, the Ohio Department of Natural Resources issued final rules for horizontal drilling well-pad construction. The Ohio
legislature has also adopted laws requiring oil and natural gas operators to disclose chemical ingredients used to hydraulically fracture
wells and to conduct pre-drilling baseline water quality sampling of certain water wells near a proposed horizontal well. Local
governments also may seek to adopt ordinances within their jurisdictions regulating the time, place and manner of drilling activities in
general or hydraulic fracturing activities in particular.
We cannot predict whether any such legislation will ever be enacted and if so, what its provisions would be. If additional
levels of regulation and permits were required through the adoption of new laws and regulations at the federal, state or local level, that
could lead to delays, increased operating costs and process prohibitions that could reduce the amount of natural gas that moves
through our gathering and processing systems or reduce the number of wells drilled and completed that require fresh water for
hydraulic fracturing activities, which in turn could materially and adversely affect our revenues and results of operations.
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Oil and natural gas producers’ operations, especially those using hydraulic fracturing, are substantially dependent on the
availability of water. Restrictions on the ability to obtain water may incentivize water recycling efforts by oil and natural gas
producers, which would decrease the demand for our fresh water delivery services.
Our business includes fresh water delivery for use in our customers’ natural gas, NGL and oil exploration and production
activities. Water is an essential component of natural gas, NGL and oil production during the drilling, and in particular, the hydraulic
fracturing process. We derive a significant portion of our revenues from providing fresh water to Antero Resources. Antero Resources
recently announced certain efficiency improvements and water initiatives, which are expected to reduce the amount of fresh water
needed to complete their operations. Although we recently commenced operations to assist Antero Resources in reusing a portion of
its produced water through blending, which we expect will offset a portion of the reduced revenues resulting from these initiatives, we
may not be able to effectively commence such water treatment operations on a cost-effective basis. Furthermore, the availability of
water supply for our operations may be limited due to, among other things, prolonged drought or state and local governmental
authorities restricting the use of water for hydraulic fracturing. Any decrease in the demand for water handling services, or the water
supply we need to provide such services, would adversely affect our business and results of operations.
We or any third-party customers may incur significant liability under, or costs and expenditures to comply with,
environmental and occupational health and workplace safety regulations, which are complex and subject to frequent change.
As an owner, lessee or operator of gathering pipelines and compressor stations, we are subject to various stringent federal,
state, provincial and local laws and regulations relating to the discharge of materials into, and protection of, the environment.
Numerous governmental authorities, such as the EPA and analogous state agencies, have the power to enforce compliance with these
laws and regulations and the permits issued under them, oftentimes requiring difficult and costly response actions. These laws and
regulations may impose various obligations that are applicable to our and our customer’s operations, including the acquisition of
permits to conduct regulated activities, the incurrence of capital or operating expenditures to limit or prevent releases of materials
from our or our customers’ operations, the imposition of specific standards addressing worker protection, and the imposition of
substantial liabilities and remedial obligations for pollution or contamination resulting from our and our customer’s operations.
Failure to comply with these laws, regulations and permits may result in joint and several, strict liability and the assessment of
administrative, civil and criminal penalties, the imposition of remedial obligations, and the issuance of injunctions limiting or
preventing some or all of our operations. Private parties, including the owners of the properties through which our gathering systems
pass and facilities where wastes resulting from our operations are taken for reclamation or disposal, may also have the right to pursue
legal actions to enforce compliance, as well as to seek damages for non-compliance, with environmental laws and regulations or for
personal injury or property damage. We may not be able to recover all or any of these costs from insurance. In addition, we may
experience a delay in obtaining or be unable to obtain required permits, which may cause us to lose potential and current customers,
interrupt our operations and limit our growth and revenues, which in turn could affect our profitability. There is no assurance that
changes in or additions to public policy regarding the protection of the environment will not have a significant impact on our
operations and profitability.
Our operations also pose risks of environmental liability due to potential leakage, migration, releases or spills from our
operations to surface or subsurface soils, surface water or groundwater. Certain environmental laws impose strict as well as joint and
several liability for costs required to remediate and restore sites where hazardous substances, hydrocarbons, or solid wastes have been
stored or released. We may be required to remediate contaminated properties currently or formerly operated by us or facilities of third
parties that received waste generated by our operations regardless of whether such contamination resulted from the conduct of others
or from consequences of our own actions that were in compliance with all applicable laws at the time those actions were taken. In
addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safety
impacts of our operations. Moreover, public interest in the protection of the environment has increased dramatically in recent years.
The trend of more expansive and stringent environmental legislation and regulations applied to the crude oil and natural gas industry
could continue, resulting in increased costs of doing business and consequently affecting profitability. Please read “Business—
Regulation of Environmental and Occupational Safety and Health Matters” for more information.
Stricter regulation of wastes generated during our or our customers’ operations, or the introduction of hazardous non-exempt
waste to the Clearwater Facility, could result in liability under, or costs and expenditures to comply with, environmental laws
and regulations governing the handling, storage, treatment and disposal of solid and hazardous wastes, and the permits issued
under them.
Our and Antero Resources’ operations generate solid wastes, including small quantities of hazardous wastes, that are subject
to RCRA, and comparable state laws, which impose requirements for the handling, storage, treatment and disposal of hazardous
waste. RCRA currently exempts many natural gas gathering and field processing wastes from classification as hazardous waste.
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Specifically, RCRA excludes from the definition of hazardous waste produced waters and other wastes intrinsically associated with
the exploration, development, or production of crude oil and natural gas, including residual constituents derived from those exempt
wastes. However, these oil and gas exploration and production wastes may still be regulated under state solid waste laws and
regulations, and it is possible that certain oil and natural gas exploration and production wastes now classified as exploration and
production-exempt non-hazardous waste could be classified as hazardous waste in the future. For example, in December 2016, the
EPA and environmental groups entered into a consent decree to address EPA’s alleged failure to timely assess its RCRA Subtitle D
criteria regulations exempting certain exploration and production related oil and gas wastes from regulation as hazardous wastes under
RCRA. In keeping with the consent decree, in April 2019, EPA signed a determination that revision of the regulations is not
necessary at this time. However, any changes in laws or regulations regarding the handling of wastes generated during our or our
customers’ operations could result in increased costs for our operations or the operations of our customers, which could in turn reduce
demand for our services and adversely affect our business.
The Clearwater Facility operates pursuant to West Virginia DEP permits for the management of stormwater and wastewater
and the disposal and management of solid waste. The produced water, flowback water, and other waste associated with shale
development treated at the Clearwater Facility are exempt from RCRA hazardous waste regulations. Likewise, the input (residual salt
derived from the wastewater treated at the Clearwater Facility) and output (leachate derived from precipitation run-off contacting the
non-hazardous salt) to and from the Antero Landfill also qualify as exploration and production-exempt non-hazardous wastes because
they derive from non-hazardous exempt material. However, in the event that hazardous non-exempt waste streams are introduced to
and mix with the exempt waste at the Clearwater Facility, to the extent it recommences operations, or if we otherwise fail to handle or
treat such exempt materials pursuant to our West Virginia DEP permits, we may be subject to penalties and/or corrective action
measures.
Our operations are subject to a series of risks related to climate change that could result in increased operating costs, limit the
areas in which our customers may conduct oil and gas exploration and production activities, and reduce demand for the
services we provide.
The threat of climate change continues to attract considerable attention in the United States and in foreign countries. In
response to findings that emissions of carbon dioxide, methane and other GHGs present an endangerment to public health and the
environment, the EPA has adopted regulations under existing provisions of the federal Clean Air Act that, among other things,
establish PSD construction and Title V operating permit reviews for certain large stationary sources that are already potential major
sources of certain principal, or criteria, pollutant emissions. Facilities required to obtain PSD permits for their GHG emissions also
will be required to meet “best available control technology” standards that will be established by the states or, in some cases, by the
EPA for those emissions. These EPA rules could adversely affect our operations and restrict or delay our ability to obtain air permits
for new or modified sources. In addition, the EPA has adopted rules requiring the monitoring and reporting of GHG emissions from
specified onshore and offshore oil and gas production sources in the United States on an annual basis, which include certain of our
operations. For example, in December 2015, the EPA finalized rules that added new sources to the scope of the GHG monitoring and
reporting rule. These new sources include gathering and boosting facilities, as well as completions and workovers of hydraulically
fractured wells. The revisions also include the addition of well identification reporting requirements for certain facilities. These
changes to EPA’s GHG emissions reporting rule could result in increased compliance costs.
In June 2016, the EPA finalized new regulations, known as Subpart OOOOa, that establish emission standards for methane
and volatile organic compounds from new and modified oil and natural gas production and natural gas processing and transmission
facilities. The EPA’s rule package includes first-time standards to address emissions of methane from equipment and processes across
the source category, including hydraulically fractured oil and natural gas well completions. In addition, the rule package extends
existing VOC standards under the EPA’s Subpart OOOO to include previously unregulated equipment within the oil and natural gas
source category. There have been several attempts to delay or modify these regulations. Most recently, in August 2019, the EPA
proposed amendments to the 2016 standards that, among other things, would remove sources in the transmission and storage segment
from the oil and natural gas source category and rescind the methane-specific requirements applicable to sources in the production and
processing segments of the industry. As an alternative, the EPA also proposed to rescind the methane-specific requirements that apply
to all sources in the oil and natural gas industry, without removing the transmission and storage sources from the current source
category. Under either alternative, the EPA plans to retain emissions limits for VOCs. Legal challenges to any final rulemaking that
rescinds the 2016 standards are expected. As a result of the foregoing, substantial uncertainty exists with respect to implementation of
the EPA’s 2016 methane rule. However, given the long-term trend toward increasing regulation, future federal GHG regulations of
the oil and gas industry remain a possibility, and several states, including West Virginia and Ohio, have separately imposed their own
regulations on methane emissions from oil and gas production activities.
While Congress has from time to time considered legislation to reduce emissions of GHGs, there has been significant activity
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in the form of federal legislation in recent years. Nevertheless, increasing scientific and public concern over the threat of climate
change has increased the possibility of political action related to climate change. For example, various pledges have been made by
candidates running for the Democratic nomination for President of the United States in 2020. These have included promises to pursue
actions that would be adverse to oil and gas production and processing activities, though the extent of any such actions cannot be
predicted at this time.
In the absence of federal climate legislation, a number of state and regional efforts have emerged that are aimed at tracking
and/or reducing GHG emissions by means of cap and trade programs that typically require major sources of GHG emissions, such as
electric power plants, to acquire and surrender emission allowances in return for emitting those GHGs. Although it is not possible at
this time to predict how legislation or new regulations that may be adopted to address GHG emissions would impact our business, any
such future laws and regulations imposing reporting obligations on, or limiting emissions of GHGs from, our equipment and
operations could require us to incur costs to reduce emissions of GHGs associated with our operations. Substantial limitations on
GHG emissions or transitions to alternative forms of energy could also adversely affect demand for the oil and natural gas Antero
Resources produces and lower the value of its reserves. Depending on the severity of any such limitations, the effect on the value of
Antero Resources reserves could be significant.
On an international level, the United States is one of almost 200 nations that, in December 2015, agreed to an international
climate change agreement in Paris, France, that calls for countries to set their own GHG emissions targets and be transparent about the
measures each country will use to achieve its GHG emissions targets (“Paris Agreement”). The Paris Agreement was signed by the
United States in April 2016 and entered into force on November 4, 2016; however, the Paris Agreement does not impose any binding
obligations on its participants. Moreover, on November 4, 2019, the United States formally initiated the yearlong process to withdraw
from the Paris Agreement. However, the United States may subsequently choose to reenter the Paris Agreement or a separately
negotiated agreement, though the terms of any such agreement are uncertain at this time.
Separately, increased attention to climate change risks has increased the possibility of claims brought by public and private
entities against oil and gas companies in connection with their GHG emissions. While we are not currently party to any such private
litigation, we could be named in future actions making similar claims of liability. Moreover, to the extent that societal pressures or
political or other factors are involved, it is possible that such liability could be imposed without regard to the company’s causation of
or contribution to the asserted damage, or to other mitigating factors.
Notwithstanding potential risks related to climate change, the International Energy Agency estimates that oil and gas will
continue to represent a major share of global energy use through 2040, and other private sector studies project continued growth in
demand for the next two decades. However, recent activism directed at shifting funding away from companies with energy-related
assets could result in limitations or restrictions on certain sources of funding for the energy sector. Increased scrutiny because of
climate change related concerns could result in a loss of certain investors. In addition, institutional lenders may, of their own accord,
elect not to provide funding for fossil fuel energy companies based on climate change related concerns, which could affect our access
to capital for potential growth projects. Finally, it should be noted that a number of scientists have concluded that increasing
concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as
increased frequency and severity of storms, floods, droughts, and other extreme climatic events; if any such effects were to occur, they
have the potential to cause physical damage to our assets or affect the availability of water and thus could have an adverse effect on
exploration and production operations.
We may incur significant costs and liabilities as a result of pipeline integrity management program testing and any related
pipeline repair or preventative or remedial measures.
The United States Department of Transportation (“DOT”), has adopted regulations requiring pipeline operators to develop
integrity management programs for transportation pipelines located where a leak or rupture could do the most harm in HCAs. The
regulations require operators to:
perform ongoing assessments of pipeline integrity;
identify and characterize applicable threats to pipeline segments that could impact a HCA;
improve data collection, integration and analysis;
repair and remediate the pipeline as necessary; and
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implement preventive and mitigating actions.
The Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011 (the “2011 Pipeline Safety Act”), among other
things, increased the maximum civil penalty for pipeline safety violations and directed the Secretary of Transportation to promulgate
rules or standards relating to expanded integrity management requirements, automatic or remote-controlled valve use, excess flow
valve use, leak detection system installation and testing to confirm the material strength of pipe operating above 30% of specified
minimum yield strength in HCAs. Consistent with the 2011 Pipeline Safety Act, the Pipelines and Hazardous Materials Safety
Administration (“PHMSA”), finalized rules consistent with the signed act that increased the maximum administrative civil penalties
for violations of the pipeline safety laws and regulations to $200,000 per violation per day, with a maximum of $2,000,000 for a
related series of violations. In July 2019, those maximum civil penalties were increased to $218,647 and $2,186,465, respectively, to
account for inflation. Should our operations fail to comply with DOT or comparable state regulations, we could be subject to
substantial penalties and fines. Additionally, in May 2011, PHMSA published a final rule adding reporting obligations and integrity
management standards to certain rural low-stress hazardous liquid pipelines that were not previously regulated in such manner.
In June 2016, the President of the United States signed into law important new legislation entitled Protecting our
Infrastructure of Pipelines and Enhancing Safety Act of 2016 (the “PIPES Act”). The PIPES Act reauthorized PHMSA through 2019,
and facilitates greater pipeline safety by providing PHMSA with emergency order authority, including authority to issue prohibitions
and safety measures on owners and operators of gas or hazardous liquid pipeline facilities to address imminent hazards, without prior
notice or an opportunity for a hearing, as well as enhanced release reporting requirements, requiring a review of both natural gas and
hazardous liquid integrity management programs, and mandating the creation of a working group to consider the development of an
information-sharing system related to integrity risk analyses. The PIPES Act also requires that PHMSA publish periodic updates on
the status of those mandates outstanding from 2011 Pipeline Safety Act, of which approximately nine remain to be completed. The
mandates yet to be acted upon include requiring certain shut-off valves on transmission lines, mapping all HCAs, and requiring
pipeline owners or operators to reconfirm their MAOP as expeditiously as economically feasible.
PHMSA regularly revises its pipeline safety regulations. For example, in October 2019, PHMSA published three final rules
on pipeline safety. The Enhanced Emergency Order Procedures rule (effective December 2, 2019) implements an existing statutory
authorization for PHMSA to issue emergency orders related to pipeline safety if unsafe conditions or practices, or a combination
thereof, constitutes or causes an imminent hazard. The Safety of Hazardous Liquid Pipelines rule (effective July 1, 2020) expands
PHMSA’s regulation of the safety of hazardous liquid pipelines by extending reporting requirements to certain hazardous liquid
gravity flow and rural gathering pipelines, establishing new requirements for integrity management programs for hazardous liquid
pipelines in HCAs and certain other hazardous liquid pipelines, and expanding various inspection and leak detection
requirements. The Safety of Gas Transmission Pipelines rule (effective July 1, 2020) requires operators of certain gas transmission
pipelines to reconfirm the Maximum Allowable Operating Pressure (MAOP) of their lines and establishes a new “Moderate
Consequence Area” for determining regulatory requirements for gas transmission pipeline segments outside of HCAs. The rule also
establishes new requirements for conducting baseline assessments and incorporates industry standards and guidelines as well as new
requirements for integrity management programs. The rule also includes several requirements that allow operators to notify PHMSA
of proposed alternative approaches to achieving the objectives of the minimum safety standards. We are in the process of assessing
the impact of these rules on our future costs of operations and revenue from operations, but we do not expect our operations to be
affected by these new rules any differently than other similarly situated midstream companies.
PHMSA is working on two additional rules related to gas pipeline safety. The rule entitled “Pipeline Safety: Safety of Gas
Transmission Pipelines, Repair Criteria, Integrity Management Improvements, Cathodic Protection, Management of Change, and
Other Related Amendments” is expected to adjust the repair criteria for pipelines in HCAs, create new criteria for pipelines in non-
HCAs, and strengthen integrity management assessment requirements. The rule entitled “Safety of Gas Gathering Pipelines” is
expected to require all gas gathering pipeline operators to report incidents and annual pipeline data and to extend regulatory safety
requirements to certain gas gathering pipelines in rural areas. These additional rulemakings are expected to be effective by mid-2020.
The adoption of these and other laws or regulations that apply more comprehensive or stringent safety standards could require us to
install new or modified safety controls, pursue new capital projects, or conduct maintenance programs on an accelerated basis, all of
which could require us to incur increased operational costs that could be significant, consistent with other similarly situated midstream
companies. While we cannot predict the outcome of legislative or regulatory initiatives, such legislative and regulatory changes could
have a material effect on our cash flow. Please read “Business—Pipeline Safety Regulation” for more information.
Our business involves many hazards and operational risks, some of which may not be fully covered by insurance. The
occurrence of a significant accident or other event that is not fully insured could curtail our operations and have a material
adverse effect on our business, financial condition and results of operations.
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Our operations are subject to all of the hazards associated with the provision, gathering and compression of natural gas,
NGLs and oil, and water handling services, including:
unintended breach of impoundment and downstream flooding, release of invasive species or aquatic pathogens,
hazardous spills near intake points, trucking collision, vandalism, excessive road damage or bridge collapse and
unauthorized access or use of automation controls;
damage to pipelines, compressor stations, pump stations, impoundments, related equipment and surrounding properties
caused by natural disasters, acts of terrorism and acts of third parties;
damage from construction, farm and utility equipment as well as other subsurface activity (for example, mine
subsidence);
leaks of natural gas, NGLs or oil or losses of natural gas, NGLs or oil as a result of the malfunction of equipment or
facilities;
fires, ruptures and explosions;
other hazards that could also result in personal injury and loss of life, pollution of the environment, including natural
resources, and suspension of operations; and
hazards experienced by other operators that may affect our operations by instigating increased regulations and oversight.
Any of these risks could adversely affect our ability to conduct operations or result in substantial loss to us as a result of
claims for:
injury or loss of life;
damage to and destruction of property, natural resources and equipment;
pollution and other environmental damage;
regulatory investigations and penalties;
suspension of our operations; and
repair and remediation costs.
We may elect not to obtain insurance for any or all of these risks if we believe that the cost of available insurance is excessive
relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable under policies we are
covered under, and we have obtained pollution insurance. The occurrence of an event that is not fully covered by insurance could
have a material adverse effect on our business, financial condition and results of operations.
We do not own all of the land on which our pipelines and facilities are located, which could result in disruptions to our
operations.
We do not own all of the land on which our pipelines and facilities have been constructed, and we are, therefore, subject to
the possibility of more onerous terms or increased costs to retain necessary land use if we do not have valid rights-of-way or if such
rights-of-way lapse or terminate. We obtain the rights to construct and operate our pipelines on land owned by third parties and
governmental agencies for a specific period of time. Our loss of these rights, through our inability to renew right-of-way contracts or
otherwise, could have a material adverse effect on our business, financial condition and results of operations.
We are subject to complex federal, state and local laws and regulations that could adversely affect the cost, manner or
feasibility of conducting our operations or expose us to significant liabilities.
Our operations are subject to complex and stringent federal, state and local laws and regulations. In order to conduct our
operations in compliance with these laws and regulations, we must obtain and maintain numerous permits, approvals and certificates
from various federal, state and local governmental authorities. We may incur substantial costs in order to maintain compliance with
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these existing laws and regulations and the permits and other approvals issued thereunder. In addition, our costs of compliance may
increase or operational delays may occur if existing laws and regulations are revised or reinterpreted, or if new laws and regulations
apply to our operations. Failure to comply with such laws and regulations, including any evolving interpretation and enforcement by
governmental authorities, could have a material adverse effect on our business, financial condition and results of operations. Also, we
might not be able to obtain or maintain all required environmental regulatory approvals for our operations. If there is a delay in
obtaining any required environmental regulatory approvals, or if we fail to obtain and comply with them, the operation or construction
of our facilities could be prevented or become subject to additional costs.
In addition, new or additional regulations, new interpretations of existing requirements or changes in our operations could
also trigger the need for Environmental Assessments or more detailed Environmental Impact Statements under the National
Environmental Policy Act and analogous state laws, or that impose new permitting requirements on our operations could result in
increased costs or delays of, or denial of rights to conduct, our development programs. For example, in September 2015, the EPA and
U.S. Army Corps of Engineers, or the Corps, issued a final rule under the federal Clean Water Act, or the CWA, defining the scope of
the EPA’s and the Corps’ jurisdiction over waters of the United States (“WOTUS”), but following the change in U.S. Presidential
Administrations, there have been several attempts to modify or eliminate this rule. For example, on January 23, 2020, the EPA and the
Corps finalized the Navigable Waters Protection Rule, which narrows the definition of “waters of the United States” relative to the
prior 2015 rulemaking. However, legal challenges to the new rule are expected, and multiple challenges to the EPA’s prior
rulemakings remain pending. As a result of these developments, future implementation of the rule is uncertain at this time. To the
extent any rule expands the scope of the CWA’s jurisdiction, we could face increased costs and delays with respect to obtaining
permits for dredge and fill activities in wetland areas. Such potential regulations or litigation could increase our operating costs,
reduce our liquidity, delay or halt our operations or otherwise alter the way we conduct our business, which could in turn have a
material adverse effect on our business, financial condition and results of operations. Further, the discharges of natural gas, NGLs, oil,
and other pollutants into the air, soil or water may give rise to significant liabilities on our part to the government and third parties.
Please read “Item 1. Business—Regulation of Environmental and Occupational Safety and Health Matters” for a further description
of laws and regulations that affect us.
The loss of key personnel could adversely affect our ability to operate.
We depend on the services of a relatively small group of senior management and technical personnel. We do not maintain,
nor do we plan to obtain, any insurance against the loss of any of these individuals. The loss of the services of our senior management
or technical personnel, including Paul M. Rady, Chairman and Chief Executive Officer, and Glen C. Warren, Jr., President, could have
a material adverse effect on our business, financial condition and results of operations.
Our officers and employees provide services to both Antero Resources and us.
All of our executive officers and other personnel who provide corporate, general and administrative services to our business
are, when providing services to us, concurrently employed by Antero Resources and us pursuant to the terms of a services agreement.
In addition, our operational personnel are seconded to us by Antero Resources pursuant to the terms of a secondment agreement and
are concurrently employed by Antero Resources and us during such secondment. As a result, there could be material competition for
the time and effort of the officers and employees who provide services to Antero Resources and us. If such officers and employees do
not devote sufficient attention to the management and operation of our business, our financial results may suffer.
Debt we incur in the future may limit our flexibility to obtain financing and to pursue other business opportunities.
Our future level of debt could have important consequences to us, including the following:
our ability to obtain additional financing, if necessary, for working capital, capital expenditures (including required
drilling pad connections and well connections pursuant to our gathering and compression agreements as well as
acquisitions) or other purposes may be impaired or such financing may not be available on favorable terms;
our funds available for operations and future business opportunities will be reduced by that portion of our cash flows
required to make interest payments on our debt;
we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally; and
our flexibility in responding to changing business and economic conditions may be limited.
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Our ability to service our debt will depend upon, among other things, our future financial and operating performance, which
will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our
control. If our operating results are not sufficient to service any future indebtedness, we will be forced to take actions such as
reducing or not paying dividends, reducing or delaying our business activities, investments or capital expenditures, selling assets or
issuing equity. We may not be able to effect any of these actions on satisfactory terms or at all.
Terrorist or cyber-attacks and threats could have a material adverse effect on our business, financial condition and results of
operations.
Terrorist or cyber-attacks may significantly affect the energy industry, including our operations and those of our suppliers
and customers, as well as general economic conditions, consumer confidence and spending, and market liquidity. Strategic targets,
such as energy-related assets, may be at greater risk of future attacks than other targets in the United States. Our insurance may not
protect us against such occurrences. We depend on digital technology in many areas of our business and operations, including, but not
limited to, performing many of our gathering and compression and water handling services, recording financial and operating data,
oversight and analysis of our operations, and communications with the employees supporting our operations and our customers or
service providers. Deliberate attacks on our assets or our Joint Venture’s assets, security breaches in our systems or infrastructure, or
the systems or infrastructure of third-parties or the cloud, could lead to the corruption or loss of our proprietary and potentially
sensitive data, delays in the performance of services for our customers, difficulty in completing and settling transactions, challenges in
maintaining our books and records, environmental damage, communication interruptions, or other operational disruptions and third-
party liabilities. Cybersecurity attacks in particular are becoming more sophisticated and include, but are not limited to, malicious
software, ransomware, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to
disruptions in critical systems, unauthorized release of confidential or otherwise protected information, and corruption of data.
As cyber-attacks continue to evolve, we may be required to expend significant additional resources to continue to modify or
enhance our protective measures or to investigate and remediate any vulnerabilities to cyber-attacks. In particular, our implementation
of various procedures and controls to monitor and mitigate security threats and to increase security for our personnel, information,
facilities and infrastructure may result in increased capital and operating costs. To date, we have not experienced any material losses
relating to cyber-attacks; however, there can be no assurance that we will not suffer such losses in the future. Consequently, it is
possible that any of these occurrences, or a combination of them, could have a material adverse effect on our business, financial
condition and results of operations.
We may reduce or cease paying dividends on our common stock.
We are not obligated to pay dividends on shares of our common stock. Subject to preferences that may be applicable to any
outstanding shares or series of preferred stock, holders of our common stock are only entitled to receive ratably such dividends
(payable in cash, stock or otherwise), if any, as may be declared from time to time by our Board out of funds legally available for
dividend payments. Our Board makes a determination each quarter as to the actual amount, if any, of dividends to pay on our common
stock, based on various factors, some of which are beyond our control, including our operating cash flows, our working capital needs,
our ability to access capital markets for debt and equity financing on reasonable terms, the restrictions contained in our debt
instruments, our debt service requirements, credit metrics and the cost of acquisitions, if any. We may not have sufficient cash each
quarter to pay dividends or maintain current or expected levels of dividends. Accordingly, we cannot guarantee that we will declare
any future dividends at levels consistent with our historic practice or at all.
The price of our common stock may be volatile, and you could lose a significant portion of your investment.
The market price of our common stock could be volatile, and holders of common stock may not be able to resell their
common stock at or above the price at which they acquired such securities due to fluctuations in the market price of our common
stock.
Specific factors that may have a significant effect on the market price for our common stock include:
our operating and financial performance and prospects and the trading price of our common stock;
the level of our dividends;
quarterly variations in the rate of growth of our financial indicators, such as dividends per share of our common stock,
net income and revenues;
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levels of indebtedness;
changes in revenue or earnings estimates or publication of research reports by analysts;
speculation by the press or investment community;
sales of our common stock by other stockholders;
announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures,
securities offerings or capital commitments;
general market conditions;
changes in accounting standards, policies, guidance, interpretations or principles;
adverse changes in tax laws or regulations;
domestic and international economic, legal and regulatory factors related to our performance; and
Antero Resources’ operating and financial performance and prospects, and the trading price of its common stock.
There may be future dilution of our common stock, which could adversely affect the market price of shares of our common
stock.
We are not restricted from issuing additional shares of our common stock out of our authorized capital. In the future, we may
issue shares of our common stock to raise cash for future activities, acquisitions or other purposes. We may also acquire interests in
other companies by using a combination of cash and shares of our common stock or only shares. We may also issue securities
convertible into, or exchangeable for, or that represent the right to receive, shares of our common stock. Any of these events may
dilute the ownership interests of our stockholders, reduce our earnings per share or have an adverse effect on the price of shares of our
common stock.
Sales of a substantial amount of shares of our common stock in the public market could adversely affect the market price of
our shares.
Sales of a substantial amount of shares of our common stock in the public market or grants to our directors and officers
under the AMC LTIP, or the perception that these sales or grants may occur, could reduce the market price of shares of our common
stock. All of the shares of our common stock are freely tradable without restriction or further registration under the Securities Act,
unless the shares are held by any of our “affiliates” as such term is defined in Rule 144 under the Securities Act. In addition, we are
party to a registration rights agreement with Antero Resources, certain members of management and certain funds affiliated with
Yorktown Partners LLC (“Yorktown”), pursuant to which we agreed to register the resale of shares of our common stock issued or
paid to them in the Transactions. We cannot predict the size of future issuances of our common stock or securities convertible into our
common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our
common stock.
We expect to use a significant portion of our cash flows to pay dividends to our stockholders, which could limit our ability to
grow and make acquisitions.
We have previously announced that we plan to return capital in 2020 to our stockholders through dividends to our
stockholders and repurchasing shares of our common stock, which may cause our growth to proceed at a slower pace than that of
businesses that reinvest their cash to expand ongoing operations. To the extent we issue additional shares of common stock in
connection with any acquisitions or expansion capital expenditures, the payment of dividends on those additional shares may increase
the risk that we will be unable to maintain or increase our per share dividend level. In addition, the incurrence of commercial
borrowings or other debt to finance our growth strategy would result in increased interest expense, which, in turn, may reduce the cash
that we have available to return capital to our stockholders through dividends and/or repurchases of shares of our common stock.
Antero Resources owns a significant interest in us and, as a result, conflicts of interest will arise from time to time between it
and us, and Antero Resources may favor their own interests to the detriment of us and our other stockholders. Additionally,
Antero Resources is under no obligation to adopt a business strategy that favors us.
36
All of our officers and certain of our directors are also officers or directors of Antero Resources. Also, as of December 31,
2019, Antero Resources beneficially owned 28.7% of our outstanding common stock. Our directors and officers who are also directors
and officers of Antero Resources have a fiduciary duty to manage Antero Resources in a manner that is beneficial to Antero
Resources. Conflicts of interest will arise between Antero Resources and us. In resolving these actual or apparent conflicts of
interest, members of our Board may choose strategies that favor Antero Resources over our interests and the interests of our
stockholders. These conflicts include, for example, the decision to declare and pay dividends or the decision to repurchase shares of
our common stock owned by Antero Resources. The resolution of any conflicts of interest between Antero Resources and its
subsidiaries, on one hand, and us and our subsidiaries, on the other, to the extent we can resolve them, may be costly and reduce the
amount of time and attention that our directors and officers may spend in operating our business, which, in each case, may adversely
affect our business.
Furthermore, Antero Resources is under no obligation to adopt a business strategy that favors us. For example, Antero
Resources has dedicated acreage to, and entered into long-term contracts for gathering and compression services on, our gathering and
compression systems, as well as long-term contracts for receiving water services. However, while we have a right of first offer that
expires in 2034 to provide processing and fractionation services to Antero Resources, subject to certain exceptions, Antero Resources
is under no obligation to consider whether any future drilling plans would create beneficial opportunities for us. Additionally,
although our the processing and fractionation services provided by the Joint Venture are supported by minimum volume
commitments, the gathering and compression agreement includes minimum volumes commitments only on high pressure pipelines
and compressor stations constructed at Antero Resources’ request after November 2014. Any decision by Antero Resources to
operate its assets in a manner that does not support our operations could have a material adverse effect on our business, financial
condition and results of operations.
Certain of our stockholders have investments in our affiliates that may conflict with the interests of other stockholders.
Certain funds affiliated with Yorktown, Paul M. Rady and Glen C. Warren, Jr. (collectively, the “Sponsors”) own a
significant interest in us. Messrs. Rady and Warren and an individual affiliated with Yorktown serve as members of our Board and the
board of directors of Antero Resources. The Sponsors also own a significant portion of the shares of common stock of Antero
Resources. As a result of their investments in Antero Resources, the Sponsors may have conflicting interests with other stockholders.
Conflicts of interest could arise in the future between us, on the one hand, and the Sponsors, on the other hand, regarding, among other
things, decisions related to our financing, capital expenditures and growth plans, the terms of our agreements with Antero Resources
and its subsidiaries and the pursuit of potentially competitive business activities or business opportunities.
We are a holding company whose sole material asset is our equity interest in Antero Midstream Partners, and we are
accordingly dependent upon distributions from Antero Midstream Partners to pay taxes, return capital to stockholders and
cover our corporate and other overhead expenses.
We are a holding company and have no material assets other than our equity interest in Antero Midstream Partners. We have
no independent means of generating revenue. To the extent Antero Midstream Partners has available cash, we intend to cause Antero
Midstream Partners to make distributions to us in an amount at least sufficient to allow us to pay our taxes, to fund our return of
capital to our stockholders, including paying dividends and repurchasing shares of our common stock and for our corporate and other
overhead expenses. To the extent that we need funds and Antero Midstream Partners or its subsidiaries are restricted from making
such distributions or payments under applicable law or regulation or under the terms of any financing arrangements, or are otherwise
unable to provide such funds, our liquidity and financial condition could be materially adversely affected.
Our certificate of incorporation and bylaws, as well as Delaware law, contain provisions that could discourage acquisition bids
or merger proposals, which may adversely affect the market price of our common stock.
Certain provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire
control of us, even if the change of control would be beneficial to our stockholders. Among other things, our certificate of
incorporation and bylaws:
provide advance notice procedures with regard to stockholder nominations of candidates for election as directors or other
stockholder proposals to be brought before meetings of our stockholders, which may preclude our stockholders from
bringing certain matters before our stockholders at an annual or special meeting;
provide our Board the ability to authorize issuance of preferred stock in one or more classes or series, which makes it
possible for our Board to issue, without stockholder approval, preferred stock with voting or other rights or preferences
37
that could impede the success of any attempt to change control of us and which may have the effect of deterring hostile
takeovers or delaying changes in control or management of us;
provide that the authorized number of directors may be changed only by resolution of our Board;
provide that, subject to the rights of holders of any series of preferred stock to elect directors or fill vacancies in respect
of such directors as specified in the related preferred stock designation and the terms of that certain Stockholders'
Agreement, dated October 9, 2018, by and among Antero Midstream Corporation and certain of its stockholders named
thereto (the “Stockholders’ Agreement”), all vacancies, including newly created directorships be filled by the affirmative
vote of holders of a majority of directors then in office, even if less than a quorum, or by the sole remaining director, and
will not be filled by our stockholders;
provide that, subject to the rights of the holders of any series of preferred stock to elect directors under specified
circumstances, if any, and the terms of the Stockholders’ Agreement, any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of our stockholders and may not be effected by
any consent in writing in lieu of a meeting of such stockholders;
provide for our Board to be divided into three classes of directors, with each class as nearly equal in number as possible,
serving staggered three-year terms;
provide that, subject to the rights of the holders of shares of any series of preferred stock, if any, to remove directors
elected by such series of preferred stock pursuant to our certificate of incorporation (including any preferred stock
designation thereunder) and the terms of the Stockholders’ Agreement, directors may be removed from office at any
time, only for cause and by the holders of a majority of the voting power of all outstanding voting shares entitled to vote
generally in the election of directors;
provide that special meetings of our stockholders may only be called only by the Chief Executive Officer, the Chairman
of our Board or our Board pursuant to a resolution adopted by a majority of the total number of directors that we would
have if there were no vacancies;
provide that (i) the Sponsor Holders and their affiliates are permitted to participate (directly or indirectly) in venture
capital and other direct investments in corporations, joint ventures, limited liability companies and other entities
conducting business of any kind, nature or description, (ii) the Sponsor Holders and their affiliates are permitted to have
interests in, participate with, aid and maintain seats on the boards of directors or similar governing bodies of any such
investments, in each case that may, are or will be competitive with our business and the business of our subsidiaries or in
the same or similar lines of business as us and our subsidiaries, or that could be suitable for us or our subsidiaries and
(iii) we have, subject to limited exceptions, renounced, to the fullest extent permitted by law, any interest or expectancy
in, or in being offered an opportunity to participate in, such corporate opportunities;
provide that the provisions of our certificate of incorporation can only be amended or repealed by the affirmative vote of
the holders of at least 66 2/3% in voting power of the outstanding shares of our common stock entitled to vote thereon,
voting together as a single class; provided, however, that so long as the Stockholders' Agreement remains in effect, no
provision of our certificate of incorporation may be amended, altered or repealed in any manner that would be contrary
to or inconsistent with the terms of the Stockholders’ Agreement, and no amendment to the Stockholders’ Agreement
(regardless of whether such amendment modifies any provision of the Stockholders’ Agreement to which our certificate
of incorporation is subject) will be deemed an amendment of our certificate of incorporation; and
provide that our bylaws can be altered or repealed by (a) our Board or (b) our stockholders upon the affirmative vote of
holders of at least 66 2/3% of the voting power of our common stock outstanding and entitled to vote thereon, voting
together as a single class. However, so long as the Stockholders’ Agreement remains in effect, our Board may not
approve any amendment, alteration or repeal of any provision of our bylaws, or the adoption of any new bylaw, that
(a) would be contrary to or inconsistent with the terms of the Stockholders’ Agreement or (b) would amend, alter or
repeal certain portions of our certificate of incorporation; provided, however, that so long as the Stockholders’
Agreement remains in effect, the parties to the Stockholders' Agreement may amend any provision of the Stockholders’
Agreement, and no amendment to the Stockholders’ Agreement (regardless of whether such amendment modifies any
provision of the Stockholders’ Agreement to which the bylaws are subject) will be deemed an amendment of the bylaws
for purposes of the amendment provisions of our bylaws.
38
Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for
certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders' ability
to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court
of Chancery of the State of Delaware (the “Court of Chancery”) will, to the fullest extent permitted by applicable law, be the sole and
exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action or proceeding asserting a claim of
breach of a fiduciary duty owed by any of our current or former directors, officers, stockholders, employees or agents to us or our
stockholders, (iii) any action or proceeding asserting a claim arising pursuant to any provision of the Delaware General Corporation
Law (the “DGCL”), our certificate of incorporation or our bylaws as to which the DGCL confers jurisdiction on the Court of Chancery
or (iv) any action or proceeding asserting a claim against us governed by the internal affairs doctrine, in each such case subject to the
Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Furthermore, if the Court
of Chancery lacks subject matter jurisdiction for any such matter, any state or federal court located within Delaware will be the sole
and exclusive forum for that matter. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of our
capital stock will be deemed to have notice of, and consented to, the provisions of certificate of incorporation described in the
preceding sentence. This choice of forum provision may limit our stockholder’s ability to bring a claim in a judicial forum that it finds
favorable for disputes with it or its directors, officers, employees or agents, which may discourage such lawsuits against us and such
persons. Alternatively, if a court were to find these provisions of our certificate of incorporation inapplicable to, or unenforceable in
respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such
matters in other jurisdictions, which could adversely affect our business, financial condition and results of operations.
We have elected not to be subject to the provisions of Section 203 of the DGCL, regulating corporate takeovers.
In general, the provisions of Section 203 of the DGCL prohibit a Delaware corporation, including those whose securities are
listed for trading on the NYSE, from engaging in any business combination with any interested stockholder for a period of three years
following the date that the stockholder became an interested stockholder, unless:
prior to such time, the business combination or the transaction which resulted in the stockholder becoming an interested
stockholder is approved by our Board;
upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced
(excluding certain specified shares); or
on or after such time the business combination is approved by our Board and authorized at a meeting of stockholders by
the holders of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.
Section 203 of the DGCL permits a Delaware corporation to elect not to be governed by the provisions of Section 203.
Pursuant to our certificate of incorporation, we expressly elected not to be governed by Section 203. Accordingly, we are not subject
to any anti-takeover effects or protections of Section 203 of the DGCL, although no assurance can be given that we will not elect to be
governed by Section 203 of the DGCL pursuant to an amendment to our certificate of incorporation in the future.
We may issue preferred stock, which may have terms that could adversely affect the voting power or value of our common
stock.
Our certificate of incorporation authorizes our Board to issue, without the approval of our stockholders, one or more classes
or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our
common stock respecting dividends and distributions, as our Board may determine. The terms of one or more classes or series of our
preferred stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of a
class or series of our preferred stock the right to elect some number of our directors in all events or on the happening of specified
events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might
assign to holders of our preferred stock could affect the residual value of our common stock.
Our future tax liability may be greater than expected if we do not generate deductions or net operating loss (“NOL”)
carryforwards sufficient to offset taxable income or if tax authorities challenge certain of our tax positions.
39
We expect to generate deductions and NOL carryforwards that we can use to offset our taxable income. As a result, we do
not expect to pay material U.S. federal and state income taxes through 2023. This expectation is based upon assumptions our
management has made regarding, among other things, income, capital expenditures and net working capital. Further, the IRS or other
tax authorities could challenge one or more tax positions we take, such as the classification of assets under the income tax depreciation
rules, the characterization of expenses for income tax purposes, and the tax characterization of the Transactions. Further, any change
in law may affect our tax position. While we expect that our deductions and NOL carryforwards will be available to us as a future
benefit, in the event that they are not generated as expected, are successfully challenged by the IRS (in a tax audit or otherwise), or are
subject to future limitations, our ability to realize these benefits may be limited.
Taxable gain or loss on the sale of our common stock could be more or less than expected.
If a holder sells our common stock, the holder will recognize gain or loss equal to the difference between the amount realized
and the holder’s tax basis in the shares of common stock sold. To the extent that the amount of distributions on our common stock
exceeds our current and accumulated earnings and profits, such distributions will be treated as a tax free return of capital and will
reduce a holder’s tax basis in its common stock. We expect the majority of our distributions to be in excess of our earnings and profits
through 2023. Because our distributions in excess of our earnings and profits decrease a holder’s tax basis in our common stock, such
excess distributions will result in a corresponding increase in the amount of gain, or a corresponding decrease in the amount of loss,
recognized by the holder upon the sale of our common stock.
The IRS Forms 1099-DIV that our stockholders receive from their brokers may over-report dividend income with respect to
our common stock for U.S. federal income tax purposes, which may result in a stockholder’s overpayment of tax. In addition,
failure to report dividend income in a manner consistent with the IRS Forms 1099-DIV may cause the IRS to assert audit
adjustments to a stockholder’s U.S. federal income tax return. For non-U.S. holders of our common stock, brokers or other
withholding agents may overwithhold taxes from dividends paid, in which case a stockholder generally would have to timely
file a U.S. tax return or an appropriate claim for refund to claim a refund of the overwithheld taxes.
Distributions we pay with respect to our common stock will constitute “dividends” for U.S. federal income tax purposes only
to the extent of our current and accumulated earnings and profits. Distributions we pay in excess of our earnings and profits will not be
treated as “dividends” for U.S. federal income tax purposes; instead, they will be treated first as a tax-free return of capital to the
extent of a stockholder’s tax basis in their common stock and then as capital gain realized on the sale or exchange of such stock. We
may be unable to timely determine the portion of our distributions that is a “dividend” for U.S. federal income tax purposes, which
may result in a stockholder’s overpayment of tax with respect to distribution amounts that should have been classified as a tax-free
return of capital. In such a case, a stockholder generally would have to timely file an amended U.S. tax return or an appropriate claim
for refund to obtain a refund of the overpaid tax.
For a U.S. holder of our common stock, the IRS Forms 1099-DIV received from brokers may not be consistent with our
determination of the amount that constitutes a “dividend” for U.S. federal income tax purposes or a stockholder may receive a
corrected IRS Form 1099-DIV (and may therefore need to file an amended U.S. federal, state or local income tax return). We will
attempt to timely notify our stockholders of available information to assist with income tax reporting (such as posting the correct
information on our website). However, the information that we provide to our stockholders may be inconsistent with the amounts
reported by a broker on IRS Form 1099-DIV, and the IRS may disagree with any such information and may make audit adjustments to
a stockholder’s tax return.
For a non-U.S. holder of our common stock, “dividends” for U.S. federal income tax purposes will be subject to withholding
of U.S. federal income tax at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty) unless the
dividends are effectively connected with the conduct of a U.S. trade or business. In the event that we are unable to timely determine
the portion of our distributions that constitute a “dividend” for U.S. federal income tax purposes, or a stockholder’s broker or
withholding agent chooses to withhold taxes from distributions in a manner inconsistent with our determination of the amount that
constitutes a “dividend” for such purposes, a stockholder’s broker or other withholding agent may overwithhold taxes from
distributions paid. In such a case, a stockholder generally would have to timely file a U.S. tax return or an appropriate claim for
refund in order to obtain a refund of the overwithheld tax.
Item 1B. Unresolved Staff Comments
Not applicable.
40
Item 3. Legal Proceedings
Our operations are subject to a variety of risks and disputes normally incident to our business. As a result, we may, at any
given time, be a defendant in various legal proceedings and litigation arising in the ordinary course of business. However, we are not
currently subject to any material litigation.
We maintain insurance policies with insurers in amounts and with coverage and deductibles that we, with the advice of our
insurance advisors and brokers, believe are reasonable and prudent. We cannot, however, assure you that this insurance will be
adequate to protect us from all material expenses related to potential future claims for personal and property damage or that these
levels of insurance will be available in the future at economical prices.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Stock
We have one class of common equity outstanding, our common stock, par value $0.01 per share. Our common stock is listed
on the New York Stock Exchange and traded under the symbol “AM.” On February 7, 2020, shares of our common stock were held
by 62 holders of record. The number of holders does not include the holders for whom shares of our common stock are held in a
“nominee” or “street” name. In addition, as of February 7, 2020, Antero Resources and its subsidiaries owned 139,042,345 shares of
our common stock, which represented a 28.7% interest in us.
Issuer Purchases of Equity Securities
The following table sets forth our common stock repurchase activity for each period presented:
Period
October 1, 2019 – October 31, 2019
November 1, 2019 – November 30, 2019
December 1, 2019 – December 31, 2019
Total
Number of
Shares
Purchased(1)
974
—
19,377,592
19,378,566
Average Price
Paid per
Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans(2)
$
$
$
$
7.45
—
5.16
5.16
—
—
19,377,592
19,377,592
$
$
Approximate Value
of Shares that May
Yet be Purchased
Under the Plan
N/A
N/A
175,000,000
175,000,000
(1) The total number of shares purchased includes 974 shares repurchased in October 2019, representing shares of our common stock
transferred to us in order to satisfy tax withholding obligations incurred upon the vesting of equity awards held by our employees.
There were no such repurchases in November and December.
In August 2019, the Board authorized a $300 million share repurchase program. On December 16, 2019, we repurchased
19,377,592 shares of our common stock from Antero Resources at a price of $5.1606 per share, which shares were thereafter
cancelled.
(2)
Dividends
On January 15, 2020, the Board declared an aggregate cash dividend on the shares of our common stock of $0.3075 per share
for the quarter ended December 31, 2019. The dividend will be payable on February 12, 2020 to stockholders of record as of January
31, 2020.
The Board also declared a cash dividend of $138 thousand on shares of our Series A Preferred Stock to be paid on February
14, 2020 in accordance with the terms of the Series A Preferred Stock, which are discussed in Note 14—Equity and Earnings Per
Common Share to our consolidated financial statements. As of December 31, 2019, there were dividends in the amount of $69
thousand accumulated in arrears on our Series A Preferred Stock.
41
Stock Performance Graph
The graph below shows the cumulative total shareholder return assuming the investment of $100 on May 4, 2017, the date of
our initial public offering, in each of our predecessor’s common shares through March 12, 2019 and our common stock thereafter, the
Standard & Poor’s 500 (“S&P 500”) Index, and the Alerian Midstream Energy (“AMNA”) Index. We believe the AMNA Index is
meaningful because it is an independent, objective view of the performance of similarly-sized midstream energy companies.
The information in this Form 10-K appearing under the heading “Stock Performance Graph” is being “furnished” pursuant to
Item 2.01(e) of Regulation S-K under the Securities Act and shall not be deemed to be “soliciting material” or “filed” with the SEC or
subject to Regulation 14A or 14C, other than as provided in Item 2.01(e) of Regulation S-K, or to the liabilities of Section 18 of the
Exchange Act and shall not be deemed incorporated by reference into any filing under the Securities Act of the Exchange Act except
to the extent that we specifically request that it be treated as such.
Item 6. Selected Financial Data
The following table presents our selected historical financial data, for the periods and as of the dates indicated, for the
Company and its predecessors. Our predecessor, AMGP, was originally formed as ARMM to become the general partner of Antero
Midstream Partners and converted into a limited partnership on May 4, 2017 in connection with our IPO. On March 12, 2019,
pursuant to the Simplification Agreement, we completed the Transactions.
The Merger has been accounted for as an acquisition by AMGP of Antero Midstream Partners under ASC 805 – Business
Combinations and accounted for as a business combination, with the assumed assets and liabilities of Antero Midstream Partners
recorded at their estimated fair value. As a result of the Merger, our historical financial data for previous periods are not comparable
to the year ended December 31, 2019 or to our future financial results. The selected financial data for the years ended December 31,
2015, 2016, 2017 and 2018 are the financial statements of AMGP and its consolidated subsidiaries, which do not include Antero
Midstream Partners and its subsidiaries. Effective March 12, 2019, we began consolidating Antero Midstream Partners and its
subsidiaries in our consolidated financial statements. As a result, our selected balance sheet financial data presented below at
December 31, 2019 includes the financial position of Antero Midstream Partners and its subsidiaries, and our selected consolidated
statements of operations and comprehensive income and cash flows data for the year ended December 31, 2019 include the results of
operations of Antero Midstream Partners and its subsidiaries beginning on March 13, 2019. The historical selected consolidated
statement of operations data included herein reflects that, prior to the Merger, AMGP’s only income resulted from distributions made
on the incentive distribution rights (the “IDRs”) of Antero Midstream Partners and expenses were limited to general and
administrative expenses and equity-based compensation. Please read “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations —Items Affecting Comparability of our Financial Results.”
Accordingly, we are also presenting our pro forma results of operations for the years ended December 31, 2018 and
December 31, 2019, which give effect to the adjustments described in Exhibit 99.1 to this Annual Report on Form 10-K. The pro
42
forma information presented below should be read in conjunction with the unaudited pro forma condensed combined financial
statements, which are filed as Exhibit 99.1 to this Annual Report on Form 10-K and describe the assumptions and adjustments used in
preparing such information. The pro forma adjustments are based on currently available information and certain estimates and
assumptions. Therefore, the actual adjustments may differ from the pro forma adjustments. However, management believes that the
pro forma assumptions provide a reasonable basis for presenting the results of operations on a more meaningful basis.
The selected statement of operations data and statement of cash flows data for the years ended December 31, 2017, 2018, and
2019 and the balance sheet data as of December 31, 2018 and 2019 are derived from our audited consolidated financial statements
included in Item 8 of this Annual Report on Form 10-K. The selected statement of operations data and statement of cash flows data
for the years ended December 31, 2015 and 2016 and the selected balance sheet data as of December 31, 2015, 2016 and 2017 is
derived from our audited consolidated financial statements not included in Item 8 of this Annual Report on Form 10-K.
The selected financial data presented below are qualified in their entirety by reference to, and should be read in conjunction
with, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated
financial statements and related notes included elsewhere in this report:
(in thousands, except per share amounts)
Revenue:
Gathering and compression–Antero Resources
Water handling–Antero Resources
Water handling–third party
Amortization of customer relationships
$
Total revenue
Operating expenses:
Direct operating
General and administrative (excluding equity-based
compensation)
Equity-based compensation
Facility idling
Impairment of property and equipment
Impairment of goodwill
Impairment of customer relationships
Depreciation
Accretion and change in fair value of contingent
acquisition consideration
Accretion of asset retirement obligations
Total operating expenses
Operating loss
Interest expense, net
Equity in earnings of unconsolidated affiliates
Income (loss) before income taxes
Provision for income tax benefit (expense)
Net income (loss) and comprehensive income (loss) $
2015
2016
December 31,
2017
2018
2019
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,264
1,264
(483)
781
—
—
—
—
—
—
814
—
—
—
—
—
—
—
—
814
(814)
—
16,944
16,130
(6,419)
9,711
—
—
—
—
—
—
6,201
34,933
—
—
—
—
—
—
—
41,134
(41,134)
—
69,720
28,586
(26,261)
2,325
—
—
—
—
—
543,538
306,010
50
(57,010)
792,588
—
195,818
8,740
35,111
—
—
—
—
—
—
—
43,851
(43,851)
(136)
142,906
98,919
(32,311)
66,608
44,596
73,517
11,401
409,739
340,350
11,871
95,526
8,076
187
1,191,081
(398,493)
(110,402)
51,315
(457,580)
102,466
(355,114)
Net income (loss) per share–basic and diluted
$
0.03
0.33
(0.80)
Weighted average common shares outstanding:
Basic
Diluted
186,176
186,176
186,203
186,203
442,640
442,640
43
(in thousands, except per share amounts)
Balance sheet data (at period end):
Cash and cash equivalents
Other current assets
Total current assets
Property and equipment, net
Investments in unconsolidated affiliates
Other assets
Total assets
$
$
Current liabilities
Long-term indebtedness
Other long-term liabilities
Total partners' capital and stockholders' equity
Total liabilities and partners' capital and
2015
2016
December 31,
2017
2018
2019
72
—
72
—
969
—
1,041
115
—
368
558
9,609
217
9,826
—
7,543
—
17,369
7,100
—
—
10,269
5,987
—
5,987
—
23,772
—
29,759
14,151
—
—
15,608
2,822
87
2,909
—
43,492
1,304
47,705
16,844
—
—
30,861
1,235
107,323
108,558
3,273,410
709,639
2,191,271
6,282,878
242,084
2,892,249
5,131
3,143,414
stockholders' equity
$
1,041
17,369
29,759
47,705
6,282,878
Cash flows data:
Net cash provided by operating activities
Net cash used in investing activities
Net cash activities provided by (used in)
$
$
295
—
9,537
—
28,080
—
83,531
—
622,387
(525,675)
financing activities
$
(223)
—
(31,702)
(86,696)
(98,299)
Other financial data:
Distributions or dividends declared per share
Pro forma Net income (loss)
Pro forma Adjusted EBITDA(1)
$
0.16
$
$
0.54
312,894
708,635
1.23
(285,076)
829,558
(1) For a discussion of the non-GAAP financial measure Pro Forma Adjusted EBITDA, including a reconciliation of Adjusted
EBITDA to its most directly comparable financial measures calculated and presented in accordance with GAAP, please read “—
Non-GAAP Financial Measure” below.
44
The following table presents our pro forma results of operations for the years ended December 31, 2018 and 2019, which
give effect to the adjustments described in Exhibit 99.1 to this Annual Report on Form 10-K. The pro forma information presented
below should be read in conjunction with the unaudited pro forma condensed combined financial statements, which are filed as
Exhibit 99.1 to this Annual Report on Form 10-K and describe the assumptions and adjustments used in preparing such information.
Year Ended December 31,
2018
2019
Revenues:
Revenue–Antero Resources
Revenue–third-party
Gain on sales of assets–Antero Resources
Amortization of customer relationships
Total revenues
$
Operating expenses:
Direct operating
General and administrative (excluding equity-based compensation)
Facility idling
Equity-based compensation
Impairment of property and equipment
Impairment of goodwill
Impairment of customer relationships
Depreciation
Accretion and change in fair value of contingent acquisition consideration
Accretion of asset retirement obligations
Total expenses
Operating income (loss)
Other income (expenses):
Interest expense, net
Equity in earnings of unconsolidated affiliates
Income (loss) before taxes
Provision for income tax benefit (expense)
Net income (loss) and comprehensive income (loss)
$
Non-GAAP Financial Measure
1,027,015
924
583
(71,082)
957,440
316,423
49,296
—
56,184
5,771
—
—
145,745
(93,019)
135
480,535
476,905
(83,794)
34,189
427,300
(114,406)
312,894
1,067,858
101
—
(70,874)
997,085
260,636
45,567
11,401
75,994
416,721
340,350
11,871
120,363
10,004
250
1,293,157
(296,072)
(130,518)
62,394
(364,196)
79,120
(285,076)
We use Pro Forma Adjusted EBITDA as an important indicator of our performance. We define Pro Forma Adjusted
EBITDA as net income (loss) before net interest expense, income tax expense (benefit), depreciation, impairment, accretion and
changes in fair value of contingent acquisition consideration, accretion of asset retirement obligations, equity-based compensation,
excluding equity in earnings of unconsolidated affiliates, contract restructuring expenses, amortization of customer relationships and
including cash distributions from unconsolidated affiliates and including Antero Midstream Partners’ pre-acquisition: net income
before interest expense, depreciation, impairment, accretion and changes in fair value of contingent acquisition consideration,
accretion of asset retirement obligations, equity-based compensation, amortization of customer relationships excluding equity in
earnings of unconsolidated affiliates, including cash distributions from unconsolidated affiliates and excluding equity in earnings of
Antero Midstream Partners.
We use Pro Forma Adjusted EBITDA to assess:
the financial performance of our assets, without regard to financing methods capital structure or historical cost basis;
our operating performance and return on capital as compared to other publicly traded companies in the midstream energy
sector, without regard to financing or capital structure; and
the viability of acquisitions and other capital expenditure projects.
Pro Forma Adjusted EBITDA is a non-GAAP financial measure. The GAAP measure most directly comparable to Pro
Forma Adjusted EBITDA is Pro Forma Net income (loss). The non-GAAP financial measure of Pro Forma Adjusted EBITDA should
45
not be considered as an alternative to the GAAP measure of net income. Pro Forma Adjusted EBITDA presentations are not made in
accordance with GAAP and have important limitations as an analytical tool because they include some, but not all, items that affect
Pro Forma Net income (loss). You should not consider Pro Forma Adjusted EBITDA in isolation or as a substitute for analyses of
results as reported under GAAP. Our definition of Pro Forma Adjusted EBITDA may not be comparable to similarly titled measures
of other corporations.
The following table represents a reconciliation of our Pro Forma Adjusted EBITDA to the most directly comparable GAAP
financial measure for the periods presented:
(in thousands)
Reconciliation of Pro Forma Net Income (Loss) to Pro Forma Adjusted EBITDA:
Pro Forma Net income (loss)
$
Interest expense
Income tax expense (benefit)
Amortization of customer relationships
Depreciation expense
Impairment
Accretion and change in fair value of contingent acquisition consideration
Equity-based compensation
Equity in earnings of unconsolidated affiliates
Distributions from unconsolidated affiliates
Contract restructuring fees
Gain on sale of assets—Antero Resources
Pro Forma Adjusted EBITDA
$
Year Ended December 31,
2018
2019
312,894
83,794
114,406
71,082
145,745
5,771
(92,884)
56,184
(34,189)
46,415
—
(583)
708,635
(285,076)
130,518
(79,120)
70,874
120,363
768,942
10,254
75,994
(62,394)
76,925
2,278
—
829,558
46
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with
our consolidated financial statements and related notes included elsewhere in this report. The information provided below
supplements, but does not form part of, our 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 the section entitled “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.
On March 12, 2019, pursuant to the Simplification Agreement, dated as of October 9, 2018, by and among AMGP, Antero
Midstream Partners and certain of their affiliates, (i) AMGP was converted from a limited partnership to a corporation under the
laws of the State of Delaware and changed its name to Antero Midstream Corporation, (ii) an indirect, wholly owned subsidiary of
Antero Midstream Corporation was merged with and into Antero Midstream Partners, with Antero Midstream Partners surviving the
merger as an indirect, wholly owned subsidiary of Antero Midstream Corporation, and (iii) Antero Midstream Corporation exchanged
each issued and outstanding Series B Units representing a membership interest in IDR Holdings for 176.0041 shares of its common
stock, par value $0.01 per share.
The Merger has been accounted for as an acquisition by AMGP of Antero Midstream Partners under ASC 805 – Business
Combinations and accounted for as a business combination, with the assumed assets and liabilities of Antero Midstream Partners
recorded at fair value. As a result, the consolidated balance sheet of Antero Midstream Corporation at December 31, 2019 includes
the financial position of Antero Midstream Partners and its subsidiaries and the consolidated statements of operations and
comprehensive income and cash flows for the three years ended December 31, 2019 include the results of operations of Antero
Midstream Partners and its subsidiaries commencing on March 13, 2019.
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 Marcellus and Utica
shale plays. 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 Marcellus and Utica Shales 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.
Recent Trends and Uncertainties
The gathering and compression agreement with Antero Resources is based on fixed fee structures, and we intend to continue
to pursue additional fixed fee opportunities with Antero Resources and third parties in order to avoid direct commodity price exposure.
However, to the extent that our future contractual arrangements with Antero Resources or third parties do not provide for fixed fee
structures, we may become subject to commodity price risk. We are subject to commodity price risks to the extent that they impact
Antero Resources’ development plan and, therefore, our gathering and water handling volumes.
During 2020, we plan to expand our existing Marcellus and Utica Shale gathering, compression, and water handling
infrastructure to accommodate Antero Resources’ announced development plans. Antero Resources’ announced 2020 consolidated
drilling and completion capital budget is $1.15 billion. Antero Resources announced that it plans to operate an average of four drilling
rigs and complete between 120 to 130 horizontal wells, substantially all of which are located on acreage dedicated to us. A further or
extended decline in commodity prices could cause some of the development and production projects of Antero Resources or third
parties to be uneconomic or less profitable, which could reduce gathering and water handling volumes in our current and future
potential areas of operation. Those reductions in gathering and water handling volumes could reduce our revenue and cash flows and
adversely affect our ability to return capital to holders of our common stock.
47
Sources of Our Revenues
Our gathering and compression revenues are driven by the volumes of natural gas we gather and compress, and our water
handling revenues are driven by quantities of fresh water delivered to our customers to support their well completion operations and
produced water treated. Pursuant to our long-term contracts with Antero Resources, we have secured long-term dedications covering
a significant portion of Antero Resources’ current and future acreage for gathering and compression services. In December 2019, we
and Antero Resources agreed to a growth incentive fee program whereby we will provide quarterly fee reductions to Antero Resources
from 2020 through 2023, contingent upon Antero Resources achieving volumetric growth targets on low pressure gathering. In
addition, we and Antero Resources agreed to extend the initial term of the gathering and compression contract to 2038. We have also
entered into a long-term water services agreement covering Antero Resources’ 541,000 net acres in West Virginia and Ohio, with a
right of first offer on all future areas of operation. Under the agreement, we receive a fixed fee for all fresh water deliveries by
pipeline directly to the well site, subject to annual CPI adjustments. In addition, we also provide fluid handling services for flowback
and produced water, including blending, storage and transportation operations. These operations, along with our fresh water delivery
systems, support well completion and production operations for Antero Resources. These services are provided by us directly or
through third-parties with which we contract. For flowback and produced water services provided by third-parties, Antero Resources
reimburses our third-party out-of-pocket costs plus 3%. For flowback and produced water services provided by us, we charge Antero
Resources a cost of service fee. The initial term of the water services agreement runs to 2035. All of Antero Resources’ existing
acreage is dedicated to us for gathering and compression services except for existing third-party commitments. Approximately
140,000 gross leasehold acres characterized by dry gas and liquids-rich production that have been previously dedicated to third-party
gatherers.
Our gathering and compression operations are substantially dependent upon natural gas and oil production from Antero
Resources’ upstream activity in its areas of operation. In addition, there is a natural decline in production from existing wells that are
connected to our gathering systems. Although we expect that Antero Resources will continue to devote substantial resources to the
development of oil and gas reserves, we have no control over this activity and Antero Resources has the ability to reduce or curtail
such development at its discretion.
Our water handling operations are substantially dependent upon the number of wells drilled and completed by Antero
Resources, as well as Antero Resources’ production. As of December 31, 2019, Antero Resources had disclosed estimated net proved
reserves of 18.9 Tcfe, of which 61% was natural gas, 38% were NGLs, and 1% was oil. As of December 31, 2019, Antero Resources’
drilling inventory consisted of 2,385 identified potential horizontal well locations, approximately 1,685 of which were located on
acreage dedicated to us, providing us with significant opportunity for growth as Antero Resources’ drilling program continues and its
production increases.
How We Evaluate Our Operations
We use a variety of financial and operational metrics to evaluate our performance. These metrics help us identify factors and
trends that impact our operating results, profitability and financial condition. The key metrics we use to evaluate our business are
provided below.
Pro Forma Adjusted EBITDA
We use Pro Forma Adjusted EBITDA as a performance measure to assess the ability of our assets to generate cash sufficient
to pay interest costs, support indebtedness and return capital to stockholders. Pro Forma Adjusted EBITDA is a non-GAAP financial
measure. See “Item 6. Selected Financial Data—Non-GAAP Financial Measure” for more information regarding this financial
measure, including a reconciliation of Pro Forma Adjusted EBITDA to the most directly comparable GAAP measure.
48
Gathering and Compression Throughput
We must continually obtain additional supplies of natural gas and oil to maintain or increase throughput on our systems. Our
ability to maintain existing supplies of natural gas and oil and obtain additional supplies is primarily impacted by our acreage
dedication and the level of successful drilling activity by Antero Resources and, to a lesser extent in the future, the potential for
acreage dedications with and successful drilling by third-party producers. Any increase in our throughput volumes over the near term
will likely be driven by Antero Resources continuing its drilling and development activities on its Marcellus and Utica Shale acreage.
Water Handling Volumes
Our fresh water volumes are primarily driven by hydraulic fracturing activities conducted as part of well completions. Our
treatment volumes are primarily driven by produced water volumes, which are a function of Antero Resources’ production. Other
fluid handling volumes are driven by hydraulic fracturing activities and produced water volumes. Antero Resources’ consolidated
acreage positions allow us to provide fresh water and other fluid handling services for Antero Resources’ completion activities in a
more efficient manner. However, to the extent that Antero Resources’ drilling and completion schedule is not met, or Antero
Resources uses less fresh water and other fluid handling services in its well completion operations than expected (for example, due to
a reduction in completions), and production declines, our water volumes may decline.
Principal Components of Our Cost Structure
The following items are the primary components of our operating expenses.
Direct Operating. We seek to maximize the profitability of our operations in part by minimizing, to the extent appropriate,
expenses directly tied to operating and maintaining our assets. We schedule and conduct maintenance over time to avoid
significant variability in our direct operating expense and minimize the impact on our cash flow. Gathering and compression
operating costs consist primarily of labor, water disposal, pigging, fuel, monitoring, repair and maintenance, utilities and
contract services. Gathering and compression operating costs vary with the miles of pipeline and number of compressor
stations in our gathering and compression system. Fresh water operating expenses consist primarily of labor, pigging,
monitoring, repair and maintenance and contract services. Fresh water operating costs vary with the miles of pipeline,
number of pumping stations, and to a lesser extent the number of well completions in the Marcellus and Utica Shales for
which we deliver fresh water and number of impoundments in our fresh water system. Other water handling costs, which
include the costs related to water blending, relate to contract services performed by us and third parties and vary depending
on the cost of service provided to Antero Resources. These costs are billed to Antero Resources at our cost plus 3%. Our
other water handling costs consist of labor, monitoring and repair and maintenance costs. Wastewater treatment costs vary
directly with the water volumes treated, and the operating efficiency of the Clearwater Facility. The other primary drivers of
our direct operating expense include maintenance and contract services, regulatory and compliance expense and ad valorem
taxes.
General and Administrative. Our general and administrative expenses include direct charges and costs charged by Antero
Resources. These costs relate to: (i) various business services, including payroll processing, accounts payable processing and
facilities management, (ii) various corporate services, including legal, accounting, treasury, information technology and
human resources and (iii) compensation, including certain equity-based compensation. These expenses are charged to the
Company based on the nature of the expenses and are apportioned based on a combination of the Company’s proportionate
share of gross property and equipment, capital expenditures and labor costs, as applicable. Management believes these
allocation methodologies are reasonable.
Our general and administrative expenses also include equity-based compensation costs related to the Antero Midstream GP
LP Long-Term Incentive Plan (“AMGP LTIP”) and the Series B Units prior to the Transactions. Equity-based compensation
after the Transactions include (i) costs allocated to Antero Midstream Partners by Antero Resources for grants made prior to
the Transactions pursuant to Antero Resources’ long-term incentive plan, (ii) costs due to Antero Midstream Corporation
LTIP (the “AMC LTIP”) and (iii) each Series B Unit that was exchanged for 176.0041 shares of our common stock, a certain
portion of which remained subject to vesting until December 31, 2019 (the “Series B Exchange”). As of December 31, 2019,
there were no unvested awards related to these plans.
Impairment. We evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the
related carrying values of the assets may not be recoverable. If the carrying values of the assets are deemed not recoverable,
the carrying values are reduced to their estimated fair value. In 2019, our impairment expense primarily related to (i) the
49
Clearwater Facility, which was idled in the third quarter of 2019 and (ii) the impairment of goodwill associated with the fresh
water delivery and services reporting unit.
Depreciation. Depreciation consists of our estimate of the decrease in value of the assets capitalized in property and
equipment as a result of using the assets throughout the applicable year. Depreciation is computed over the asset’s estimated
useful life using the straight-line basis. We depreciate our property and equipment using an estimated useful life of five years
for our fresh water surface pipelines and equipment, 10 years for our above ground storage tanks, 20 years for our permanent
buried fresh water pipelines and equipment, 50 years for our gathering pipelines and compressor stations and our landfill on a
units of production basis.
Interest. In 2018 and from January 1, 2019 through March 12, 2019, interest expense related to interest incurred on
borrowings under AMGP’s credit facility, which was terminated on March 12, 2019 in connection with the Transactions.
Following the closing of the Transaction on March 12, 2019, interest expense represented interest related to: (i) borrowings
under our revolving credit facility, (ii) borrowings of $650 million under our 5.375% senior notes due September 15, 2024
(the “2024 Notes”), (iii) borrowings of $650 million of our 5.75% senior notes due March 1, 2027 (the “2027 Notes”), (iv)
borrowings of $650 million of our 5.75% senior notes due January 15, 2028 (the “2028 Notes”), (v) operating leases, and
(vi) amortization of deferred financing costs incurred in connection with the revolving credit facility and the issuance of the
2024 Notes, 2027 Notes and 2028 Notes.
Income tax expense. We are subject to state and federal income taxes but are currently not in a cash tax paying position with
respect to state and federal income taxes. The difference between our financial statement income tax expense and our federal
income tax liability is primarily due to the differences in the tax and financial statement treatment of our investment in
Antero Midstream Partners. We have recorded deferred income tax benefit to the extent our deferred tax assets exceed our
deferred tax liabilities. Our deferred tax assets result from temporary differences between tax and financial statement income
primarily from goodwill and net operating loss carryforwards. At December 31, 2019, we had approximately $277 million of
U.S. federal net operating loss carryforwards (“NOLs”), and approximately $202 million of state NOLs. The amount of
deferred tax assets considered realizable, however, could change in the near term as we generate taxable income or as
estimates of future taxable income are reduced. See Note 9—Income Taxes to our consolidated financial statements for a
discussion of our deferred tax position and income tax expense.
Items Affecting Comparability of Our Financial Results
Our historical financial results discussed below are not comparable to our future financial results primarily as a result of the
Merger. The Merger has been accounted for as an acquisition by AMGP of Antero Midstream Partners under ASC 805, Business
Combinations, and accounted for as a business combination with the acquired assets and liabilities of Antero Midstream Partners
recorded at estimated fair value. As such, the consolidated financial statements for the year ended December 31, 2018 and as of
December 31, 2018 are the consolidated financial statements of AMGP and its consolidated subsidiaries, which does not include
Antero Midstream Partners and its subsidiaries. Effective March 12, 2019, Antero Midstream commenced consolidating Antero
Midstream Partners and its subsidiaries in the consolidated financial statements of Antero Midstream. As a result, our consolidated
balance sheet at December 31, 2019 includes the financial position of Antero Midstream Partners and its subsidiaries, and our
consolidated statements of operations and comprehensive income and cash flows for the year ended December 31, 2019 include the
results of operations of Antero Midstream Partners and its subsidiaries beginning on March 13, 2019.
50
The historical consolidated financial statements included herein are the financial statements of Antero Midstream, formerly
AMGP, which prior to the Merger reflect that AMGP’s only income resulted from distributions made on the IDRs of Antero
Midstream Partners and expenses were limited to general and administrative expenses and equity-based compensation. The
consolidated financial statements for the year ended December 31, 2019 include the results of Antero Midstream Partners and its
subsidiaries beginning on March 13, 2019.
Accordingly, in addition to presenting a discussion of our results of operations as reported, we are also presenting our pro
forma results of operations, which give effect to the adjustments described in Exhibit 99.1 to this Annual Report on Form 10-K. The
pro forma information presented below should be read in conjunction with the unaudited pro forma combined financial statements,
which are filed as Exhibit 99.1 to this Annual Report on Form 10-K and describe the assumptions and adjustments used in preparing
such information. The pro forma adjustments are based on currently available information and certain estimates and assumptions.
Therefore, the actual adjustments may differ from the pro forma adjustments. However, management believes that the pro forma
assumptions provide a reasonable basis for presenting the results of operations on a more meaningful basis.
Results of Operations as Reported
Year Ended December 31, 2018 Compared to Year Ended December 31, 2019
Revenue and Direct Operating Expenses. Revenues from Antero Resources and direct operating expenses reflect 294 days of
revenue and operating expenses generated by Antero Midstream Partners after the completion of the Transactions on March 12, 2019.
General and administrative expenses. General and administrative expenses (excluding equity-based compensation expense)
increased from $9 million for the year ended December 31, 2018 to $45 million for the year ended December 31, 2019. The increase
was primarily due to the inclusion of general and administrative expenses of Antero Midstream Partners after the completion of the
Transactions on March 12, 2019. Equity-based compensation increased from $35 million for the year ended December 31, 2018 to
$74 million for the year ended December 31, 2019 due to the Series B Exchange and the adoption of the AMC LTIP as result of the
Transactions.
Impairment of property and equipment expense. Impairment of property and equipment expense of $410 million for the year
ended December 31, 2019 was primarily due to the idling of the Clearwater Facility in September 2019.
Impairment of goodwill expense. Impairment of goodwill expense of $340 million for the year ended December 31, 2019,
which reflects (i) an impairment of goodwill expense associated with the Clearwater Facility of $42 million and (ii) an impairment of
goodwill expense associated our fresh water delivery and services reporting unit of $298 million.
Impairment of customer relationships expense. Impairment of customer relationships expense of $12 million for the year
ended December 31, 2019 reflects an impairment of the customer relationships that were associated with the Clearwater Facility,
which was idled in September 2019.
Depreciation expense. Depreciation expense increased from none for the year ended December 31, 2018 to $96 million for
the year ended December 31, 2019 as a result of our acquisition of Antero Midstream Partners on March 12, 2019.
Accretion and change in fair value of contingent acquisition consideration. Accretion expenses increased from none for the
year ended December 31, 2018 to $8 million for the year ended December 31, 2019 as a result of our acquisition of Antero Midstream
Partners on March 12, 2019.
Interest expense. Interest expense increased from $136 thousand for the year ended December 31, 2018 to $110 million for
the year ended December 31, 2019 as a result of the acquisition of Antero Midstream Partners, which included the assumption of
approximately $2.4 billion of debt.
Operating loss. Total operating loss increased from a loss of $44 million for the year ended December 31, 2018 to $398
million for the year ended December 31, 2019. The increase was due to net operating revenues and expenses as a result of the
acquisition of Antero Midstream Partners on March 12, 2019 and impairments to property and equipment, goodwill and customer
relationships of approximately $410 million, $340 million and $12 million, respectively. Prior to the acquisition of Antero Midstream
Partners, we had no operating revenues. All income was derived from our equity in earnings of unconsolidated affiliates.
Equity in earnings of unconsolidated affiliates. Equity in earnings of unconsolidated affiliates for the year ended December
31, 2018 represents AMGP’s equity investment in Antero Midstream Partners. Equity in earnings of unconsolidated affiliates for the
51
year ended December 31, 2019 represents AMGP’s equity investment in Antero Midstream Partners from January 1, 2019 through
March 12, 2019 and the portion of the net income from Antero Midstream Partners’ investments in Stonewall and the Joint Venture,
which is allocated to us based on our equity interests for the period from March 13, 2019 through December 31, 2019.
Income tax benefit (expense). Income tax benefit (expense) changed from an income tax expense of $32 million for the year
ended December 31, 2018 to a benefit of $102 million for the year ended December 31, 2019 primarily due to the loss before taxes for
the year ended December 31, 2019.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2018
Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Results of
Operations” in our 2018 Annual Report on Form 10-K for a discussion of the results of operations for the year ended December 31,
2017 compared to the year ended December 31, 2018.
Pro Forma Segment Results of Operations
Unless the context otherwise requires, references in this “Pro Forma Segment Results of Operations” to the “Company,”
“we,” “us” or “our” refer to, and the results of operations discussed below relate to, the combined results of Antero Midstream
Corporation and Antero Midstream Partners as if the Transactions had occurred on January 1, 2018.
The pro forma segment results of operations and the pro forma operations data for the years ended December 31, 2018 and
2019 have been prepared to give pro forma effect to the Transactions as if they had occurred on January 1, 2018. The pro forma
adjustments are based on currently available information and certain estimates and assumptions, including the final purchase price
allocation for the acquisition of Antero Midstream Partners. Therefore, the actual adjustments may differ from the pro forma
adjustments. However, management believes that the pro forma assumptions provide a reasonable basis for presenting the significant
effects of the Transactions.
The pro forma information is for illustrative purposes only. If the Transactions had occurred on January 1, 2018, operating
results might have been materially different from those presented in the pro forma financial information. The pro forma financial
information should not be relied upon as an indication of operating results that we would have achieved if the Transactions had taken
place on January 1, 2018. In addition, future results may vary significantly from the pro forma results reflected herein and should not
be relied upon as an indication of our future results. The pro forma information presented below should be read in conjunction with
the unaudited pro forma combined financial statements, which are filed as Exhibit 99.1 to this Annual Report on Form 10-K.
52
Pro Forma Segment Results of Operations for the year ended December 31, 2018 and 2019
Gathering and
Processing
Water
Handling
Pro Forma
Adjustments
Pro Forma
Consolidated
Unallocated (1)
Total
Year ended December 31, 2018
Revenues:
Revenue–Antero Resources
Revenue–third-party
Gain on sales of assets–Antero Resources
Amortization of customer contracts
$
Total revenues
520,566
—
583
—
521,149
506,449
924
—
—
507,373
—
—
—
(71,082)
(71,082)
—
—
—
—
—
1,027,015
924
583
(71,082)
957,440
Operating expenses:
Direct operating
General and administrative (excluding equity-
based compensation)
Equity-based compensation
Impairment of property and equipment
Depreciation
Accretion and change in fair value of
contingent acquisition consideration
Accretion of asset retirement obligations
Total expenses
Operating income
Other income (expenses):
Interest expense, net
Equity in earnings of unconsolidated affiliates
Income before taxes
Provision for income tax expense
Net income and comprehensive income $
49,256
267,167
—
—
316,423
30,091
16,518
5,771
83,250
—
—
184,886
336,263
—
40,280
376,543
—
376,543
10,465
4,555
—
46,763
(93,019)
135
236,066
271,307
—
—
271,307
—
271,307
—
—
—
15,732
—
—
15,732
(86,814)
(21,752)
(6,091)
(114,657)
(82,095)
(196,752)
8,740
35,111
—
—
—
—
43,851
(43,851)
(62,042)
—
(105,893)
(32,311)
(138,204)
49,296
56,184
5,771
145,745
(93,019)
135
480,535
476,905
(83,794)
34,189
427,300
(114,406)
312,894
Pro Forma Adjusted EBITDA(2)
$
708,635
(1) Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments.
(2) For a reconciliation of Pro Forma Adjusted EBITDA to the most directly comparable financial measure calculated and presented
in accordance with GAAP, see “Item 6. Selected Financial Data—Non-GAAP Financial Measure.”
53
Year ended December 31, 2019
Revenues:
Revenue–Antero Resources
Revenue–third-party
Amortization of customer relationships
Total revenues
Gathering and Water
Processing
Handling
Pro Forma
Adjustments Unallocated (1)
Pro Forma
Consolidated
Total
$
668,311
—
(29,850)
638,461
399,547
101
(27,160)
372,488
—
—
(13,864)
(13,864)
—
—
—
—
1,067,858
101
(70,874)
997,085
Operating expenses:
Direct operating
General and administrative (excluding equity-based
compensation)
Facility idling
Equity-based compensation
Impairment of property and equipment
Impairment of goodwill
Impairment of customer relationships
Depreciation
Accretion and change in fair value of contingent
acquisition consideration
Accretion of asset retirement obligations
Total expenses
Operating income (loss)
Other income (expenses):
Interest expense, net
Equity in earnings of unconsolidated affiliates
Income (loss) before taxes
Provision for income tax expense
Net income (loss) and comprehensive income (loss) $
Pro Forma Adjusted EBITDA(2)
52,719
207,917
—
—
260,636
30,553
—
7,105
7,182
—
—
47,974
17,321
11,401
3,063
409,539
340,350
11,871
69,259
—
—
145,533
492,928
10,004
250
1,080,975
(708,487)
—
63,579
556,507
—
556,507
—
—
(708,487)
—
(708,487)
(15,345)
—
—
—
—
—
3,130
—
—
(12,215)
(1,649)
(3,301)
(1,185)
(6,135)
(23,346)
(29,481)
13,038
—
65,826
—
—
—
—
45,567
11,401
75,994
416,721
340,350
11,871
120,363
—
—
78,864
(78,864)
10,004
250
1,293,157
(296,072)
(127,217)
—
(206,081)
102,466
(103,615)
(130,518)
62,394
(364,196)
79,120
(285,076)
$
829,558
(1) Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments.
(2) For a reconciliation of Pro Forma Adjusted EBITDA to the most directly comparable financial measure calculated and presented
in accordance with GAAP, see “Item 6. Selected Financial Data—Non-GAAP Financial Measure.”
54
The operating data below represents (i) the operating data of Antero Midstream Partners and its subsidiaries for the year
ended December 31, 2018 and (ii) the operating data of Antero Midstream Corporation and its subsidiaries, including Antero
Midstream Partners and its subsidiaries, for the year ended December 31, 2019.
Pro Forma Operating Data:
Gathering—low pressure (MMcf)
Gathering—high pressure (MMcf)
Compression (MMcf)
Fresh water delivery (MBbl)
Treated water (MBbl)
Other fluid handling (MBbl)
Wells serviced by fresh water delivery
Gathering—low pressure (MMcf/d)
Gathering—high pressure (MMcf/d)
Compression (MMcf/d)
Fresh water delivery (MBbl/d)
Treated water (MBbl/d)
Other fluid handling (MBbl/d)
Pro Forma Average realized fees:
Average gathering—low pressure fee ($/Mcf)
Average gathering—high pressure fee ($/Mcf)
Average compression fee ($/Mcf)
Average fresh water delivery fee ($/Bbl)
Average treatment fee ($/Bbl)
$
$
$
$
$
Pro Forma Joint Venture Operating Data:
Processing—Joint Venture (MMcf)
Fractionation—Joint Venture (MBbl)
Processing—Joint Venture (MMcf/d)
Fractionation—Joint Venture (MBbl/d)
Year Ended December 31,
2019
2018
784,079
770,910
634,303
71,180
2,544
18,848
162
2,148
2,112
1,738
195
7
52
0.32
0.19
0.19
3.78
4.72
963,799
948,496
866,912
51,426
7,137
19,495
118
2,641
2,599
2,375
141
20
53
0.33
0.20
0.19
3.89
4.51
227,113
4,784
622
13
385,402
10,285
1,056
28
Amount of
Increase
or Decrease
179,720
177,586
232,609
(19,754)
4,593
647
(44)
493
487
637
(54)
13
1
0.01
0.01
—
0.11
(0.21)
158,289
5,501
434
15
Percentage
Change
23 %
23 %
37 %
(28) %
181 %
3 %
(27) %
23 %
23 %
37 %
(28) %
186 %
2 %
3 %
5 %
— %
3 %
(4) %
70 %
115 %
70 %
115 %
Discussion of Pro Forma Results of Operations for the Year Ended December 31, 2018 Compared to Year ended
December 31, 2019
Revenues. Total revenues, including the amortization of customer relationships of $71 million, increased by 4% from
$957 million for the year ended December 31, 2018 to $997 million for the year ended December 31, 2019. Gathering and processing
revenues increased by 23%, from $521 million for the year ended December 31, 2018 to $639 million for the year ended December
31, 2019. Water handling revenues decreased by 27%, from $507 million for the year ended December 31, 2018 to $372 million for
the year ended December 31, 2019. These fluctuations primarily resulted from the following:
55
Gathering and Processing
low pressure gathering revenue increased $62 million period over period due to an increase in throughput volumes of
493 MMcf/d, which was due to 128 additional wells connected to our system since December 31, 2018;
high pressure gathering revenue increased $38 million period over period due to an increase in throughput volumes of
487 MMcf/d, primarily as a result of the addition of two new high pressure gathering lines placed in service and
additional wells connected to our system since December 31, 2018; and
compression revenue increased $48 million period over period due to an increase in throughput volumes of 637 MMcf/d,
primarily due to the addition of one new compressor station that was placed in service since December 31, 2018, and
additional wells connected to our system.
Water Handling
fresh water delivery revenue decreased $70 million period over period due to a decrease in fresh water delivery of 54
MBbl/d, as a result of a decrease in the number of wells completed as Antero Resources reduced its drilling and
completion program;
revenue from the Clearwater Facility increased $20 million as throughput volumes increased by 13 MBbl/d; and
other fluid handling services revenue decreased $58 million as costs for these services, which are billed at cost plus 3%,
decreased as a result of operational efficiencies and cost reductions.
Direct operating expenses. Total direct operating expenses decreased from $316 million for the year ended December 31,
2018 to $261 million for the year ended December 31, 2019. Gathering and processing direct operating expenses increased from
$49 million for the year ended December 31, 2018 to $53 million for the year ended December 31, 2019. The increase was primarily
due to an increase in the number of gathering pipelines and compressor stations. Water handling direct operating expenses decreased
from $267 million for the year ended December 31, 2018 to $208 million for the year ended December 31, 2019. The decrease was
primarily due to a decrease in other fluid handling services as a result of operational efficiencies and cost reductions.
General and administrative (excluding equity-based compensation) expenses. General and administrative expenses
(excluding equity-based compensation expense) decreased from $49 million for the year ended December 31, 2018 to $46 million for
the year ended December 31, 2019 primarily due to a decrease of general and administrative expenses as a result of cost reduction
efforts.
Equity-based compensation expenses. Equity-based compensation expenses increased from $56 million for the year ended
December 31, 2018 to $76 million for the year ended December 31, 2019 primarily due to the revaluation of the Series B Units as
result of the Transactions.
Impairment of property and equipment expense. Impairment of property and equipment expense of $6 million for the year
ended December 31, 2018 was due to the impairment of gathering assets acquired from Antero Resources at the time of Antero
Midstream Partners’ initial public offering related to well pads Antero Resources no longer planned to drill and complete. Impairment
of property and equipment expense of $417 million for the year ended December 31, 2019 was primarily for the idling of the
Clearwater Facility and the decommissioning of assets related to a third-party compressor station.
Impairment of goodwill expense. Impairment of goodwill expense of $340 million for the year ended December 31, 2019
reflects an impairment of the goodwill that was associated with the Clearwater Facility and the fresh water delivery and services
reporting unit.
Impairment of customer relationships expense. Impairment of customer relationships expense of $12 million for the year
ended December 31, 2019 reflects an impairment of the customer relationships that were associated with the Clearwater Facility.
Depreciation expense. Total depreciation expense decreased by 17%, from $146 million for the year ended December 31,
2018 to $120 million for the year ended December 31, 2019. The decrease was primarily due to the change in estimated useful lives
of gathering and compression facilities in the fourth quarter of 2018, partially offset by additional assets placed into service.
56
Accretion and change in fair value of contingent acquisition consideration. Accretion of contingent acquisition consideration
changed from a reduction of $93 million for the year ended December 31, 2018 to an increase of $10 million for the year ended
December 31, 2019. This was primarily due to a decrease in fair value of $106 million for the year ended 2018. In connection with
our entrance into the water services agreement, we agreed to pay Antero Resources $125 million in cash if we delivered 176 million
barrels or more of fresh water during the period between January 1, 2017 and December 31, 2019. As of December 31, 2019, we had
delivered 178 million barrels during the period the period between January 1, 2017 and December 31, 2019 and paid Antero
Resources $125 million in January 2020. We have agreed to pay an additional $125 million in cash if we deliver 219 million barrels
or more of fresh water during the period between January 1, 2018 and December 31, 2020. As of December 31, 2019, we had
delivered 123 million of the 219 million barrels or more of fresh water during the period between January 1, 2018 and December 31,
2020 and we currently do not expect to deliver at least 219 million barrels based on Antero Resources’ announced 2020 budget.
Interest expense. Interest expense increased by 56%, from $84 million, net of $4 million in capitalized interest, for the year
ended December 31, 2018 to $131 million for the year ended December 31, 2019. No interest was capitalized for the year ended
December 31, 2019. Total interest costs increased from $88 million for the year ended December 31, 2018 to $131 million for the
year ended December 31, 2019 primarily due to (i) an increase in interest expense incurred on increased borrowings under the Credit
Facility during the period, (ii) increased interest rates, (iii) the issuance of $650 million of the 2027 Notes on February 25, 2019, and
(iv) the issuance of $650 million of the 2028 Notes on June 28, 2019.
Operating income (loss). Total operating income was $477 million for the year ended December 31, 2018. Total operating
loss was $296 million for the year ended December 31, 2019. Gathering and processing operating income increased by 47%, from
$336 million for the year ended December 31, 2018 to $493 million for the year ended December 31, 2019. The increase was
primarily due to an increase in gathering and compression throughput volumes and lower depreciation on the gathering system in
2019. Water handling operating income was $271 million for the year ended December 31, 2018. Water handling operating loss was
$708 million for the year ended December 31, 2019. The operating loss was primarily due to the impairment of the Clearwater
Facility and its associated goodwill and customer relationships and the impairment of the goodwill associated with the fresh water
delivery and services reporting unit.
Equity in earnings of unconsolidated affiliates. Equity in earnings in unconsolidated affiliates increased by 82%, from
$34 million for the year ended December 31, 2018 to $62 million for the year ended December 31, 2019. Equity in earnings of
unconsolidated affiliates represents the portion of the net income from our investments in Stonewall and the Joint Venture, which is
allocated to us based on our equity interests. The increase is primarily attributable to an increase in the level of operations at the Joint
Venture in 2019.
Net income (loss). Net income was $313 million for the year ended December 31, 2018. Net loss was $285 million for the
year ended December 31, 2019. The net loss was primarily due to the impairment of the Clearwater Facility and its associated
goodwill and customer relationships and the impairment of the goodwill associated with the fresh water delivery and services
reporting unit.
Pro Forma Adjusted EBITDA. Pro Forma Adjusted EBITDA increased by 17%, from $709 million for the year ended
December 31, 2018 to $830 million for the year ended December 31, 2019. The increase was primarily due to an increase in revenue
resulting from an increase in gathering and compression volumes. For a discussion of the non-GAAP financial measure Pro Forma
Adjusted EBITDA, including a reconciliation to its most directly comparable financial measure calculated and presented in
accordance with GAAP, read “Item 6. Selected Financial Data—Non-GAAP Financial Measure.”
Capital Resources and Liquidity as Reported
Sources and Uses of Cash
Capital resources and liquidity are provided by operating cash flow, cash on our balance sheet, borrowings under the Credit
Facility and capital market transactions. We expect that the combination of these capital resources will be adequate to meet our
working capital requirements, capital expenditures program, expected quarterly cash dividends and share repurchases under our share
repurchases program for at least the next 12 months.
In the year ended December 31, 2019, we paid distributions and dividends of $1.0815 per share, or a total of $492 million, to
holders of our common shares or common stock, as applicable, and we paid $374 thousand of dividends on our Series A Preferred
Stock. On January 15, 2020, the Board declared a cash dividend on the shares of our common stock of $0.3075 per share for the
quarter ended December 31, 2019 to be paid on February 12, 2020 to stockholders of record as of January 31, 2020. The Board also
57
declared an aggregate cash dividend of $138 thousand on our Series A Preferred Stock to be paid on February 14, 2020. As of
December 31, 2019, there were dividends in the amount of $69 thousand accumulated in arrears on our Series A Preferred Stock.
Cash Flows
The following table and discussion presents a summary of our net cash provided by operating activities, investing activities
and financing activities for the periods indicated:
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net decrease in cash and cash equivalents
$
$
2017
28,080
—
(31,702)
(3,622)
Year Ended December 31,
2018
83,531
—
(86,696)
(3,165)
2019
622,387
(525,675)
(98,299)
(1,587)
Year Ended December 31, 2018 Compared to Year Ended December 31, 2019
Cash Flows Provided by Operating Activities
Net cash provided by operating activities was $84 million and $622 million for the years ended December 31, 2018 and 2019,
respectively. The increase in cash flows from operations for the year ended December 31, 2019 compared to the year ended
December 31, 2018 was primarily the result of increased cash flows associated with Antero Midstream Partners for the period March
13, 2019 through December 31, 2019 following the Transactions.
Cash Flows Used in Investing Activities
During the year ended December 31, 2019, we used cash flows in investing activities of $526 million while we had no cash
flows from investing activities during the year ended December 31, 2018. The increase was due to $599 million of cash paid to
Antero Midstream Partners unitholders as consideration in the Merger, $154 million in investments in unconsolidated affiliates and
$392 million in capital expenditures for gathering systems and facilities and water handling assets partially offset by cash received of
$620 million, which was borrowed by Antero Midstream Partners on the Credit Facility primarily to pay the aforementioned $599
million of consideration in the Merger.
Our board of directors approved a capital budget with a range of $300 million to $325 million for 2020. Our capital budgets
may be adjusted as business conditions warrant. If natural gas, NGLs, and oil prices decline to levels below acceptable levels or costs
increase to levels above acceptable levels, Antero Resources could choose to defer a significant portion of its budgeted capital
expenditures until later periods. As a result, we may also defer a significant portion of our budgeted capital expenditures to achieve
the desired balance between sources and uses of liquidity and prioritize capital projects that we believe have the highest expected
returns and potential to generate near-term cash flows. We routinely monitor and adjust our capital expenditures in response to
changes in Antero Resources’ development plans, changes in prices, availability of financing, acquisition costs, industry conditions,
the timing of regulatory approvals, success or lack of success in Antero Resources’ drilling activities, contractual obligations,
internally generated cash flows and other factors both within and outside our control.
Cash Flows Provided by Financing Activities
Net cash used in financing activities was $87 million and $98 million for the years ended December 31, 2018 and 2019,
respectively. Net cash used in financing activities for the year ended December 31, 2019 included: (i) issuance of the 2028 Notes of
$650 million; (ii); total distributions or dividends to our common stockholders, holders of Series B Units and preferred stockholders of
$496 million; (iii) $125 million in repurchases of common stock; (iv) net payments on the Credit Facility of $116 million and (v) $9
million of payments for deferred financing. For the year ended December 31, 2018, net cash used in financing activities consisted of
$86 million in distributions to shareholders and holders of Series B Units.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2018
Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Capital
Resources and Liquidity” in our Annual Report on Form 10-K for the year ended December 31, 2018 for a discussion of the cash
flows for the year ended December 31, 2017 compared to the year ended December 31, 2018.
58
Debt Agreements
Antero Midstream Partners Revolving Credit Facility
Antero Midstream Partners, as borrower (the “Borrower”), entered into a senior secured revolving credit facility (the “Credit
Facility”) with a consortium of banks on October 26, 2017. The Credit Facility includes fall away covenants and lower interest rates
that are triggered if and when the Borrower elects to enter into an Investment Grade Period, as described below. Our Credit Facility
provides for borrowing under either the Eurodollar Rate or the Base Rate (as each term is defined in the credit facility agreement).
The Credit Facility was amended on October 31, 2018 and February 26, 2019 to, among other things: (i) increase lender
commitments from $1.5 billion to $2.0 billion, which were further increased to $2.13 billion on November 19, 2019, (ii) permit us, the
Borrower and the guarantors under the facility to consummate the Transactions and (iii) to modify pricing to the levels described in
more detail below. The Credit Facility matures on October 26, 2022. At December 31, 2019, we had $960 million of borrowings and
no letters of credit outstanding under the Credit Facility.
Under the Credit Facility, “Investment Grade Period” is a period that, as long as no event of default has occurred and the
Borrower is in pro forma compliance with the financial covenants under the Credit Facility, commences when the Borrower elects to
give notice to the Administrative Agent that the Borrower has received at least one of either (i) a BBB- or better rating from Standard
and Poor’s or (ii) a Baa3 or better from Moody’s (provided that the non-investment grade rating from the other rating agency is at
least either Ba1 if Moody’s or BB+ if Standard and Poor’s (an “Investment Grade Rating”)). An Investment Grade Period can end at
the Borrower’s election.
We have a choice of borrowing in Eurodollars or at the base rate. Principal amounts borrowed are payable on the maturity
date with such borrowings bearing interest that is payable (i) with respect to base rate loans, quarterly and (ii) with respect to
Eurodollar loans, the last day of each Interest Period (as defined below); provided that if any Interest Period for a Eurodollar loan
exceeds three months, interest will be payable on the respective dates that fall every three months after the beginning of such Interest
Period. Eurodollar loans bear interest at a rate per annum equal to the LIBOR Rate administered by the ICE Benchmark
Administration for one, two, three, six or, if available to the lenders, twelve months (the “Interest Period”) plus an applicable margin
ranging from (i) 125 to 225 basis points during any period that is not an Investment Grade Period, depending on the leverage ratio then
in effect and (ii) 112.5 to 200 basis points during an Investment Grade Period, depending on the Borrower’s credit rating then in
effect. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds
effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin
ranging from (i) 25 to 125 basis points during any period that is not an Investment Grade Period, depending on the leverage ratio then
in effect and (ii) 12.5 to 100 basis points during an Investment Grade Period, depending on the Borrower’s credit rating then in effect.
During any period that is not an Investment Grade Period, the Credit Facility is guaranteed by our subsidiaries and is secured
by mortgages on substantially all of Antero Midstream Partners’ and its subsidiaries’ properties; provided that the liens securing the
Credit Facility shall be automatically released during an Investment Grade Period. The Credit Facility contains restrictive covenants
that may limit our ability to, among other things:
incur additional indebtedness;
sell assets;
make loans to others;
make investments;
enter into mergers;
make certain restricted payments;
incur liens; and
engage in certain other transactions without the prior consent of the lenders.
59
The Credit Facility also requires us to maintain the following financial ratios:
a consolidated interest coverage ratio, which is the ratio of our consolidated EBITDA to its consolidated current interest
charges of at least 2.5 to 1.0 at the end of each fiscal quarter; provided that during an Investment Grade Period, the
Borrower will not to be subject to such ratio;
a consolidated total leverage ratio, which is the ratio of consolidated debt to consolidated EBITDA, of not more than
5.00 to 1.00 at the end of each fiscal quarter; provided that during an Investment Grade Period or at our election (the
“Financial Covenant Election”), the consolidated total leverage ratio shall be no more than 5.25 to 1.0; and
after a Financial Covenant Election (and up to the commencement of an Investment Grade Period), a consolidated senior
secured leverage ratio covenant rather than the consolidated total leverage ratio covenant, which is the ratio of
consolidated senior secured debt to consolidated EBITDA, of not more than 3.75 to 1.0.
We were in compliance with the applicable covenants and ratios as of December 31, 2019. The actual borrowing capacity
available to Antero Midstream Partners may be limited by the interest coverage ratio, consolidated total leverage ratio, and
consolidated senior secured leverage ratio covenants.
5.375% Senior Notes Due 2024
On September 13, 2016, Antero Midstream Partners and its wholly owned subsidiary, Finance Corp (together with Antero
Midstream Partners, the “Issuers”), issued $650 million in aggregate principal amount of 5.375% senior notes due September 15, 2024
(the “2024 Notes”) at par. The 2024 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value
of the collateral securing the Credit Facility. The 2024 Notes are fully and unconditionally guaranteed on a joint and several senior
unsecured basis by Antero Midstream Corporation, Antero Midstream Partners’ wholly owned subsidiaries (other than Finance Corp)
and certain of its future restricted subsidiaries. Interest on the 2024 Notes is payable on March 15 and September 15 of each
year. Antero Midstream Partners may redeem all or part of the 2024 Notes at any time at redemption prices ranging from 104.031%
as of December 31, 2019 to 100.00% on or after September 15, 2022. If Antero Midstream Partners undergoes a change of control
followed by a rating decline, the holders of the 2024 Notes will have the right to require Antero Midstream Partners to repurchase all
or a portion of the 2024 Notes at a price equal to 101% of the principal amount of the 2024 Notes, plus accrued and unpaid interest.
5.75% Senior Notes Due 2027
On February 25, 2019, the Issuers issued the 2027 Notes at par. The 2027 Notes are unsecured and effectively subordinated
to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2027 Notes are fully and
unconditionally guaranteed on a joint and several senior unsecured basis by Antero Midstream Corporation, Antero Midstream
Partners’ wholly owned subsidiaries (other than Finance Corp) and certain of its future restricted subsidiaries. Interest on the 2027
Notes is payable on March 1 and September 1 of each year. Antero Midstream Partners may redeem all or part of the 2027 Notes at
any time on or after March 1, 2022 at redemption prices ranging from 102.875% on or after March 1, 2022 to 100.00% on or after
March 1, 2025. In addition, prior to March 1, 2022, Antero Midstream Partners may redeem up to 35% of the aggregate principal
amount of the 2027 Notes with an amount of cash not greater than the net cash proceeds of certain equity offerings, if certain
conditions are met, at a redemption price of 105.75% of the principal amount of the 2027 Notes, plus accrued and unpaid interest. At
any time prior to March 1, 2022, Antero Midstream Partners may also redeem the 2027 Notes, in whole or in part, at a price equal to
100% of the principal amount of the 2027 Notes plus a “make-whole” premium and accrued and unpaid interest. If Antero Midstream
Partners undergoes a change of control followed by a rating decline, the holders of the 2027 Notes will have the right to require
Antero Midstream Partners to repurchase all or a portion of the 2027 Notes at a price equal to 101% of the principal amount of the
2027 Notes, plus accrued and unpaid interest.
5.75% Senior Notes Due 2028
On June 28, 2019, the Issuers issued the 2028 Notes at par. The 2028 Notes are unsecured and effectively subordinated to
the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2028 Notes are fully and
unconditionally guaranteed on a joint and several senior unsecured basis by Antero Midstream Corporation, Antero Midstream
Partners’ wholly owned subsidiaries (other than Finance Corp) and certain of its future restricted subsidiaries. Interest on the 2028
Notes is payable on January 15 and July 15 of each year. Antero Midstream Partners may redeem all or part of the 2028 Notes at any
time on or after January 15, 2023 at redemption prices ranging from 102.875% on or after January 15, 2023 to 100.00% on or after
January 15, 2026. In addition, prior to January 15, 2023, Antero Midstream Partners may redeem up to 35% of the aggregate principal
60
amount of the 2028 Notes with an amount of cash not greater than the net cash proceeds of certain equity offerings, if certain
conditions are met, at a redemption price of 105.75% of the principal amount of the 2028 Notes, plus accrued and unpaid interest. At
any time prior to January 15, 2023, Antero Midstream Partners may also redeem the 2028 Notes, in whole or in part, at a price equal
to 100% of the principal amount of the 2028 Notes plus a “make-whole” premium and accrued and unpaid interest. If Antero
Midstream Partners undergoes a change of control followed by a rating decline, the holders of the 2028 Notes will have the right to
require Antero Midstream Partners to repurchase all or a portion of the 2028 Notes at a price equal to 101% of the principal amount of
the 2028 Notes, plus accrued and unpaid interest.
Contractual Obligations
Future capital contributions to unconsolidated affiliates are excluded from the table as neither the amounts nor the timing of
the obligations can be determined in advance. A summary of our contractual obligations by maturity date as of December 31, 2019 is
provided in the following table.
$
(in millions)
Credit Facility (1)
5.375% senior notes due 2024—principal
5.375% senior notes due 2024—interest
5.75% senior notes due 2027—principal
5.75% senior notes due 2027—interest
5.75% senior notes due 2028—principal
5.75% senior notes due 2028—interest
Contingent acquisition consideration
Asset retirement obligations
Total
$
2020
—
—
35
—
37
—
39
125
3
239
Year Ended December 31,
2022
2023
2021
—
—
35
—
37
—
37
—
—
109
960
—
35
—
37
—
37
—
—
1,069
—
—
35
—
37
—
37
—
1
110
2024
Thereafter
—
—
—
650
93
650
131
—
2
1,526
—
650
35
—
37
—
37
—
—
759
Total
960
650
175
650
278
650
318
125
6
3,812
(1)
Includes outstanding principal amounts on the Credit Facility at December 31, 2019. This table does not include future
commitment fees, interest expense or other fees on the Credit Facility because they are floating rate instruments and we cannot
determine with accuracy the timing of future loan advances, repayments, or future interest rates to be charged.
Critical Accounting Policies and Estimates
The following discussion relates to the critical accounting policies and estimates for both the Company and our Predecessor.
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have
been prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent
liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that
materially different amounts could have been reported under different conditions, or if different assumptions had been used. We
evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates and assumptions used in preparation of our financial statements. We provide expanded discussion of our more significant
accounting policies, estimates and judgments below. We believe these accounting policies reflect our more significant estimates and
assumptions used in preparation of our financial statements. See Note 2—Summary of Significant Accounting Policies to our
consolidated financial statements for a discussion of additional accounting policies and estimates made by management.
Fair Value Measurement
The Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification Topic 820, Fair Value
Measurements and Disclosures, clarifies the definition of fair value, establishes a framework for measuring fair value, and sets forth
disclosure requirements about fair value measurements. This guidance also relates to all nonfinancial assets and liabilities that are not
recognized or disclosed on a recurring basis (e.g., the initial recognition of asset retirement obligations and impairments of long-lived
assets). The fair value is the price that we estimate would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. A fair value hierarchy is used to prioritize inputs to valuation
techniques used to estimate fair value. An asset or liability subject to the fair value requirements is categorized within the hierarchy
based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular
61
input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The highest
priority (Level 1) is given to unadjusted quoted market prices in active markets for identical assets or liabilities, and the lowest priority
(Level 3) is given to unobservable inputs. Level 2 inputs are data, other than quoted prices included within Level 1, that are
observable for the asset or liability, either directly or indirectly.
Business Combination
We recognize and measure the assets acquired and liabilities assumed in a business combination based on their estimated fair
values at the acquisition date, with any remaining difference recorded as goodwill. For acquisitions, management engages an
independent valuation specialist to assist with the determination of fair value of the assets acquired, liabilities assumed, and goodwill,
based on recognized business valuation methodologies. If the initial accounting for the business combination is incomplete by the end
of the reporting period in which the acquisition occurs, an estimate will be recorded. Subsequent to the acquisition, and not later than
one year from the acquisition date, we will record any material adjustments to the initial estimate based on new information obtained
that would have existed as of the acquisition date. An adjustment that arises from information obtained that did not exist as of the date
of the acquisition will be recorded in the period of the adjustment. Acquisition-related costs are expensed as incurred in connection
with each business combination.
We accounted for the Transactions under the acquisition method of accounting and estimated the fair value of assets acquired
and liabilities assumed at March 12, 2019. In connection with the Transactions, the Company, among other things, issued shares of
common stock valued at the closing market price of the common shares at the effective time of the Transactions, which was a Level 1
measurement.
We used the discounted cash flow approach, which is an income statement technique, to estimate the fair value of the
customer relationships and investments in unconsolidated affiliates using a weighted-average cost of capital of 14.1%, which is based
on significant inputs not observable in the market, and thus represents a Level 3 measurement within the fair value hierarchy. We also
used this approach in combination with the cost approach to estimate the fair value of property and equipment whereby certain
property and equipment was adjusted for recent purchases of similar items, economic and functional obsolescence, location, normal
useful lives, and capacity (if applicable). To estimate the fair value of the long-term debt, we used Level 2 market data inputs.
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the acquisition
of a business. We test goodwill for impairment annually in the fourth quarter and when events or changes in circumstances indicate
that the fair value of a reporting unit with goodwill has been reduced below its carrying value. The impairment test requires allocating
goodwill and other assets and liabilities to reporting units. The fair value of each reporting unit is determined and compared to the
carrying value of the reporting unit. The fair value is calculated using the expected present value of future cash flows method.
Significant assumptions used in the cash flow forecasts include future net operating margins, future volumes, discount rates, and
future capital requirements. If the fair value of the reporting unit is less than the carrying value, including goodwill, the excess of the
book value over the fair value of goodwill is charged to net income as an impairment expense.
We utilized a combination of approaches to estimate the fair value of our assets including the discounted cash flow approach,
comparable company method and the cost approach, whereby certain property and equipment was adjusted for recent purchases of
similar items, economic and functional obsolescence, location, normal useful lives, and capacity (if applicable). We performed our
fourth quarter quantitative analysis using a weighted-average cost of capital of 10.0%, which is based on significant inputs not
observable in the market, and thus represents a Level 3 measurement within the fair value hierarchy. We also used this approach in
combination with the cost approach to estimate the fair value of property and equipment.
Contingent Acquisition Consideration
In connection with our September 2015 acquisition of certain water treatment assets, we agreed to pay Antero Resources
(a) $125 million in cash if we delivered 176 million barrels or more of fresh water during the period between January 1, 2017 and
December 31, 2019 and (b) an additional $125 million in cash if we deliver 219 million barrels or more of fresh water during the
period between January 1, 2018 and December 31, 2020. This contingent consideration liability is valued based on Level 3 inputs
related to the expected average volumes and weighted average cost of capital and was recorded at the time of such acquisition in
accordance with accounting guidance for business combinations. We update our assumptions each reporting period based on new
developments and adjust such amounts to fair value based on revised assumptions, if applicable, until such consideration is satisfied
through payment upon achievement of the specified objectives or it is eliminated upon failure to achieve the specified objectives.
62
As of December 31, 2019, we had delivered 176 million barrels of fresh water during the period between January 1, 2017 and
December 31, 2019, which entitled Antero Resources to $125 million pursuant to clause (a) above, and, as a result, we paid Antero
Resources $125 million in January 2020. We do not expect to deliver more than 219 million barrels of fresh water during the period
between January 1, 2018 and December 31, 2020 based on Antero Resources’ disclosed 2020 budget. Accordingly, the fair value of
the liability for contingent acquisition consideration was $125 million as of December 31, 2019. The fair value measurement is based
on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair
value of the contingent consideration liability associated with future milestone payments was based on the risk adjusted present value
of the contingent consideration payout.
General and Administrative and Equity-Based Compensation Costs
General and administrative costs are charged or allocated to us based on the nature of the expenses and are allocated based on
our proportionate share of Antero Resources’ gross property and equipment, capital expenditures and labor costs, as applicable. These
allocations are based on estimates and assumptions that management believes are reasonable.
Equity-based compensation grants are measured at their grant date fair value and related compensation cost is recognized
over the vesting period of the grant. Compensation cost for awards with graded vesting provisions is recognized on a straight-line
basis over the requisite service period of each separately vesting portion of the award. Estimating the fair value of each award
requires management to apply judgment.
Equity-based compensation expenses that are subject to allocation as described in “—Principal Components of our Cost
Structure,” are allocated to us based on our proportionate share of Antero Resources’ labor costs. These allocations are based on
estimates and assumptions that management believes are reasonable.
New Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement: Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement,” which provides changes to certain fair value disclosure requirements. This
ASU is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods,
with early adoption permitted. The adoption of this update is not expected to have a material impact on our consolidated financial
statements.
Off-Balance Sheet Arrangements
As of December 31, 2019, we did not have any off-balance sheet arrangements.
63
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The primary objective of the following information is to provide forward-looking quantitative and qualitative information
about our potential exposure to market risk. The term “market risk” refers to the risk of loss arising from adverse changes in
commodity prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather
indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our
ongoing market risk exposures.
Commodity Price Risk
Our gathering and compression and water services agreements with Antero Resources provide for fixed-fee structures, and
we intend to continue to pursue additional fixed-fee opportunities with Antero Resources and third parties in order to avoid direct
commodity price exposure. However, to the extent that our future contractual arrangements with Antero Resources or third parties do
not provide for fixed-fee structures, we may become subject to commodity price risk. We are subject to commodity price risks to the
extent that they impact Antero Resources’ development program and production and therefore our gathering, compression, and water
handling volumes. We cannot predict to what extent our business would be impacted by lower commodity prices and any resulting
impact on Antero Resources’ operations.
Interest Rate Risk
Our primary exposure to interest rate risk results from outstanding borrowings under the Credit Facility, which has a floating
interest rate. We do not currently, but may in the future, hedge the interest on portions of our borrowings under the Credit Facility
from time-to-time in order to manage risks associated with floating interest rates. At December 31, 2019, we had $960 million of
borrowings and no letters of credit outstanding under the Credit Facility. A 1.0% increase in the Credit Facility interest rate would
have resulted in an estimated $7.0 million increase in interest expense, for the year ended December 31, 2019.
Credit Risk
We are dependent on Antero Resources as our primary customer, and we expect to derive a substantial majority of our
revenues from Antero Resources for the foreseeable future. As a result, any event, whether in our area of operations or otherwise, that
adversely affects Antero Resources’ production, drilling schedule, financial condition, leverage, market reputation, liquidity, results of
operations or cash flows may adversely affect our revenues and operating results.
Further, we are subject to the risk of non-payment or non-performance by Antero Resources, including with respect to our
gathering and compression and water handling services agreements. We cannot predict the extent to which Antero Resources’
business would be impacted if conditions in the energy industry were to deteriorate, nor can we estimate the impact such conditions
would have on Antero Resources’ ability to execute its drilling and development program or to perform under our agreements. Any
material non-payment or non-performance by Antero Resources could adversely affect our revenues and operating results.
Item 8. Financial Statements and Supplementary Data
The Report of Independent Registered Public Accounting Firm, Consolidated Financial Statements and supplementary
financial data required for this Item are set forth beginning on page F-2 of this Annual Report on Form 10-K and are incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act we have evaluated, under the supervision and with the participation
of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the
end of the period covered by this annual report. Our disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported,
64
within the time periods specified in the SEC’s rules and forms. Based upon that evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2019 at a
reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the three months ended December 31, 2019 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for us as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. This system is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America.
Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and
dispositions of the assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
our assets that could have a material effect on the financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable
assurance and may not prevent or detect all misstatements. Further, because of changes in conditions, effectiveness of internal
controls over financial reporting may vary over time.
Under the supervision of, and with the participation of our management, including the Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework and criteria established in Internal Control—Integrated Framework in 2013, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over
financial reporting was effective as of December 31, 2019.
The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by KPMG LLP,
an independent registered public accounting firm which also audited our consolidated financial statements as of and for the year ended
December 31, 2019, as stated in their report which appears on page F-2 in this Annual Report on Form 10-K.
Item 9B. Other Information
None.
65
Item 10. Directors, Executive Officers, and Corporate Governance
PART III
Pursuant to General Instruction G(3) to Form 10-K, we incorporate by reference into this Item the information to be disclosed
in our definitive proxy statement for our 2020 Annual Meeting of Stockholders.
Directors and Executive Officers
The following table sets forth names, ages and titles of our directors and executive officers as of February 12, 2020:
Name
Paul M. Rady
Glen C. Warren, Jr.
Michael N. Kennedy
Alvyn A. Schopp
W. Patrick Ash
Peter A. Dea
W. Howard Keenan, Jr.
David H. Keyte
Brooks J. Klimley
John C. Mollenkopf
Rose M. Robeson
Age
66
64
45
61
41
66
69
63
62
58
59
Chairman and Chief Executive Officer
Director, President and Secretary
Title
Chief Financial Officer and Senior Vice President
Chief Administrative Officer and Regional Senior Vice President
Senior Vice President - Reserves, Planning & Midstream
Director
Director
Director
Director
Director
Director
Set forth below is the description of the backgrounds of our directors and executive officers.
Paul M. Rady has served as our Chief Executive Officer and Chairman of the Board of Directors since the closing of the
Transactions in March 2019. Prior to the Transactions, Mr. Rady served as Chief Executive Officer of the general partner of AMGP
beginning in January 2017 and as Chairman of the Board of Directors of such entity beginning in April 2017. Mr. Rady also
previously served as Chief Executive Officer and Chairman of the Board of Directors of AMGP beginning in February 2014.
Mr. Rady was a co-founder and has served as Chief Executive Officer and Chairman of the Board of Directors of Antero Resources
since May 2004 and of its predecessor company from its founding in 2002 until its sale to XTO Energy, Inc. in April 2005. Prior to
Antero, Mr. Rady served as President, CEO and Chairman of Pennaco Energy from 1998 until its sale to Marathon in early 2001.
Prior to Pennaco, Mr. Rady was with Barrett Resources from 1990 until 1998 where he initially was recruited as Chief Geologist in
1990, then served as Exploration Manager, EVP Exploration, President, COO and Director and ultimately CEO. Mr. Rady began his
career with Amoco where he served 10 years as a geologist focused on the Rockies and Mid-Continent. Mr. Rady is the managing
member of Salisbury Investment Holdings, LLC. Mr. Rady holds a B.A. in Geology from Western Colorado University and M.Sc. in
Geology from Western Washington University.
Mr. Rady’s significant experience as a chief executive of oil and gas companies, together with his training as a geologist and
broad industry knowledge, enable Mr. Rady to provide the board with executive counsel on a full range of business, strategic and
professional matters.
Glen C. Warren, Jr. has served as our President and Secretary and as a director since the closing of the Transactions in March
2019. Prior to the Transactions, Mr. Warren served as President and Secretary of the general partner of AMGP beginning in January
2017, and as a director of such entity beginning in April 2017. Mr. Warren also previously served as President and Secretary and as a
director of AMGP beginning in January 2016, prior to which he served as President, Chief Financial Officer and Secretary and as a
director beginning in February 2014. Mr. Warren was a co-founder and has served as President, Chief Financial Officer and Secretary
and as a director of Antero Resources since May 2004 and of its predecessor company from its founding in 2002 until its sale to XTO
Energy, Inc. in April 2005. Prior to Antero Resources, Mr. Warren served as EVP, CFO and Director of Pennaco Energy from 1998
until its sale to Marathon in early 2001. Mr. Warren spent 10 years as a natural resources investment banker focused on equity and
debt financing and M&A advisory with Lehman Brothers, Dillon Read and Kidder Peabody. Mr. Warren began his career as a
landman in the Gulf Coast region with Amoco, where he spent six years. Mr. Warren is the managing member of Canton Investment
Holdings, LLC. Mr. Warren holds a B.A. from the University of Mississippi, a J.D. from the University of Mississippi School of Law
and an M.B.A. from the Anderson School of Management at U.C.L.A.
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Mr. Warren’s significant experience as a chief financial officer of oil and gas companies, together with his experience as an
investment banker and broad industry knowledge, enable Mr. Warren to provide the board with executive counsel on a full range of
business, strategic, financial and professional matters.
Michael N. Kennedy has served as our Chief Financial Officer since the closing of the Transactions in March 2019. Prior to
the Transactions, Mr. Kennedy served as Chief Financial Officer and Senior Vice President of Finance of AMGP beginning in January
2016, prior to which he served as Vice President of Finance of such entity beginning in August 2013. Mr. Kennedy has also served as
Senior Vice President of Finance of Antero Resources since January 2016, prior to which he served as Vice President of Finance from
August 2013 to December 2015. Mr. Kennedy was Executive Vice President and Chief Financial Officer of Forest Oil Corporation
(“Forest”) from 2009 to 2013. From 2001 until 2009, Mr. Kennedy held various financial positions of increasing responsibility within
Forest. From 1996 to 2001, Mr. Kennedy was an auditor with Arthur Andersen focusing on the Natural Resources
industry. Mr. Kennedy holds a B.S. in Accounting from the University of Colorado at Boulder.
Alvyn A. Schopp has served as our Chief Administrative Officer and Senior Regional Vice President since January 2020, as
Chief Administrative Officer, Regional Senior Vice President and Treasurer from the closing of the Transactions in March 2019 to
December 2019. Prior to the Transactions, Mr. Schopp served as Chief Administrative Officer, Senior Regional Vice President, and
Treasurer of AMGP beginning in January 2016, prior to which he served as Chief Administrative Officer, Regional Vice President
and Treasurer of such entity beginning in February 2014. Mr. Schopp has also served as Chief Administrative Officer and Senior
Regional Vice President of Antero Resources since January 2020, as Chief Administrative Officer, Regional Senior Vice President
and Treasurer from January 2016 to December 2019, as Chief Administrative Officer, Regional Vice President and Treasurer from
October 2013 to January 2016, as Vice President of Accounting and Administration and Treasurer from January 2005 to
September 2013, as Controller and Treasurer from 2003 to 2005 and as Vice President of Accounting and Administration and
Treasurer of Antero Resources’ predecessor company from January 2005 until its sale to XTO Energy, Inc. in April 2005. Mr. Schopp
has also served as Chief Administrative Officer, Senior Regional Vice President, and Treasurer of the general partner of AMGP since
April 2017. From 1993 to 2000, Mr. Schopp was CFO, Director and ultimately CEO of T-Netix. From 1980 to 1993 Mr. Schopp was
with KPMG LLP. As a Senior Manager with KPMG, he maintained an extensive energy and mining practice. Mr. Schopp holds a
B.B.A. from Drake University.
W. Patrick Ash has served as our and Antero Resources’ Senior Vice President – Reserves, Planning & Midstream, since
June 2019, prior to which he served as our and Antero Resources’ Vice President of Reservoir Engineering and Planning beginning
with the closing of the Transactions in March 2019. Prior to the Transactions, Mr. Ash served as Vice President of Reservoir
Engineering and Planning of Antero Resources and AMGP beginning in December 2017. Prior to joining us, Mr. Ash was at Ultra
Petroleum for six years in management positions of increasing responsibility, most recently serving as Vice President, Development,
including during and after Ultra’s bankruptcy proceedings, from which it emerged in 2017. In this position he led the reservoir
engineering, geoscience, and corporate engineering groups. From 2001 to 2011, Mr. Ash served in engineering roles at Devon, NFR
Energy and Encana. Mr. Ash holds a B.S. in Petroleum Engineering from Texas A&M University and a MBA from Washington
University in St. Louis.
Peter Dea has served as a director of the Company since the closing of the Transactions in March 2019. Prior to the
Transactions, Mr. Dea served as a director of the general partner of AMGP beginning in April 2018. He is the Co-Founder and
Executive Chairman of Confluence Resources LP, a Denver, Colorado-based oil and gas exploration and production company, and has
been with the company since its inception in September 2016. Mr. Dea also serves on the Boards of Encana Corporation and
Liberty Oilfield Services. Additionally, Mr. Dea served as Co-Founder, President and CEO of Cirque Resources LP since its
inception in May 2007 and served as President, CEO and a Director of Western Gas Resources, Inc., from 2001 through their merger
with Anadarko Petroleum Corporation in 2006. He joined Barrett Resources Corporation in 1993 and was CEO from 1999 and
Chairman of the Board from 2000 until its sale in 2001 to Williams. Prior to joining Barrett, Mr. Dea held various management and
geologic positions for Exxon Company USA. In addition to receiving geology degrees from the University of Montana, MS, and
Western Colorado University, BA, he also attended the Harvard Business School Advanced Management Program.
Mr. Dea brings to the Board 35 years of experience and leadership in the exploration and development of multiple shale plays
across the U.S., further supporting our integrated long-term strategy and focus. We believe his background and skill set make Mr. Dea
well-suited to serve as a member of our board of directors.
W. Howard Keenan, Jr. has served as a director of the Company since the closing of the Transactions in March 2019. Prior
to the Transactions, Mr. Keenan served as a director of AMGP beginning in April 2017 and as a director of AMGP beginning in
February 2014. Mr. Keenan also has served as a director of Antero Resources since 2004. Mr. Keenan has over 40 years of
experience in the financial and energy businesses. Since 1997, he has been a Member of Yorktown Partners LLC, a private
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investment manager focused on the energy industry. From 1975 to 1997, he was in the Corporate Finance Department of Dillon,
Read & Co. Inc. and active in the private equity and energy areas, including the founding of the first Yorktown Partners fund in 1991.
He is serving or has served as a director of multiple Yorktown Portfolio companies and currently serves as a director of the following
public companies: Brigham Minerals, Inc. and Solaris Oilfield Infrastructure, Inc. Mr. Keenan holds an B.A. degree cum laude from
Harvard College and an M.B.A. degree from Harvard University.
Mr. Keenan has significant experience with energy companies and investments and broad knowledge of the oil and gas
industry. We believe his background and skill set make Mr. Keenan well-suited to serve as a member of our board of directors.
David H. Keyte has served as a director of the Company since April 2019. Mr. Keyte is the Chairman of the board and Chief
Executive Officer of Caerus Oil and Gas LLC, which he co-founded in November 2009. Prior to that, Mr. Keyte held senior executive
positions at Forest Oil Corporation from November 1997 until November 2009, including the positions of Chief Financial Officer,
Executive Vice President and Chief Accounting officer. Mr. Keyte served on the board of Regal Entertainment Group, a publicly held
movie exhibition company, from 2006 until the company was sold in 2018. Mr. Keyte holds a B.S. degree in economics from the
University of Pennsylvania’s Wharton School of Finance.
Mr. Keyte has significant experience in executive management and finance in the oil and gas industry. We believe his
background and skill set make Mr. Keyte well-suited to serve as a member of our board of directors.
Brooks J. Klimley has served as a director of the Company since the closing of the Transactions in March 2019. Prior to the
Transactions, Mr. Klimley served as a director of the general partner of AMGP beginning in 2017, and as a director of AMGP from
March 2015 to 2017. Mr. Klimley joined The Silverfern Group, which is focused on private equity co-investments, after a nearly 25
year career leading investment banking practices covering the energy and mining sectors. Additionally, Mr. Klimley has served as an
Adjunct Professor at Columbia University’s graduate schools of business and international affairs since 2010. Previously, Mr. Klimley
acted as President of Brooks J. Klimley & Associates, an energy advisory services firm focused on strategy and capital raising for
energy and natural resources companies. Prior to founding his own firm in 2009, Mr. Klimley acted as the President of CIT Energy
and held senior leadership positions at a number of financial institutions, including Citicorp, Bear Stearns, UBS and Kidder, Peabody.
Mr. Klimley holds a dual B.A. / M.A. in Jurisprudence (Law) from Oxford University and a joint degree in Economics and History
from Columbia University.
Mr. Klimley has significant experience with energy companies and investments and broad knowledge of the oil and gas
industry. We believe his background and skill set make Mr. Klimley well-suited to serve as a member of our board of directors.
John C. Mollenkopf has served as a director of the Company since the closing of the Transactions in March 2019. Prior to the
Transactions, Mr. Mollenkopf served as a director of the general partner of AMGP beginning in April 2017. Mr. Mollenkopf retired
from MPLX, L.P. in October 2016. He previously served MPLX as Executive Vice President and Chief Operating Officer, MarkWest
operations, from December 2015 through September 2016 following the merger of MPLX and MarkWest. From 2011 through 2015,
he served as Executive Vice President and Chief Operating Officer of MarkWest. Mr. Mollenkopf began his employment with
MarkWest Hydrocarbon, Inc. in 1996 as Manager New Projects and progressed to General Manager and later to Vice President of the
Michigan Business unit. In 2002, Mr. Mollenkopf was one of the founders of MarkWest Energy GP, LLC, the general partner of
MarkWest. Between 2002 and 2011, Mr. Mollenkopf served MarkWest as Vice President — Business Development, Senior Vice
President — Southwest Business Unit, Senior Vice President and Chief Operations Officer, Senior Vice President and Chief
Operating Officer. Between 1982 and 1996, Mr. Mollenkopf worked for ARCO Oil and Gas Company in California and Texas,
holding positions of increasing responsibility in facilities, project, process and plant engineering as well as operations
supervision. Mr. Mollenkopf holds a Bachelor of Science degree in mechanical engineering from the University of Colorado at
Boulder, at which he continues to serve on the Engineering Advisory Council for the college of engineering.
Mr. Mollenkopf has significant experience in executive management, business development, marketing, engineering and
operations in the oil and gas industry. We believe his background and skill set make Mr. Mollenkopf well-suited to serve as a member
of our board of directors.
Rose M. Robeson has served as a director of the Company since the closing of the Transactions in March 2019. Prior to the
Transactions, Ms. Robeson served as a director of the general partner of AMGP beginning in 2017. Prior to her retirement in
March 2014, Ms. Robeson was Senior Vice President & Chief Financial Officer of DCP Midstream GP, LLC, the general partner of
DCP Midstream Partners, LP from May 2012 until January 2014. Ms. Robeson also served as Group Vice President and Chief
Financial Officer of DCP Midstream LLC from January 2002 to May 2012. Ms. Robeson served as a director of American
Midstream GP, LLC, the general partner of American Midstream Partners, LP from June 2014 to June 2016. Ms. Robeson served as a
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director of Tesco Corporation from November 2015 to December 2017. Ms. Robeson earned her B.S. degree in accounting from
Northwest Missouri State University. Ms. Robeson became a certified public accountant in 1983 and her license is currently inactive.
Ms. Robeson is a member of the board of directors of SM Energy, an independent energy company engaged in the acquisition,
development, and production of crude oil, natural gas and natural gas liquids in onshore North America, and serves as Audit
Committee Chair and serves on the Nominating and Governance Committee. Ms. Robeson is also a director of Newpark Resources, a
worldwide provider of drilling fluids systems and composite matting systems used in oilfield services, and serves on the Audit,
Nominating and Governance and Compensation committees.
Ms. Robeson brings to the Board over 30 years of experience in various aspects of the oil and gas industry, including
exploration and production, midstream and refining and marketing. She also has significant financial management, risk management
and accounting oversight experience. We believe her background and skill set make Ms. Robeson well-suited to serve as a member of
our board of directors.
Code of Ethics
We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers from any
provision of our Corporate Code of Business Conduct and Ethics applicable to our principal executive officer, principal financial
officer, principal accounting officer and other persons performing similar functions by posting such information in the “Governance”
subsection of our website at www.anteromidstream.com.
Item 11. Executive Compensation
Pursuant to General Instruction G(3) to Form 10-K, we incorporate by reference into this Item the information to be disclosed
in our definitive proxy statement for our 2020 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters
Pursuant to General Instruction G(3) to Form 10-K, we incorporate by reference into this Item the information to be disclosed
in our definitive proxy statement for our 2020 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions and Director Independence
Pursuant to General Instruction G(3) to Form 10-K, we incorporate by reference into this Item the information to be disclosed
in our definitive proxy statement for our 2020 Annual Meeting of Stockholders.
Item 14. Principal Accountant Fees and Services
Pursuant to General Instruction G(3) to Form 10-K, we incorporate by reference into this Item the information to be disclosed
in our definitive proxy statement for our 2020 Annual Meeting of Stockholders.
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Item 15. Exhibits and Financial Statement Schedules
(a)(1) and (a)(2) Financial Statements and Financial Statement Schedules
PART IV
The consolidated financial statements are listed on the Index to Financial Statements to this Annual Report on Form 10-K
beginning on page F-1.
(a)(3) Exhibits.
Exhibit
Number
2.1
3.1
3.2
3.3
3.4
4.1
4.2
4.3*
4.4
4.5
4.6
4.7
Description of Exhibit
Simplification Agreement, dated as of October 9, 2018, by and among AMGP GP LLC, Antero Midstream GP LP,
Antero IDR Holdings LLC, Arkrose Midstream Preferred Co LLC, Arkrose Midstream NewCo Inc., Arkrose
Midstream Merger Sub LLC, Antero Midstream Partners GP LLC and Antero Midstream Partners LP
(incorporated by reference to Exhibit 2.1 to Antero Midstream GP LP’s Current Report on Form 8-K (Commission
File No. 001-38075) filed on October 10, 2018).
Certificate of Conversion of Antero Midstream Corporation, dated March 12, 2019 (incorporated by reference to
Exhibit 3.2 to the Company’s Current Report on Form 8-K (Commission File No. 001-38075) filed on March 12,
2019).
Certificate of Incorporation of Antero Midstream Corporation, dated March 12, 2019 (incorporated by reference to
Exhibit 3.3 to the Company’s Current Report on Form 8-K (Commission File No. 001-38075) filed on March 12,
2019).
Bylaws of Antero Midstream Corporation, dated March 12, 2019 (incorporated by reference to Exhibit 3.4 to the
Company’s Current Report on Form 8-K (Commission File No. 001-38075) filed on March 12, 2019).
Certificate of Designations of Antero Midstream Corporation, dated March 12, 2019 (incorporated by reference to
Exhibit 3.1 to the Company’s Current Report on Form 8-K (Commission File No. 001-38075) filed on March 12,
2019).
Indenture, dated as of September 13, 2016, by and among Antero Midstream Partners LP, Antero Midstream
Finance Corporation, the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as
trustee (incorporated by reference to Exhibit 4.1 to Antero Midstream Partners LP’s Current Report on Form 8-K
(Commission File No. 001-36719) filed on September 13, 2016).
Form of 5.375% Senior Note due 2024 (incorporated by reference to Exhibit 4.2 to Antero Midstream Partners
LP’s Current Report on Form 8-K (Commission File No. 001-36719) filed on September 13, 2016).
First Supplemental Indenture, dated as of January 17, 2017, among Antero Midstream Partners LP, Antero
Midstream Finance Corporation, Antero Midstream Corporation, each of the other parties identified therein and
Wells Fargo Bank, National Association, a national banking association to the indenture governing the 2024 Notes.
Second Supplemental Indenture, dated as of April 15, 2019, among Antero Midstream Partners LP, Antero
Midstream Finance Corporation, Antero Midstream Corporation, each of the other parties identified therein and
Wells Fargo Bank, National Association, a national banking association to the indenture governing the 2024 Notes
(incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (Commission File No.
001-38075) filed on April 16, 2019).
Indenture, dated as of February 25, 2019, by and among Antero Midstream Partners LP, Antero Midstream
Finance Corporation, the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as
trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (Commission File
No. 001-38075) filed on February 25, 2019).
Form of 5.75% Senior Note due 2027 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report
on Form 8-K (Commission File No. 001-38075) filed on February 25, 2019).
First Supplemental Indenture, dated as of April 15, 2019, among Antero Midstream Partners LP, Antero Midstream
Finance Corporation, Antero Midstream Corporation, each of the other parties identified therein and Wells Fargo
70
4.8
4.9
4.10
4.11*
10.1*
10.2*
10.3*
10.4**
10.5
10.6
10.7
10.8
10.9*
10.10*
10.11
Bank, National Association, a national banking association, to the indenture governing the 2027 Notes
(incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (Commission File No.
001-38075) filed on April 16, 2019).
Indenture, dated as of June 28, 2019, by and among Antero Midstream Partners LP, Antero Midstream Finance
Corporation, the guarantors party thereto and Wells Fargo Bank, National Association, as trustee (incorporated by
reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (Commission File No. 001-38075) filed on
June 28, 2019).
Form of 5.75% Senior Note due 2028 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report
on Form 8-K (Commission File No. 001-38075) filed on June 28, 2019).
Registration Rights Agreement, dated March 12, 2019, by and among the Company, Antero Resources
Corporation, Arkrose Subsidiary Holdings LLC, Glen C. Warren, Jr., Canton Investment Holdings LLC, Paul M.
Rady, Mockingbird Investments, LLC and the other holders named therein (incorporated by reference to Exhibit
4.1 to the Company’s Current Report on Form 8-K (Commission File No. 001-38075) filed on March 12, 2019).
Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, as amended.
Second Amended and Restated Gathering and Compression Agreement, dated as of December 8, 2019, by and
between Antero Resources Corporation and Antero Midstream LLC.
Amended and Restated Secondment Agreement, effective as of March 13, 2019, by and between Antero
Midstream Corporation, Antero Midstream Partners LP, Antero Midstream Partners GP LLC, Antero Midstream
LLC, Antero Water LLC, Antero Treatment LLC and Antero Resources Corporation.
Second Amended and Restated Services Agreement, effective as of March 13, 2019, by and among Antero
Midstream Partners LP, Antero Midstream Corporation, Antero Midstream Partners GP LLC and Antero
Resources Corporation.
Amended and Restated Water Services Agreement, dated as of February 12, 2019, by and between Antero
Resources Corporation and Antero Water LLC (incorporated by reference to Exhibit 10.4 to Antero Midstream
Partners LP’s Annual Report on Form 10-K (Commission File No. 001-36719) filed on February 13, 2019).
Amended and Restated Contribution Agreement, dated as of November 10, 2014, by and between Antero
Resources Corporation and Antero Midstream Partners LP (incorporated by reference to Exhibit 10.1 to Antero
Midstream Partners LP’s Current Report on Form 8-K (Commission File No. 001-36719) filed on November 17,
2014).
Second Amended and Restated Right of First Offer Agreement, dated as of February 13, 2018, by and between
Antero Resources Corporation and Antero Midstream LLC (incorporated by reference to Exhibit 10.2 to Antero
Midstream Partners LP’s Quarterly Report on Form 10-Q (Commission File No. 001-36719) filed on April 25,
2018).
License Agreement, dated as of November 10, 2014, by and between Antero Resources Corporation and Antero
Midstream Partners LP (incorporated by reference to Exhibit 10.4 to Antero Midstream Partners LP’s Current
Report on Form 8-K (Commission File No. 001-36719) filed on November 17, 2014).
First Amendment and Joinder Agreement, dated as of October 31, 2018 (incorporated by reference to Exhibit 10.1
to Antero Midstream Partners LP’s Current Report on Form 8-K (Commission File No. 001-36719) filed on
November 2, 2018).
Second Amendment, dated as of February 26, 2019, by and among the Lenders party thereto, Antero Midstream
Partners LP, and Wells Fargo Bank, National Association, as Administrative Agent.
Joinder Agreement, dated as of November 19, 2019, by and among the Lenders party thereto, Antero Midstream
Partners LP, and Wells Fargo Bank, National Association, as Administrative Agent.
Amended and Restated Credit Agreement, by and among Antero Midstream Partners LP, the lenders party thereto,
and Wells Fargo Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.1
to Antero Midstream Partners LP’s Quarterly Report on Form 10-Q (Commission File No. 001-36719) filed on
November 1, 2017).
10.12†
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K (Commission File No. 001-38075) filed on March 12, 2019).
71
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19
10.20
10.21
10.22
21.1*
23.1*
31.1*
31.2*
32.1*
32.2*
Antero Midstream Corporation Long Term Incentive Plan, effective as of March 12, 2019 (incorporated by
reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K/A (Commission File No. 001-38075) filed
on March 12, 2019).
Letter to Phantom Unitholders under the Antero Midstream Partners LP Long-Term Incentive Plan Regarding the
Phantom Unit Exchange (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form
10-Q (Commission File No. 001-38075) filed on May 1, 2019).
Form of Performance Share Unit Grant Notice and Performance Share Unit Agreement under the Antero
Midstream Corporation Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q (Commission File No. 001-38075) filed on July 31, 2019).
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the Antero Midstream
Corporation Long Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q (Commission File No. 001-38075) filed on July 31, 2019).
Form of Phantom Unit Agreement under the Antero Midstream Partners LP Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.4 to Antero Midstream Partners LP’s Registration Statement on Form S-8
(Commission File No. 333-200111) filed on November 12, 2014).
Global Grant Amendment to Grant Notices and Award Agreements Under the Antero Midstream Partners LP
Long-Term Incentive Plan, effective as of October 24, 2016 (incorporated by reference to Exhibit 10.1 to Antero
Midstream Partners LP’s Quarterly Report on Form 10-Q (Commission File No. 001-36719) filed on October 26,
2016).
Voting Agreement, dated as of October 9, 2018, by and among Antero Midstream Partners LP and the shareholders
of Antero Midstream GP LP named on Schedule I thereto (incorporated by reference to Exhibit 10.1 to Antero
Midstream GP LP’s Current Report on Form 8-K (Commission File No. 001-38075) filed on October 10, 2018).
Voting Agreement, dated as of October 9, 2018, by and between Antero Midstream GP LP and Antero Resources
Corporation (incorporated by reference to Exhibit 10.2 to Antero Midstream GP LP’s Current Report on Form 8-K
(Commission File No. 001-38075) filed on October 10, 2018).
Amendment No. 1 to the Voting Agreement by and between Antero Midstream GP LP and Antero Resources
Corporation, dated as of March 11, 2019 (incorporated by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K (Commission File No. 001-38075) filed on March 12, 2019).
Stockholders’ Agreement, dated as of October 9, 2018, by and among Antero Midstream GP LP, Arkrose
Subsidiary Holdings LLC, Paul M. Rady, Mockingbird Investment, LLC, Glen C. Warren, Jr., Canton Investment
Holdings LLC and the other holders named therein (incorporated by reference to Exhibit 10.3 to Antero Midstream
GP LP’s Current Report on Form 8-K (Commission File No. 001-38075) filed on October 10, 2018).
Subsidiaries of Antero Midstream Corporation.
Consent of KPMG LLP.
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (18 U.S.C.
Section 7241).
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (18 U.S.C.
Section 7241).
Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (18 U.S.C.
Section 1350).
Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (18 U.S.C.
Section 1350).
99.1*
Unaudited pro forma condensed combined financial statements of Antero Midstream Corporation.
72
101*
The following financial information from this Form 10-K of Antero Midstream Corporation for the year ended
December 31, 2019, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated
Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Consolidated
Statements of Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated Financial
Statements, tagged as blocks of text.
104*
Cover Page Interactive Data File (embedded within the Inline XBRL document).
The exhibits marked with the asterisk symbol (*) are filed or furnished with this Annual Report on Form 10-K.
** Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
† Management contract or compensatory plan or arrangement
73
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
ANTERO MIDSTREAM CORPORATION
By:
/s/ MICHAEL N. KENNEDY
Michael N. Kennedy
Chief Financial Officer
Date:
February 12, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on
behalf of the registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ PAUL M. RADY
Paul M. Rady
Chairman of the Board,
Director and Chief Executive officer
(principal executive officer)
/s/ MICHAEL N. KENNEDY Chief Financial Officer
Michael N. Kennedy
(principal financial officer)
February 12, 2020
February 12, 2020
/s/ K. PHIL YOO
K. Phil Yoo
Vice President, Accounting and Chief Accounting Officer February 12, 2020
(principal accounting officer)
/s/ GLEN C. WARREN, JR. President, Director, and Secretary
February 12, 2020
Glen C. Warren, Jr.
/s/ PETER A. DEA
Peter A. Dea
Director
/s/ W. HOWARD KEENAN, JR.
W. Howard Keenan, Jr.
Director
/s/ DAVID H. KEYTE
David H. Keyte
Director
/s/ BROOKS J. KLIMLEY
Brooks J. Klimley
Director
/s/ JOHN C. MOLLENKOPF
John C. Mollenkopf
Director
/s/ ROSE M. ROBESON
Rose M. Robeson
Director
74
February 12, 2020
February 12, 2020
February 12, 2020
February 12, 2020
February 12, 2020
February 12, 2020
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Historical Consolidated Financial Statements as of December 31, 2018 and 2019 and for the Years Ended
December 31, 2017, 2018, and 2019
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income
Consolidated Statements of Partners’ Capital and Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
F-2
F-5
F-6
F-7
F-8
F-9
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors or
Antero Midstream Corporation:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Antero Midstream Corporation and subsidiaries (the Company) as
of December 31, 2018 and 2019, the related consolidated statements of operations and comprehensive income, partners’ capital and
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes
(collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as
of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 31, 2018 and 2019, and the results of its operations and its cash flows for each of the years in the three-
year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019 based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Annual Report on Internal Control Over Financial Reporting within Item 9A Controls and Procedures.
Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s
internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
F-2
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of lease classification for ongoing modifications to the gathering and compression assets
As discussed in Note 7 to the consolidated financial statements, the Company determined that the gathering and compression
agreement with Antero Resources is an operating lease. The Company continues to expand its gathering and compression
system to serve its customer and, as a result, the minimum volume commitments and the lease payments increase for the
expanded system. The increases in volume commitments and lease payments are modifications of the arrangement that
require reconsideration of the lease classification.
We identified the evaluation of lease classification for ongoing modifications to the gathering and compression assets as a
critical audit matter. The evaluation of lease classification for these modified leases, including evaluating economic life as a
key estimate, required significant judgment.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal
controls over the Company’s process for identifying lease modifications and determining lease classification for those
modifications, including controls related to the review and approval of the Company’s lease modifications and the
Company’s review of the lease classification. We evaluated the Company’s accounting memoranda and other documentation
underlying the accounting conclusions reached, including application of relevant accounting guidance in regards to the
modification accounting and subsequent lease classification. We evaluated the economic life used in the determination of
lease classification. We evaluated fixed assets that are placed in service for new minimum volume commitments which
would require reassessment of the lease.
Evaluation of the initial measurement of property and equipment and customer relationships acquired in the Antero
Midstream Partners LP business combination
As discussed in Note 3 to the consolidated financial statements, on March 12, 2019, the Company acquired Antero
Midstream Partners LP in a business combination. As a result of the transaction, the Company recognized property and
equipment of $3,371,427 thousand and customer relationships intangible assets of $1,567,000 thousand.
We identified the evaluation of the initial measurement of property and equipment and the customer relationships acquired in
the Antero Midstream Partners LP business combination as a critical audit matter. There was a high degree of subjectivity in
evaluating the key assumptions used to calculate the acquisition date fair value of the property and equipment and the
customer relationships intangible assets. The Company used the indirect cost and market approaches to value the property
and equipment. The key assumptions included the inflationary trend and the useful lives of the underlying assets for the
indirect cost method and comparable price per acre for the market approach. The Company used a discounted cash flow to
value the customer relationships for which the key assumptions included forecasted revenue and the discount rate.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal
controls over the Company’s business combination process, including controls related to the selection of the key assumptions
used to determine the acquisition date fair value of property and equipment and customer relationships intangible assets. For
the customer relationships intangible assets we evaluated the Company’s forecasts of revenues based on the Company’s
F-3
budgets and the Antero Midstream Partners LP historical performance. In addition, we involved valuation professionals with
specialized skills and knowledge who assisted in:
Evaluating the approaches used to value the respective assets;
Evaluating the inflationary trends, useful lives, and recent transactions based on publicly available information
related to the estimated values for the property and equipment;
Independently developing range of estimates of the fair value of the property and equipment and comparing it to the
Company’s estimated fair values for the property and equipment;
Evaluating the Company’s discount rate applied in the valuation of the customer relationships intangible assets by
comparing the Company’s inputs to publicly available data, the implied rate of return on the transaction, and the
return on other acquired assets; and
Testing the estimate of the customer relationships intangible assets fair value using the Company’s cash flow
assumptions and discount rate, and evaluated the result with the Company’s fair value estimate.
/s/ KPMG LLP
We have served as the Company’s auditor since 2016.
Denver, Colorado
February 12, 2020
F-4
ANTERO MIDSTREAM CORPORATION
Consolidated Balance Sheets
December 31, 2018 and 2019
(In thousands)
Assets
Liabilities and Equity
December 31,
2018
2019
$
$
$
2,822
—
—
87
2,909
—
43,492
1,304
—
—
—
47,705
731
28
407
—
15,678
—
16,844
—
—
16,844
1,235
101,029
4,574
1,720
108,558
3,273,410
709,639
103,231
1,498,119
575,461
14,460
6,282,878
3,146
6,645
104,188
125,000
—
3,105
242,084
2,892,249
5,131
3,139,464
Current assets:
Cash and cash equivalents
Accounts receivable–Antero Resources
Accounts receivable–third party
Other current assets
Total current assets
Property and equipment, net
Investments in unconsolidated affiliates
Deferred tax asset
Customer relationships
Goodwill
Other assets, net
Total assets
Current liabilities:
Accounts payable–Antero Resources
Accounts payable–third party
Accrued liabilities
Contingent acquisition consideration
Taxes payable
Other current liabilities
Total current liabilities
Long-term liabilities:
Long-term debt
Other
Total liabilities
Partners' Capital and Stockholders' Equity:
Common shareholders—186,219 shares issued and outstanding at December 31, 2018; none issued and
outstanding at December 31, 2019
IDR LLC Series B units (66 units vested at December 31, 2018; none issued and outstanding at
December 31, 2019)
Preferred stock, $0.01 par value: none authorized or issued at December 31, 2018; 100,000 authorized at
December 31, 2019
Series A non-voting perpetual preferred stock; none designated, issued or outstanding at
December 31, 2018; 12 designated and 10 issued and outstanding at December 31, 2019
Common stock, $0.01 par value; none authorized, issued or outstanding at December 31, 2018;
2,000,000 authorized and 484,042 issued and outstanding at December 31, 2019
Additional paid-in capital
Accumulated loss
Total partners' capital and stockholders' equity
Total liabilities and partners' capital and stockholders' equity
(41,969)
72,830
—
—
—
—
—
—
—
30,861
47,705
$
4,840
3,480,139
(341,565)
3,143,414
6,282,878
See accompanying notes to consolidated financial statements.
F-5
ANTERO MIDSTREAM CORPORATION
Consolidated Statements of Operations and Comprehensive Income
Years Ended December 31, 2017, 2018, and 2019
(In thousands, except per unit amounts)
Revenue:
Gathering and compression–Antero Resources
Water handling–Antero Resources
Water handling–third party
Amortization of customer relationships
$
Total revenue
Operating expenses:
Direct operating
General and administrative (including $34,933, $35,111 and $73,517 of equity-based
compensation in 2017, 2018 and 2019, respectively)
Facility idling
Impairment of property and equipment
Impairment of goodwill
Impairment of customer relationships
Depreciation
Accretion and change in fair value of contingent acquisition consideration
Accretion of asset retirement obligations
Total operating expenses
Operating loss
Interest expense, net
Equity in earnings of unconsolidated affiliates
Income (loss) before income taxes
Provision for income tax benefit (expense)
Net income (loss) and comprehensive income (loss)
Net income (loss) per share–basic and diluted
Weighted average common shares outstanding:
Basic
Diluted
$
$
Year Ended December 31,
2018
2019
2017
—
—
—
—
—
—
41,134
—
—
—
—
—
—
—
41,134
(41,134)
—
69,720
28,586
(26,261)
2,325
—
—
—
—
—
543,538
306,010
50
(57,010)
792,588
—
195,818
43,851
—
—
—
—
—
—
—
43,851
(43,851)
(136)
142,906
98,919
(32,311)
66,608
118,113
11,401
409,739
340,350
11,871
95,526
8,076
187
1,191,081
(398,493)
(110,402)
51,315
(457,580)
102,466
(355,114)
0.03
0.33
(0.80)
186,176
186,176
186,203
186,203
442,640
442,640
See accompanying notes to consolidated financial statements.
F-6
ANTERO MIDSTREAM CORPORATION
Consolidated Statements of Partners’ Capital and Stockholders’ Equity
Years Ended December 31, 2017, 2018, and 2019
(In thousands)
Common
Antero
Resources
Midstream
Representing Management
Shares
Limited
Partner
Interests
LLC
Members'
Equity
Additional
Paid-In
Capital
Preferred Accumulated
Stock
Loss
Balance at December 31, 2016
Pre-IPO net loss and comprehensive loss
Pre-IPO equity-based compensation
Conversion of Antero Resources Midstream Management
LLC to a limited partnership
Post-IPO net income and comprehensive income
Post-IPO equity-based compensation
Distributions to Antero Resources Investment LLC
Distributions to shareholders
Vesting of Series B units
Balance at December 31, 2017
Net income and comprehensive income
Equity-based compensation
Distributions to shareholders
Distributions to Series B unitholders
Vesting of Series B units
Balance at December 31, 2018
Distributions to unitholders
Net (loss) and comprehensive (loss) pre-acquisition
Equity-based compensation pre-acquisition
Exchange of common shares for shares of common stock
and cash consideration paid
Issuance of Series A non-voting perpetual preferred stock
Dividends to stockholders
Equity-based compensation post-acquisition
Issuance of common stock upon vesting of equity-based
compensation awards, net of common stock withheld for
income taxes
Repurchases and retirement of common stock
Net loss and comprehensive loss post-acquisition
Balance at December 31, 2019
Common Stock
Shares
Amount
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
506,641
—
—
—
5,066
—
—
—
297
(22,896)
—
484,042 $
3
(229)
—
4,840
Series B
Unitholders
—
—
—
—
784
—
—
—
34,690
35,474
5,236
—
—
(2,300)
34,420
72,830
(3,720)
—
—
10,269
(4,939)
10,237
(15,567)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15,567
6,480
24,696
(15,908)
(16,011)
(34,690)
(19,866)
61,372
35,111
(84,166)
—
(34,420)
(41,969)
(30,543)
(13,549)
7,034
79,027
—
—
—
—
—
—
—
(69,110)
—
—
—
4,002,898
—
(461,934)
66,483
—
—
—
—
(2,018)
(125,290)
—
3,480,139
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total
Equity
10,269
(4,939)
10,237
—
7,264
24,696
(15,908)
(16,011)
—
15,608
66,608
35,111
(84,166)
(2,300)
—
30,861
(34,263)
(13,549)
7,034
4,017,881
—
(461,934)
66,483
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(341,565)
(341,565)
(2,015)
(125,519)
(341,565)
3,143,414
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
See accompanying notes to consolidated financial statements.
F-7
ANTERO MIDSTREAM CORPORATION
Consolidated Statements of Cash Flows
Years Ended December 31, 2017, 2018, and 2019
(In thousands)
2017
Year Ended December 31,
2018
2019
$
2,325
66,608
(355,114)
Cash flows provided by (used in) operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Distributions from Antero Midstream Partners LP, prior to the
Transactions
Depreciation
Accretion and change in fair value of contingent acquisition
consideration
Impairment
Deferred income tax benefit
Equity-based compensation
Equity in earnings of unconsolidated affiliates
Distributions from unconsolidated affiliates
Amortization of customer relationships
Amortization of deferred financing costs
Changes in assets and liabilities:
Accounts receivable–Antero Resources
Accounts receivable–third party
Other current assets
Accounts payable–Antero Resources
Accounts payable–third party
Accrued liabilities
Income taxes payable
Net cash provided by operating activities
Cash flows used in investing activities:
Additions to gathering systems and facilities
Additions to water handling systems
Investments in unconsolidated affiliates
Cash received on acquisition of Antero Midstream Partners LP
Cash consideration paid to Antero Midstream Partners LP unitholders
Change in other assets
Change in other liabilities
Net cash used in investing activities
Cash flows provided by (used in) financing activities:
Distributions to Antero Resources Investment LLC
Distributions to unitholders and dividends to stockholders
Distributions to Series B unitholders
Distributions to preferred stockholders
Repurchases of common stock
Issuance of senior notes
Payments of deferred financing costs
Payments on bank credit facilities, net
Employee tax withholding for settlement of equity compensation awards
Other
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Cash paid during the period for income taxes
Decrease in accrued capital expenditures and accounts payable for
property and equipment
$
$
$
$
53,491
—
—
—
—
34,933
(69,720)
—
—
—
—
—
—
57
—
(190)
7,184
28,080
—
—
—
—
—
—
—
—
(15,691)
(16,011)
—
—
—
—
—
—
—
—
(31,702)
(3,622)
9,609
5,987
—
19,077
—
123,186
—
—
—
(1,304)
35,111
(142,906)
—
—
148
—
—
(5)
674
28
171
1,820
83,531
—
—
—
—
—
—
—
—
—
(84,166)
(2,300)
—
—
—
(230)
—
—
—
(86,696)
(3,165)
5,987
2,822
3
31,795
—
43,492
95,526
8,263
761,960
(101,927)
73,517
(51,315)
64,320
57,010
3,183
42,484
185
(335)
(2,103)
(9,762)
8,681
(15,678)
622,387
(267,383)
(124,607)
(154,359)
619,532
(598,709)
901
(1,050)
(525,675)
—
(492,103)
(3,720)
(374)
(125,519)
650,000
(8,894)
(115,500)
(2,015)
(174)
(98,299)
(1,587)
2,822
1,235
83,016
16,079
(6,215)
See accompanying notes to consolidated financial statements.
F-8
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements
Years Ended December 31, 2016, 2017, and 2018
(1) Organization
Antero Midstream Corporation was originally formed as Antero Resources Midstream Management LLC in 2013 to become
the general partner of Antero Midstream Partners LP (“Antero Midstream Partners”). On May 4, 2017, Antero Resources Midstream
Management LLC converted from a limited liability company to a limited partnership under the laws of the State of Delaware and
changed its name to Antero Midstream GP LP (“AMGP”) in connection with its initial public offering. On March 12, 2019, pursuant
to the Simplification Agreement, dated as of October 9, 2018, by and among AMGP, Antero Midstream Partners and certain of their
affiliates (the “Simplification Agreement”), (i) AMGP was converted from a limited partnership to a corporation under the laws of the
State of Delaware and changed its name to Antero Midstream Corporation (the “Conversion”), (ii) an indirect, wholly owned
subsidiary of Antero Midstream Corporation was merged with and into Antero Midstream Partners, with Antero Midstream Partners
surviving the merger as an indirect, wholly owned subsidiary of Antero Midstream Corporation (the “Merger”), and (iii) Antero
Midstream Corporation exchanged (the “Series B Exchange” and, together with the Conversion, the Merger and the other transactions
pursuant to by the Simplification Agreement, the “Transactions”) each issued and outstanding Series B Unit (the “Series B Units”)
representing a membership interest in Antero IDR Holdings LLC (“IDR Holdings”) for 176.0041 shares of its common stock, par
value $0.01 per share (“AMC common stock”). As a result of the Transactions, Antero Midstream Partners is now a wholly owned
subsidiary of Antero Midstream Corporation and former shareholders of AMGP, unitholders of Antero Midstream Partners, including
Antero Resources Corporation (“Antero Resources”), and holders of Series B Units now own AMC common stock. Unless the
context otherwise requires, references to the “Company,” “we,” “us” or “our” refer to (i) for the period prior to March 13, 2019,
AMGP and its consolidated subsidiaries, which did not include Antero Midstream Partners and its subsidiaries, and (ii) for the period
beginning on March 13, 2019, Antero Midstream Corporation and its consolidated subsidiaries, including Antero Midstream Partners
and its subsidiaries Antero Midstream LLC, Antero Water LLC (“Antero Water”), Antero Treatment LLC and Antero Midstream
Finance Corporation (“Finance Corp”).
We are a growth-oriented midstream company formed to own, operate and develop midstream energy infrastructure primarily
to service Antero Resources and its production and completion activity in the Appalachian Basin’s Marcellus Shale and Utica Shale
located in West Virginia and Ohio. Our assets consist of gathering pipelines, compressor stations, interests in processing and
fractionation plants, and water handling assets. The Company, through Antero Midstream Partners and its affiliates, provides
midstream services to Antero Resources under long-term contracts.
The Company’s gathering and compression assets comprise of high and low pressure gathering pipelines, compressor
stations, and processing and fractionation plants that collect and process natural gas and NGLs from Antero Resources’ wells in West
Virginia and Ohio. The Company’s water handling assets include two independent systems that deliver fresh water from sources
including the Ohio River, local reservoirs and several regional waterways.
The Company, through Antero Midstream Partners, also has a 15% equity interest in the gathering system of Stonewall Gas
Gathering LLC (“Stonewall”) and a 50% equity interest in a joint venture to develop processing and fractionation assets with
MarkWest Energy Partners, L.P. (“MarkWest”), a wholly owned subsidiary of MPLX, LP (“MPLX”) (the “Joint Venture”). See
Note 16—Investments in Unconsolidated Affiliates.
The Company’s corporate headquarters are located in Denver, Colorado.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”). In the opinion of management, these consolidated statements include all adjustments
(consisting of normal and recurring accruals) considered necessary for a fair presentation of the Company’s financial position as of
December 31, 2018 and 2019, and the results of the Company’s operations and its cash flows for the years ended December 31, 2017,
2018 and 2019. The Company has no items of other comprehensive income (loss); therefore, net income (loss) is equal to
comprehensive income (loss).
F-9
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
Certain costs of doing business incurred and charged to the Company by Antero Resources have been reflected in the
accompanying consolidated financial statements. These costs include general and administrative expenses provided to the Company
by Antero Resources in exchange for:
business services, such as payroll, accounts payable and facilities management;
corporate services, such as finance and accounting, legal, human resources, investor relations and public and regulatory
policy; and
employee compensation, including equity-based compensation.
Transactions between the Company and Antero Resources have been identified in the consolidated financial statements (see
Note 6—Transactions with Affiliates).
(b) Principles of Consolidation
The accompanying consolidated financial statements include (i) for the period prior to March 13, 2019, the accounts of
AMGP and its consolidated subsidiaries, which did not include Antero Midstream Partners and its subsidiaries, and (ii) for the period
beginning on March 13, 2019, the accounts of Antero Midstream Corporation and its consolidated subsidiaries, including Antero
Midstream Partners and its subsidiaries, which were acquired in the Transactions. See Note 3—Business Combination. All
significant intercompany accounts and transactions have been eliminated in the Company’s consolidated financial statements.
Prior to the Transactions on March 12, 2019, AMGP had determined that Antero Midstream Partners was a variable interest
entity (“VIE”) for which AMGP was not the primary beneficiary and therefore did not consolidate. AMGP concluded that Antero
Resources was the primary beneficiary of Antero Midstream Partners and Antero Resources consolidated its financial results. Antero
Resources was the primary beneficiary based on its power to direct the activities that most significantly impacted Antero Midstream
Partners’ economic performance and its obligations to absorb losses or receive benefits of Antero Midstream Partners that would be
significant to Antero Midstream Partners. Antero Resources owned approximately 53% of the outstanding limited partner interests in
Antero Midstream Partners prior to the Transactions and its officers and management group also acted as management of Antero
Midstream Partners. AMGP did not own any limited partnership interests in Antero Midstream Partners and had no capital interests in
Antero Midstream Partners. AMGP did not provide financial support to Antero Midstream Partners.
AMGP’s ownership of the non-economic general partner interest in Antero Midstream Partners prior to the Transactions
provided AMGP with significant influence over Antero Midstream Partners, but not control over the decisions that most significantly
impacted the economic performance of Antero Midstream Partners. AMGP’s indirect ownership of the IDRs of Antero Midstream
Partners prior to the Transactions entitled AMGP to receive cash distributions from Antero Midstream Partners when distributions
exceeded certain target amounts. AMGP’s ownership of these interests prior to the Transactions did not require AMGP to provide
financial support to Antero Midstream Partners. AMGP obtained these interests upon its formation for no consideration. Therefore,
AMGP had no cost basis and classified its investment in Antero Midstream Partners as a long term investment. Prior to the
Transactions, AMGP’s share of Antero Midstream Partner’s earnings were a result of AMGP’s ownership of the IDRs was accounted
for using the equity method of accounting. AMGP recognized distributions earned from Antero Midstream Partners as “Equity in
earnings of unconsolidated affiliates” on its statement of operations in the period in which they were earned and were allocated to
AMGP’s capital account. AMGP’s long-term interest in the IDRs on the balance sheet was recorded in “Investment in unconsolidated
affiliates.” The ownership of the general partner interests and IDRs did not provide AMGP with any claim to the assets of Antero
Midstream Partners other than the balance in its Antero Midstream Partners capital account. Income related to the IDRs was
recognized as earned and increased AMGP’s capital account and equity investment. When these distributions were paid to AMGP,
they reduced its capital account and its equity investment in Antero Midstream Partners.
Investments in entities for which the Company exercises significant influence, but not control, are accounted for under the
equity method. The Company’s judgment regarding the level of influence over its equity investments includes considering key factors
such as Antero Midstream’s ownership interest, representation on the board of directors, and participation in the policy-making
decisions of equity method investees. Such investments are included in Investments in unconsolidated affiliates on the Company’s
consolidated balance sheets. Income from investees that are accounted for under the equity method is included in Equity in earnings
F-10
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
of unconsolidated affiliates on the Company’s consolidated statements of operations and cash flows. When the Company records its
proportionate share of net income, it increases equity income in the statements of operations and comprehensive income (loss) and the
carrying value of that investment on the Company’s balance sheet. When a distribution is received, it is recorded as a reduction to the
carrying value of that investment on the balance sheet.
The Company accounts for distributions received from equity method investees under the “nature of the distribution”
approach. Under this approach, distributions received from equity method investees are classified on the basis of the nature of the
activity or activities of the investee that generated the distribution as either a return on investment (classified as cash inflows from
operating activities) or a return of investment (classified as cash inflows from investing activities).
(c) Revenue Recognition
The Company, through Antero Midstream Partners and its affiliates, provides gathering and compression and water handling
services under fee-based contracts primarily based on throughput or at cost plus a margin. Certain of these contracts contain operating
leases of the Company’s assets under GAAP. Under these arrangements, the Company receives fees for gathering gas products,
compression services, and water handling services. The revenue the Company earns from these arrangements is directly related to (1)
in the case of natural gas gathering and compression, the volumes of metered natural gas that it gathers, compresses, and delivers to
natural gas compression sites or other transmission delivery points, (2) in the case of fresh water services, the quantities of fresh water
delivered to its customers for use in their well completion operations, (3) in the case of wastewater treatment services performed by
the Company prior to idling of the Clearwater Facility (as defined below) in September 2019, the quantities of wastewater treated for
our customers, (4) in the case of wastewater services provided by third parties, the third-party costs the Company incurs plus 3%, or
(5) in the case of flowback and produced water performed by the Company, a cost of service fee based on the costs incurred by the
Company. The Company recognizes revenue when it satisfies a performance obligation by delivering a service to a customer or the
use of leased assets to a customer. See Note 7—Revenue for the Company’s required disclosures under Accounting Standards
Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. The Company includes lease revenue within revenues by
service.
(d) Use of Estimates
The preparation of the consolidated financial statements and notes in conformity with GAAP requires that management
formulate estimates and assumptions that affect revenues, expenses, assets, liabilities and the disclosure of contingent liabilities. Items
subject to estimates and assumptions include the useful lives of property and equipment, the valuation of assets and liabilities acquired
from Antero Midstream Partners, as well as the valuation of accrued liabilities, among others. Although management believes these
estimates are reasonable, actual results could differ from these estimates.
(e) Cash and Cash Equivalents
The Company considers all liquid investments purchased with an initial maturity of three months or less to be cash
equivalents. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these
instruments.
(f) Property and Equipment
Property and equipment primarily consists of gathering pipelines, compressor stations and the wastewater treatment facility
and related landfill (collectively, the “Clearwater Facility”) used for the disposal of salt therefrom and fresh water delivery pipelines
and facilities stated at historical cost less accumulated depreciation, amortization and impairment. The Company capitalizes
construction-related direct labor and material costs. Maintenance and repair costs are expensed as incurred.
Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives and
salvage values of assets. The depreciation of fixed assets recorded under operating lease agreements is included in depreciation
expense. Uncertainties that may impact these estimates of useful lives include, among others, changes in laws and regulations relating
to environmental matters, including air and water quality, restoration and abandonment requirements, economic conditions, and
supply and demand for the Company’s services in the areas in which it operates. When assets are placed into service, management
F-11
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
makes estimates with respect to useful lives and salvage values that management believes are reasonable.
Amortization of landfill airspace consists of the amortization of landfill capital costs, including those that have been incurred
and capitalized and estimated future costs for landfill development and construction, as well as the amortization of asset retirement
costs arising from landfill final capping, closure, and post-closure obligations. Amortization expense is recorded on a units-of-
consumption basis, applying cost as a rate per-cubic yard. The rate per-cubic yard is calculated by dividing each component of the
amortizable basis of the landfill by the number of cubic yards needed to fill the corresponding asset’s airspace. Landfill capital costs
and closure and post-closure asset retirement costs are generally incurred to support the operation of the landfill over its entire
operating life and are, therefore, amortized on a per-cubic yard basis using a landfill’s total airspace capacity. Estimates of disposal
capacity and future development costs are created using input from independent engineers and internal technical teams and are
reviewed at least annually.
The Company evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the
related carrying values of the assets may not be recoverable. Generally, the basis for making such assessments is undiscounted future
cash flow projections for the assets being assessed. If the carrying values of the assets are deemed not recoverable, the carrying values
are reduced to the estimated fair values, which are based on discounted future cash flows using assumptions as to revenues, costs, and
discount rates typical of third-party market participants, which is a Level 3 fair value measurement. The Company recognized an
impairment with respect to the Clearwater Facility during the year ended December 31, 2019. See Note 4—Clearwater Facility
Impairment.
(g) Asset Retirement Obligations
The Company’s asset retirement obligations include its obligation to close, maintain, and monitor landfill cells and support
facilities. After the entire landfill reaches capacity and is certified closed, the Company must continue to maintain and monitor the
landfill for a post-closure period, which generally extends for 30 years. The Company records the fair value of its landfill retirement
obligations as a liability in the period in which the regulatory obligation to retire a specific asset is triggered. For the Company’s
individual landfill cells, the required closure and post-closure obligations under the terms of its permits and its intended operation of
the landfill cell are triggered and recorded when the cell is placed into service and salt is initially disposed in the landfill cell. The fair
value is based on the total estimated costs to close the landfill cell and perform post-closure activities once the landfill cell has reached
capacity and is no longer accepting salt. Retirement obligations are increased each year to reflect the passage of time by accreting the
balance at the weighted average credit-adjusted risk-free rate that is used to calculate the recorded liability, with accretion charged to
direct costs. Actual cash expenditures to perform closure and post-closure activities reduce the retirement obligation liabilities as
incurred. After initial measurement, asset retirement obligations are adjusted at the end of each period to reflect changes, if any, in the
estimated future cash flows underlying the obligation. Landfill retirement assets are capitalized as the related retirement obligations
are incurred, and are amortized on a units-of-consumption basis as the disposal capacity is consumed.
Asset retirement obligations are recorded for fresh water impoundments and waste water pits when an abandonment date is
identified. The Company records the fair value of its freshwater impoundment and waste water pit retirement obligations as liabilities
in the period in which the regulatory obligation to retire a specific asset is triggered. The fair value is based on the total reclamation
costs of the assets. Retirement obligations are increased each year to reflect the passage of time by accreting the balance at the
weighted average credit-adjusted risk-free rate that is used to calculate the recorded liability, with accretion charged to direct costs.
Actual cash expenditures to perform remediation activities reduce the retirement obligation liabilities as incurred. After initial
measurement, asset retirement obligations are adjusted at the end of each period to reflect changes, if any, in the estimated future cash
flows underlying the obligation. Fresh water impoundments and wastewater pit retirement assets are capitalized as the related
retirement obligations are incurred, and are amortized on a straight-line basis until reclamation.
The Company is under no legal obligations, neither contractually nor under the doctrine of promissory estoppel, to restore or
dismantle its gathering pipelines, compressor stations, water delivery pipelines and facilities, flowback and produced water facilities
and the wastewater treatment facility upon abandonment. See Note 4—Clearwater Facility Impairment.
F-12
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
(h) Litigation and Other Contingencies
A liability is recorded for a loss contingency when its occurrence is probable and damages can be reasonably estimated based
on the anticipated most likely outcome or the minimum amount within a range of possible outcomes. The Company regularly reviews
contingencies to determine the adequacy of our accruals and related disclosures. The ultimate amount of losses, if any, may differ
from these estimates.
The Company accrues losses associated with environmental obligations when such losses are probable and can be reasonably
estimated. Accruals for estimated environmental losses are recognized no later than at the time a remediation feasibility study, or an
evaluation of response options, is complete. These accruals are adjusted as additional information becomes available or as
circumstances change. Future environmental expenditures are not discounted to their present value. Recoveries of environmental
costs from other parties are recorded separately as assets at their undiscounted value when receipt of such recoveries is probable.
As of December 31, 2018 and 2019, the Company had not recorded any liabilities for litigation, environmental, or other
contingencies.
(i) Equity-Based Compensation
The Company’s consolidated financial statements include equity-based compensation costs related to awards granted by its
own plans, as in place before and after the Transactions, as well as costs allocated by Antero Resources for grants made prior to the
Transactions. Costs allocated from Antero Resources are offset to additional paid in capital on the consolidated balance sheet. See
Note 6—Transactions with Affiliates for additional information regarding Antero Resources’ allocation of expenses to the Company.
For awards granted under its own plan, the Company recognizes compensation cost related to all equity-based awards in the financial
statements based on the estimated grant date fair value. The Company is authorized to grant various types of equity-based
compensation awards, including stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, dividend
equivalent awards and other types of awards. The grant date fair values are determined based on the type of award and may utilize
market prices on the date of grant, Black-Scholes option-pricing model, Monte Carlo simulations or other acceptable valuation
methodologies, as appropriate for the type of equity-based award. Compensation cost is recognized ratably over the applicable vesting
or service period. Forfeitures are accounted for as they occur by reversing the expense previously recognized for awards that were
forfeited during the period. See Note 12—Equity-Based Compensation.
(j) Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary differences resulting from net operating loss
carryforwards for income tax purposes and the differences between the financial statement and tax basis of assets and liabilities. The
effect of changes in tax laws or tax rates is recognized in income during the period such changes are enacted. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the
deferred tax assets will not be realized. The Company regularly reviews its tax positions in each significant taxing jurisdiction during
the process of evaluating its tax provision. The Company makes adjustments to its tax provision when: (i) facts and circumstances
regarding a tax position change, causing a change in management’s judgment regarding that tax position; and/or (ii) a tax position is
effectively settled with a tax authority at a differing amount.
(k) Fair Value Measures
The Financial Accounting Standards Board (the “FASB”) ASC Topic 820, Fair Value Measurements and Disclosures,
clarifies the definition of fair value, establishes a framework for measuring fair value, and expands disclosures about fair value
measurements. This guidance also relates to all nonfinancial assets and liabilities that are not recognized or disclosed on a recurring
basis (e.g., the initial recognition of asset retirement obligations and impairments of long-lived assets). The fair value is the price that
the Company estimates would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. A fair value hierarchy is used to prioritize inputs to valuation techniques used to estimate fair
value. An asset or liability subject to the fair value requirements is categorized within the hierarchy based on the lowest level of input
that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment and considers factors specific to the asset or liability. The highest priority (Level 1) is
F-13
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
given to unadjusted quoted market prices in active markets for identical assets or liabilities, and the lowest priority (Level 3) is given
to unobservable inputs. Level 2 inputs are data, other than quoted prices included within Level 1, that are observable for the asset or
liability, either directly or indirectly.
The carrying values on the consolidated balance sheet of the Company’s cash and cash equivalents, accounts receivable—
Antero Resources, accounts receivable—third party, other current assets, accounts payable—Antero Resources, accounts payable—
third party, accrued liabilities, other current liabilities, other liabilities and the Credit Facility (as defined in Note 10—Long-Term
Debt) approximate fair values due to their short-term maturities. The assets and liabilities of Antero Midstream Partners were
recorded at fair value as of the acquisition date, March 12, 2019 (see Note 3—Business Combination). Additionally, the Company
uses certain fair valuation techniques in performing its annual goodwill impairment test described below.
(l) Investments in Unconsolidated Affiliates
The Company uses the equity method to account for its investments in companies if the investment provides the Company
with the ability to exercise significant influence over, but not control of, the operating and financial policies of the investee. The
Company’s consolidated net income includes the Company’s proportionate share of the net income or loss of such companies. The
Company’s judgment regarding the level of influence over each equity method investee includes considering key factors such as the
Company’s ownership interest, representation on the board of directors and participation in policy-making decisions of the investee
and material intercompany transactions. See Note 16—Investments in Unconsolidated Affiliates.
(m) Business Combinations
The Company recognizes and measures the assets acquired and liabilities assumed in a business combination based on their
estimated fair values at the acquisition date, with any remaining difference recorded as goodwill. For acquisitions, management
engages an independent valuation specialist, as applicable, to assist with the determination of fair value of the assets acquired,
liabilities assumed, and goodwill, based on recognized business valuation methodologies. If the initial accounting for the business
combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be
recorded. Subsequent to the acquisition, and not later than one year from the acquisition date, the Company will record any material
adjustments to the initial estimate based on new information obtained that would have existed as of the acquisition date. An
adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period of the
adjustment. Acquisition-related costs are expensed as incurred in connection with each business combination. See Note 3—Business
Combination.
(n) Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the acquisition
of a business. Goodwill is not amortized, but rather is tested for impairment annually in the fourth quarter and when events or changes
in circumstances indicate that the fair value of a reporting unit with goodwill has been reduced below its carrying value. The
impairment test requires allocating goodwill and other assets and liabilities to reporting units. The fair value of each reporting unit is
determined and compared to the carrying value of the reporting unit. The fair value is calculated using the expected present value of
future cash flows method. Significant assumptions used in the cash flow forecasts include future net operating margins, future
volumes, discount rates and future capital requirements. If the fair value of the reporting unit is less than the carrying value, including
goodwill, the excess of the book value over the fair value of goodwill is charged to net income as an impairment expense.
Amortization of intangible assets with definite lives is calculated using the straight-line method, which is reflective of the
benefit pattern in which the estimated economic benefit is expected to be received over the estimated useful life of the intangible asset.
Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of the intangible asset may not be recoverable. If the sum of the expected undiscounted future cash flows related to
the asset is less than the carrying amount of the asset, an impairment loss is recognized based on the fair value of the asset. See Note
4—Clearwater Facility Impairment and Note 5—Goodwill and Intangibles.
F-14
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
(o) Treasury Share Retirement
The Company periodically retires treasury shares acquired through share repurchases and returns those shares to the status of
authorized but unissued. When treasury shares are retired, the Company’s policy is to allocate the excess of the repurchase price over
the par value of shares acquired first, to additional paid-in capital, and then to accumulated earnings. The portion allocable to
additional paid-in capital is determined by applying a percentage, determined by dividing the number of shares to be retired by the
number of shares outstanding, to the balance of additional paid-in capital as of retirement.
(p) Recently Issued Accounting Standards
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement: Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement,” which provides changes to certain fair value disclosure requirements. This
ASU is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods,
with early adoption permitted. The adoption of this update is not expected to have a material impact on the Company’s consolidated
financial statements.
F-15
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
(3) Business Combination
On March 12, 2019, AMGP and Antero Midstream Partners completed the Transactions. The Transactions have been
accounted for using the acquisition method of accounting with Antero Midstream Corporation identified as the acquirer of Antero
Midstream Partners.
The components of the fair value of consideration transferred are as follows (in thousands):
Fair value of shares of AMC common stock issued(1)
Cash
Total fair value of consideration transferred
$
$
4,017,881
598,709
4,616,590
(1) The fair value of each share of AMC common stock issued in connection with the Transactions was determined to
be $12.54, the closing price of AMGP common shares on March 12, 2019.
The final purchase price allocation of the Transactions, and final adjustments thereto, are summarized in the table below.
The fair value of assets acquired and liabilities assumed at March 12, 2019 were as follows (in thousands):
Cash and cash equivalents
Accounts receivable–Antero Resources
Accounts receivable–third party
Other current assets
Property and equipment, net
Investments in unconsolidated affiliates
Customer relationships
Other assets, net
Total assets acquired
Accounts payable–Antero Resources
Accounts payable–third party
Accrued liabilities
Other current liabilities
Long-term debt
Contingent acquisition consideration
Other liabilities
Total liabilities assumed
Net assets acquired, excluding goodwill
Goodwill
Net assets acquired
As Originally
Reported
619,532
142,312
117
1,150
3,639,148
1,090,109
558,000
42,887
6,093,255
3,316
30,674
87,021
537
2,364,935
116,924
8,524
2,611,931
3,481,324
1,135,266
4,616,590
$
$
Adjustments
—
—
—
—
(267,721)
(521,824)
1,009,000
—
219,455
—
—
—
—
—
—
—
—
219,455
(219,455)
—
$
$
As
Adjusted
619,532
142,312
117
1,150
3,371,427
568,285
1,567,000
42,887
6,312,710
3,316
30,674
87,021
537
2,364,935
116,924
8,524
2,611,931
3,700,779
915,811
4,616,590
Adjustments to the preliminary purchase price allocation stem mainly from additional information obtained by the Company
in between the closing of the Transactions on March 12, 2019 and December 31, 2019 about facts and circumstances that existed as of
the date of the Transactions, including updates to the completion of certain valuations to determine the underlying fair value of certain
assets. The decrease in the fair value of the property and equipment resulted in a $10 million reversal of Depreciation in the
consolidated statement of operations. The increase in the fair value of customer relationships resulted in a $21 million increase in
Amortization of customer relationships in the consolidated statement of operations. All customer relationships are subject to
amortization, which will be recognized over a weighted-average period of 23 years.
The purchase price allocation resulted in the recognition of $575 million of goodwill in three reporting units within the
Company’s gathering and processing segment and $340 million of goodwill in two reporting units within its water handling segment.
F-16
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
Substantially all of goodwill is expected to be deductible for tax purposes. Goodwill represents the efficiencies realized with
simplifying our corporate structure to own, operate and develop midstream energy infrastructure primarily to service Antero
Resources.
The Company’s financial statements include $6 million of acquisition-related costs associated with the Transactions. These
costs were expensed as general and administrative costs.
(4) Clearwater Facility Impairment
On September 18, 2019, the Company commenced a strategic evaluation of the Clearwater Facility at which time, such
facility was idled. Based on the preliminary results of the evaluation and ongoing discussions with the facility’s contractor, the
Company determined that the facility is expected to be idled for the foreseeable future. Accordingly, the Company performed an
interim impairment analysis of the facility and determined: (i) to reduce the carrying value of the facility to its estimated salvage
value, which included the land associated with the Clearwater Facility; (ii) the fair value of the goodwill assigned to the wastewater
treatment reporting unit was less than its carrying value resulting in an impairment charge to goodwill; and (iii) the customer
relationships intangible asset was impaired. The following table shows the impairment charges for the year ended December 31, 2019
related to the Clearwater Facility as updated to reflect the final purchase price allocation of the Transactions (in thousands):
Impairment of property and equipment
Impairment of goodwill
Impairment of customer relationships
Total impairment expense
$
$
408,882
42,290
11,871
463,043
The Company incurred $11 million in facility idling costs for the care and maintenance of the Clearwater Facility during the
period from September 18, 2019 through December 31, 2019.
(5) Goodwill and Intangibles
The Company evaluates goodwill for impairment annually during the fourth quarter and whenever events or changes in
circumstances indicate it is more likely than not that the fair value of a reporting unit with goodwill is less than its carrying amount.
Significant assumptions used to estimate the reporting units’ fair value include the discount rate as well as estimates of future cash
flows, which are impacted primarily by commodity prices and producer customers’ development plans (which impact volumes and
capital requirements).
During the third quarter of 2019, the Company performed an interim impairment analysis of the goodwill related to the
wastewater treatment reporting unit recorded in connection with the Transactions due to the Company’s strategic evaluation of the
Clearwater Facility. As a result of this evaluation, the Company incurred impairment charges to the goodwill and customer
relationships intangible asset associated with the Clearwater Facility, which is in the water handling segment. See Note 4—
Clearwater Facility Impairment.
The Company performed its annual goodwill impairment test in the fourth quarter of 2019. As a result of this test, the
Company incurred impairment charges of $298 million to its fresh water delivery and services reporting unit, which is in the water
handling segment. This was primarily due to decreased water volumes driven by decreased drilling and increased use of water
blending operations by Antero Resources.
F-17
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
The changes in the carrying amount in goodwill for the year ended December 31, 2019 were as follows (in thousands):
Gathering and
Processing
Water
Handling
Consolidated
Goodwill as of December 31, 2018
Goodwill acquired(1)
Impairment of goodwill
Goodwill as of December 31, 2019
(1) See Note 3—Business Combination.
$
$
—
575,461
—
575,461
—
340,350
(340,350)
—
Total
—
915,811
(340,350)
575,461
All customer relationships are subject to amortization and will be amortized over a weighted-average period of 23 years. The
changes in the carrying amount of customer relationships for the year ended December 31, 2019 were as follows (in thousands):
Customer relationships as of December 31, 2018
Customer relationships acquired(1)
Accumulated amortization
Impairment
Customer relationships as of December 31, 2019
(1) See Note 3—Business Combination.
Future amortization expense is as follows (in thousands):
Year ending December 31, 2020
Year ending December 31, 2021
Year ending December 31, 2022
Year ending December 31, 2023
Year ending December 31, 2024
Thereafter
Total
(6) Transactions with Affiliates
(a) Revenues
$
$
$
$
—
1,567,000
(57,010)
(11,871)
1,498,119
70,672
70,672
70,672
70,672
70,672
1,144,759
1,498,119
Substantially all revenues earned in the year ended December 31, 2019 were earned from Antero Resources, under various
agreements for gathering and compression and water handling services. Revenues earned from gathering and processing services
consists of lease income. There were no such revenues earned by AMGP for the years ended December 31, 2017 and 2018.
(b) Accounts receivable–Antero Resources, and Accounts payable–Antero Resources
Accounts receivable—Antero Resources represents amounts due from Antero Resources, primarily related to gathering and
compression services and water handling services. Accounts payable—Antero Resources represents amounts due to Antero Resources
for general and administrative and other costs.
(c) Allocation of Costs Charged by Antero Resources
The employees supporting the Company’s operations are concurrently employed by Antero Resources and Antero Midstream
Corporation. Direct operating expense includes costs charged to the Company of $6 million during the year ended December 31,
2019, related to services provided by employees associated with the operation of the Company’s gathering lines, compressor stations,
and water handling assets. There were no such charges to AMGP during the years ended December 31, 2017 and 2018. For the years
ended December 31, 2017, 2018 and 2019, general and administrative expenses charged to the Company by Antero Resources were
F-18
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
$0.7 million, $0.5 million, and $33 million, respectively. These costs relate to: (i) various business services, including payroll
processing, accounts payable processing and facilities management, (ii) various corporate services, including legal, accounting,
treasury, information technology and human resources and (iii) compensation, including certain equity-based compensation. These
expenses are charged to the Company based on the nature of the expenses and are apportioned based on a combination of the
Company’s proportionate share of gross property and equipment, capital expenditures and labor costs, as applicable. The Company
reimburses Antero Resources directly for all general and administrative costs charged to it, with the exception of noncash equity
compensation attributed to the Company for awards issued prior to the Transactions under Antero Resources’ long-term incentive plan
and the Antero Midstream Corporation Long Term Incentive Plan (the “AMC LTIP”). See Note 12—Equity-Based Compensation.
(7) Revenue
(a) Revenue from Contracts with Customers
All of the Company’s revenues are derived from service contracts with customers and are recognized when the Company
satisfies a performance obligation by delivering a service to a customer. The Company derives substantially all of its revenues from
Antero Resources. The following sets forth the nature, timing of satisfaction of performance obligations, and significant payment
terms of the Company’s contracts with Antero Resources.
Gathering and Compression Agreement
Pursuant to the gathering and compression agreement with Antero Resources, Antero Resources has dedicated substantially
all of its current and future acreage in West Virginia, Ohio and Pennsylvania to the Company for gathering and compression services
except for acreage subject to third-party commitments or pre-existing dedications. The Company also has an option to gather and
compress natural gas produced by Antero Resources on any additional acreage it acquires during the term of the agreement outside of
West Virginia, Ohio and Pennsylvania on the same terms and conditions. In December 2019, the Company and Antero Resources
agreed to extend the initial term of the gathering and compression agreement to 2038 and established a growth incentive fee program
whereby low pressure gathering fees will be reduced from 2020 through 2023 to the extent Antero Resources achieves certain
volumetric targets. Upon completion of this term, the gathering and compression agreement will continue in effect from year to year
until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the
Company or Antero Resources on or before the 180th day prior to the anniversary of such effective date.
Under the gathering and compression agreement, the Company receives a low pressure gathering fee, a high pressure
gathering fee and a compression fee, in each case subject to CPI-based adjustments. In addition, the agreement stipulates that the
Company receives a reimbursement for the actual cost of electricity used at its compressor stations.
The Company determined that the gathering and compression agreement is an operating lease as Antero Resources obtains
substantially all of the economic benefit of the asset and has the right to direct the use of the asset. The gathering system is an
identifiable asset within the gathering and compression agreement, and it consists of underground low pressure pipelines that generally
connect and deliver gas from specific well pads to compressor stations to compress the gas before delivery to underground high
pressure pipelines that transport the gas to a third-party pipeline or plant. The gathering system is considered a single lease due to the
interrelated network of the assets. The Company accounts for its lease and non-lease components as a single lease component as the
lease component is the predominant component. The non-lease components consist of operating, oversight and maintenance of the
gathering system, which are performed on time-elapsed measures. All lease payments under the future Minimum Volume
Commitments discussed below are considered to be in-substance fixed lease payments under the gathering and compression
agreement.
The Company recognizes revenue when low pressure volumes are delivered to a compressor station, compression volumes
are delivered to a high pressure line and high pressure volumes are delivered to a processing plant or transmission pipeline. The
Company invoices the customer the month after each service is performed, and payment is due in the same month.
Water Services Agreement
The Company is party to a water services agreement with Antero Resources, which commenced on September 23, 2015,
F-19
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
whereby the Company agreed to provide certain water handling services to Antero Resources within an area of dedication in defined
service areas in West Virginia, Ohio and other locations. Upon completion of the initial term 20-year term, the water services
agreement will continue in effect from year to year until such time as the agreement is terminated, effective upon an anniversary of the
effective date of the agreement, by either the Company or Antero Resources on or before the 180th day prior to the anniversary of such
effective date. Under the agreement, the Company receives a fixed fee per barrel in West Virginia, Ohio and all other locations for
fresh water deliveries by pipeline directly to the well site. Additionally, the Company receives a fixed fee per barrel for fresh water
delivered by truck to high-rate transfer facilities. For flowback and produced water blending services, the Company receives a cost of
service fee based on the costs incurred by the Company. Antero Resources also agreed to pay the Company a fixed fee per barrel for
wastewater treatment at the Clearwater Facility, which was idled in the third quarter of 2019 and we expect will remain idled for the
foreseeable future. All such fees under the agreement are subject to annual CPI-based adjustments and additional fees based on
certain costs. As of the start of 2020, there are no minimum volume commitments under the water services agreement.
Under the water services agreement, the Company may also contract with third parties to provide water services to Antero
Resources. Antero Resources reimburses the Company for third-party out-of-pocket costs plus a 3% markup. On February 12, 2019,
Antero Resources and Antero Midstream Partners amended and restated the water services agreement to, among other things, make
certain clarifying changes with respect to the CPI adjustments. The initial term of the water services agreement runs to 2035. The
Company satisfies its performance obligations and recognizes revenue when the fresh water volumes have been delivered to the
hydration unit of a specified well pad, flowback and produced water blending services have been completed and the wastewater
volumes have been delivered to the Clearwater Facility. The Company invoices the customer the month after water services are
performed, and payment is due in the same month. For services contracted through third-party providers, the Company’s performance
obligation is satisfied when the service to be performed by the third-party provider has been completed. The Company invoices the
customer after the third-party provider billing is received, and payment is due in the same month.
Minimum Volume Commitments
The gathering and compression agreement includes certain minimum volume commitment provisions. If and to the extent
Antero Resources requests that the Company construct new high pressure lines and compressor stations, the gathering and
compression agreement contains minimum volume commitments that require Antero Resources to utilize or pay for 75% and 70%,
respectively, of the capacity of such new construction for 10 years. The Company recognizes lease income from its minimum volume
commitments under its gathering and compression agreement on a straight-line basis and additional operating lease income is earned
when excess volumes are delivered under the contract. The Company is not party to any leases that have not commenced. Minimum
volume commitments for fresh water deliveries under the water services agreement concluded at December 31, 2019.
Minimum revenue amounts under the gathering and compression minimum volume commitments are as follows (in
thousands):
2020
2021
2022
2023
2024
Thereafter
Total
$
$
204,988
209,556
209,556
209,556
210,130
584,167
1,627,953
F-20
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
(b) Disaggregation of Revenue
In the following table, revenue is disaggregated by type of service and type of fee. The table also identifies the reportable
segment to which the disaggregated revenues relate. AMGP did not earn revenue for the years ended December 31, 2017 and 2018.
For more information on reportable segments, see Note 17—Reporting Segments.
(in thousands)
Revenue from contracts with customers
Type of service
Gathering—low pressure
Gathering—high pressure
Compression
Fresh water delivery
Wastewater treatment
Other fluid handling
Amortization of customer relationships(2)
Amortization of customer relationships(2)
Total
Type of contract
Per Unit Fixed Fee
Per Unit Fixed Fee
Cost plus 3%
Cost of service fee
Amortization of customer relationships(2)
Amortization of customer relationships(2)
Total
Year Ended
December 31,
2019
Segment to which
revenues relate
$
$
$
$
Gathering and Processing(1)
Gathering and Processing(1)
Gathering and Processing(1)
254,350
151,283
137,905
157,633 Water Handling
25,058 Water Handling
123,369
Water Handling
(29,850) Gathering and Processing
(27,160) Water Handling
792,588
Gathering and Processing(1)
543,538
182,691 Water Handling
Water Handling
123,030
Water Handling
339
(29,850) Gathering and Processing
(27,160) Water Handling
792,588
(1) Revenue related to the gathering and processing segment is classified as lease income related to the gathering system.
(2) Fair value of customer contracts acquired as part of the Transactions discussed in Note 3—Business Combination.
(c) Transaction Price Allocated to Remaining Performance Obligations
The majority of the Company’s service contracts have a term greater than one year. As such, the Company is not required to
disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a
wholly unsatisfied performance obligation. Under the Company’s service contracts, each unit of product delivered to the customer
represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price
allocated to remaining performance obligations is not required.
The remainder of our service contracts, which relate to contracts with third parties, are short-term in nature with a contract
term of one year or less. Accordingly, the Company is exempt from disclosure of the transaction price allocated to remaining
performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
(d) Contract Balances
Under the Company’s service contracts, the Company invoices customers after its performance obligations have been
satisfied, at which point payment is unconditional. Accordingly, the Company’s service contracts do not give rise to contract assets or
liabilities. At December 31, 2019, the Company’s receivables with customers were $101 million. There were no receivables from
customers as of December 31, 2018.
F-21
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
(8) Property and Equipment
The Company’s investment in property and equipment for the period presented is summarized in the following table. AMGP
had no property and equipment at December 31, 2018.
(in thousands)
Land
Gathering systems and facilities
Fresh water permanent buried pipelines and equipment
Fresh water surface pipelines and equipment
Landfill
Heavy trucks and equipment
Above ground storage tanks
Construction-in-progress
Total property and equipment
Less accumulated depreciation
Property and equipment, net
Estimated
useful lives
n/a
40-50 years(1)
10-20 years
1-5 years
n/a(2)
3-5 years
5-10 years
n/a
$
$
December 31,
2019
23,549
2,375,241
602,230
48,594
1,244
6,617
3,418
300,165
3,361,058
(87,648)
3,273,410
(1) Gathering systems and facilities are recognized as a single-leased asset with no residual value.
(2) Amortization of landfill costs is recorded over the life of the landfill on a units-of-consumption basis.
(9) Income Taxes
For the years ended December 31, 2017, 2018, and 2019, income tax expense consisted of the following:
(in thousands)
Current income tax expense (benefit)
Deferred income tax expense (benefit)
Total income tax expense (benefit)
$
$
2017
26,261
—
26,261
Year Ended December 31,
2018
33,615
(1,304)
32,311
2019
(539)
(101,927)
(102,466)
Income tax expense differs from the amount that would be computed by applying the U.S. statutory federal income tax rate of
35% for the year ended December 31, 2017, and 21% for the years ended December 31, 2018 and 2019, to income before taxes as a
result of the following:
(in thousands)
Federal income tax expense (benefit)
State income tax expense (benefit), net of federal benefit
Non-deductible equity-based compensation
Non-deductible IPO expenses
Charitable contributions
Other
Total income tax expense (benefit)
2017
Year Ended December 31,
2018
$
$
10,005
952
13,296
1,948
—
60
26,261
20,773
4,133
8,087
1
—
(683)
32,311
2019
(96,092)
(17,089)
13,694
—
(2,473)
(506)
(102,466)
F-22
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
Deferred income taxes reflect the impact of temporary differences between assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws. The tax effect of the temporary differences giving rise to net deferred tax assets
as follows:
(in thousands)
Deferred tax assets:
Net operating loss carryforwards
Investment in Antero Midstream Partners
Transaction costs
Equity-based compensation
Charitable contributions
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Net deferred tax liabilities
$
Net deferred tax assets (liabilities)
$
Year Ended December 31,
2018
2019
—
—
1,304
—
—
1,304
—
1,304
—
1,304
68,614
28,381
2,465
1,298
2,473
103,231
—
103,231
—
103,231
As of December 31, 2019, the Company has a deferred tax asset in its Investment in Antero Midstream Partners of $28
million. At the time of the Transactions on March 12, 2019, the investment in Antero Midstream Partners was recorded at fair value
for both GAAP and income tax purposes. The GAAP versus tax treatment of activity occurring after the transaction, such as the
treatment of impairments and differing recovery rates of the underlying assets, gave rise to the deferred tax asset. Due to Antero
Midstream Partners’ strong history of pre-tax earnings, the Company believes the benefits of this deferred tax asset will be realized.
Additionally, as of December 31, 2019, the Company has U.S. federal and state NOL carryforwards before the effect of income taxes
of $277 million and $202 million, respectively, which have no expiration date.
In assessing the realizability of all of the deferred tax assets, management considers whether some portion or all of the
deferred tax assets will be realized based on a more-likely-than-not standard of judgment. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the periods in which the Company’s temporary differences
become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment.
Based upon the projections of future taxable income over the periods in which the deferred tax assets are deductible, management
believes that the Company will realize the benefits of these deductible differences and thus has not recorded a valuation allowance.
(10) Long-term Debt
On May 9, 2018, AMGP entered into a credit facility (the “AMGP Credit Facility”) with a bank, which provided for a line of
credit of up to $12 million. At December 31, 2018, AMGP had no borrowings under the AMGP Credit Facility. In connection with
the Transactions, the AMGP Credit Facility was terminated on March 12, 2019.
AMGP had no long-term debt at December 31, 2018. Antero Midstream Corporation’s long-term debt was as follows at
December 31, 2019:
(in thousands)
Credit Facility (a)
5.375% senior notes due 2024 (b)
5.75% senior notes due 2027 (c)
5.75% senior notes due 2028 (d)
Net unamortized debt issuance costs
Total long-term debt
$
$
December 31, 2019
959,500
652,600
653,250
650,000
(23,101)
2,892,249
F-23
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
(a) Antero Midstream Partners Revolving Credit Facility
Antero Midstream Partners, an indirect, wholly owned subsidiary of Antero Midstream Corporation, as borrower (the
“Borrower”), has a senior secured revolving credit facility (the “Credit Facility”) with a consortium of banks. Lender commitments
under the Credit Facility currently are $2.13 billion. At December 31, 2019, the Borrower had borrowings under the Credit Facility of
$960 million with a weighted average interest rate of 3.15%. No letters of credit were outstanding at December 31, 2019 under the
Credit Facility. The maturity date of the facility is October 26, 2022. The Credit Facility includes fall away covenants and lower
interest rates that are triggered if and when the Borrower is assigned an Investment Grade Rating (as defined below).
Under the Credit Facility, “Investment Grade Period” is a period that, as long as no event of default has occurred and the
Borrower is in pro forma compliance with the financial covenants under the Credit Facility, commences when the Borrower elects to
give notice to the Administrative Agent that the Borrower has received at least one of either (i) a BBB- or better rating from Standard
and Poor’s or (ii) a Baa3 or better from Moody’s (provided that the non-investment grade rating from the other rating agency is at
least either Ba1 if Moody’s or BB+ if Standard & Poor’s (an “Investment Grade Rating”)). An Investment Grade Period can end at
the Borrower’s election.
During a period that is not an Investment Grade Period, the Credit Facility is ratably secured by mortgages on substantially
all of the Borrower’s properties, including the properties of its subsidiaries, and guarantees from its subsidiaries. During an
Investment Grade Period, the liens securing the obligations thereunder shall be automatically released (subject to the provisions of the
Credit Facility).
The Credit Facility contains certain covenants including restrictions on indebtedness, and requirements with respect to
leverage and interest coverage ratios; provided, however, that during an Investment Grade Period, such covenants become less
restrictive on the Borrower. The Credit Facility permits distributions to the holders of the Borrower’s equity interests in accordance
with the cash distribution policy previously adopted by the board of directors of the general partner of the Borrower, provided that no
event of default exists or would be caused thereby, and only to the extent permitted by our organizational documents. The Borrower
was in compliance with all of the financial covenants under the Credit Facility as of December 31, 2019.
Principal amounts borrowed are payable on the maturity date with such borrowings bearing interest that is payable quarterly
or, in the case of Eurodollar Rate Loans, at the end of the applicable interest period if shorter than six months. Interest is payable at a
variable rate based on LIBOR or the base rate, determined by election at the time of borrowing, plus an applicable margin rate.
Interest at the time of borrowing is determined with reference to (i) during any period that is not an Investment Grade Period, the
Borrower’s then-current leverage ratio and (ii) during an Investment Grade Period, with reference to the rating given to the Borrower
by Moody’s or Standard and Poor’s. During an Investment Grade Period, the applicable margin rates are reduced by 25 basis points.
Commitment fees on the unused portion of the Credit Facility are due quarterly at rates ranging from 0.25% to 0.375% based on the
leverage ratio, during a period that is not an Investment Grade Period, and 0.175% to 0.375% based on the Borrower’s rating during
an Investment Grade Period.
(b) 5.375% Senior Notes Due 2024
On September 13, 2016, Antero Midstream Partners and its wholly owned subsidiary, Finance Corp (together with Antero
Midstream Partners, the “Issuers”), issued $650 million in aggregate principal amount of 5.375% senior notes due September 15, 2024
(the “2024 Notes”) at par. The 2024 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value
of the collateral securing the Credit Facility. The 2024 Notes are fully and unconditionally guaranteed on a joint and several senior
unsecured basis by Antero Midstream Corporation, Antero Midstream Partners’ wholly owned subsidiaries (other than Finance Corp)
and certain of its future restricted subsidiaries. Interest on the 2024 Notes is payable on March 15 and September 15 of each
year. Antero Midstream Partners may redeem all or part of the 2024 Notes at any time at redemption prices ranging from 104.031%
as of September 30, 2019 to 100.00% on or after September 15, 2022. If Antero Midstream Partners undergoes a change of control
followed by a rating decline, the holders of the 2024 Notes will have the right to require Antero Midstream Partners to repurchase all
or a portion of the 2024 Notes at a price equal to 101% of the principal amount of the 2024 Notes, plus accrued and unpaid interest.
F-24
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
(c) 5.75% Senior Notes Due 2027
On February 25, 2019, the Issuers issued $650 million in aggregate principal amount of 5.75% senior notes due March
1, 2027 (the “2027 Notes”) at par. The 2027 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of
the value of the collateral securing the Credit Facility. The 2027 Notes are fully and unconditionally guaranteed on a joint and several
senior unsecured basis by Antero Midstream Corporation, Antero Midstream Partners’ wholly owned subsidiaries (other than Finance
Corp) and certain of its future restricted subsidiaries. Interest on the 2027 Notes is payable on March 1 and September 1 of each
year. Antero Midstream Partners may redeem all or part of the 2027 Notes at any time on or after March 1, 2022 at redemption prices
ranging from 102.875% on or after March 1, 2022 to 100.00% on or after March 1, 2025. In addition, prior to March 1, 2022, Antero
Midstream Partners may redeem up to 35% of the aggregate principal amount of the 2027 Notes with an amount of cash not greater
than the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 105.75% of the principal
amount of the 2027 Notes, plus accrued and unpaid interest. At any time prior to March 1, 2022, Antero Midstream Partners may also
redeem the 2027 Notes, in whole or in part, at a price equal to 100% of the principal amount of the 2027 Notes plus a “make-whole”
premium and accrued and unpaid interest. If Antero Midstream Partners undergoes a change of control followed by a rating decline,
the holders of the 2027 Notes will have the right to require Antero Midstream Partners to repurchase all or a portion of the 2027 Notes
at a price equal to 101% of the principal amount of the 2027 Notes, plus accrued and unpaid interest.
(d) 5.75% Senior Notes Due 2028
On June 28, 2019, the Issuers issued $650 million in aggregate principal amount of 5.75% senior notes due January 15, 2028
(the “2028 Notes”) at par. The 2028 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value
of the collateral securing the Credit Facility. The 2028 Notes are fully and unconditionally guaranteed on a joint and several senior
unsecured basis by Antero Midstream Corporation, Antero Midstream Partners’ wholly owned subsidiaries (other than Finance Corp)
and certain of its future restricted subsidiaries. Interest on the 2028 Notes is payable on January 15 and July 15 of each year. Antero
Midstream Partners may redeem all or part of the 2028 Notes at any time on or after January 15, 2023 at redemption prices ranging
from 102.875% on or after January 15, 2023 to 100.00% on or after January 15, 2026. In addition, prior to January 15, 2023, Antero
Midstream Partners may redeem up to 35% of the aggregate principal amount of the 2028 Notes with an amount of cash not greater
than the net cash proceeds of certain equity offerings, if certain conditions are met, at a redemption price of 105.75% of the principal
amount of the 2028 Notes, plus accrued and unpaid interest. At any time prior to January 15, 2023, Antero Midstream Partners may
also redeem the 2028 Notes, in whole or in part, at a price equal to 100% of the principal amount of the 2028 Notes plus a “make-
whole” premium and accrued and unpaid interest. If Antero Midstream Partners undergoes a change of control followed by a rating
decline, the holders of the 2028 Notes will have the right to require Antero Midstream Partners to repurchase all or a portion of the
2028 Notes at a price equal to 101% of the principal amount of the 2028 Notes, plus accrued and unpaid interest.
(11) Accrued Liabilities
Accrued liabilities as of December 31, 2018 and 2019 consisted of the following items:
(in thousands)
Capital expenditures
Operating expenses
Interest expense
Other
Total accrued liabilities
December 31,
2018
2019
$
$
—
—
—
407
407
27,427
24,980
44,440
7,341
104,188
F-25
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
(12) Equity-Based Compensation
The Company’s general and administrative expenses include equity-based compensation costs related to the Antero
Midstream GP LP Long-Term Incentive Plan (“AMGP LTIP”) and the Series B Units prior to the Transactions. Equity-based
compensation after the Transactions include (i) costs allocated to Antero Midstream Partners by Antero Resources for grants made
prior to the Transactions pursuant to Antero Resources’ long-term incentive plan, (ii) costs due to Antero Midstream Corporation
LTIP (the “AMC LTIP”) and (iii) the Exchanged B Units (as defined below). Antero Midstream Partners’ portion of the equity-based
compensation expense is included in general and administrative expenses, and recorded as a credit to the applicable classes of equity.
Equity-based compensation expense allocated to Antero Midstream Partners was $4.9 million for the period from March 13, 2019 to
December 31, 2019. For grants made prior to the Transactions, Antero Resources has total unamortized expense related to its various
equity-based compensation plans that can be allocated to the Company of approximately $26 million as of December 31, 2019, which
includes grants made under the AMP LTIP (as defined below) prior to the Transactions, which were converted into awards under the
AMC LTIP. A portion of this will be allocated to Antero Midstream Partners as it is amortized over the remaining service period of
the related awards. Antero Midstream Partners does not reimburse Antero Resources for noncash equity compensation allocated to it
for awards issued under the Antero Resources long-term incentive plan.
Exchanged B Units
As of December 31, 2018, IDR Holdings had 98,600 Series B Units authorized and outstanding that entitled the holders to
receive up to 6% of the amount of the distributions that Antero Midstream Partners made on its incentive distribution rights (“IDRs”)
in excess of $7.5 million per quarter, subject to certain vesting conditions. On December 31, 2018, 65,745 Series B Units were vested.
The holders of vested Series B Units had the right to convert the units to common shares with a value equal to their pro rata share of
up to 6% of any increase in AMGP’s equity value in excess of $2.0 billion.
Upon Closing of the Transactions, each Series B Unit, vested and unvested, was exchanged for 176.0041 shares of our
common stock (the “Series B Exchange”). A total of 17,353,999 shares of AMC common stock were issued in exchange for the
98,600 Series B Units then outstanding (the “Exchanged B Units”), which included 5,782,601 restricted shares of AMC common
stock issued in exchange for the 32,855 unvested Series B Units.
The Company accounted for the Series B Exchange as a share-based payment modification under ASC 718, Stock
Compensation. On March 12, 2019, which is the modification date, the Company determined the estimated fair value of the unvested
Series B Unit awards using a Monte Carlo simulation using various assumptions including a floor equity value of $2.0 billion,
expected volatility of 40% based on historical volatility of a peer group of publicly traded partnerships, a risk free rate of 2.51%, and
expected IDR distributions based on internal estimates discounted based on a weighted average cost of capital assumption of 7.25%.
Based on these assumptions, the estimated value of each Series B Unit was $1,257 when exchanged for shares of AMC common
stock. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3
measurement within the fair value hierarchy. The unvested Exchanged B Units retained the same vesting conditions as the Series B
Units and vested on December 31, 2019. No awards were issued and outstanding as of December 31, 2019. Expenses related to
Exchanged B Units were recognized on a straight-line basis over the requisite service period of the entire award. Forfeitures were
accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the period.
The Company recognized $66 million of equity-based compensation expense related to the Series B awards, including the
Series B Units prior to the Closing of the Transactions and the Exchanged B Units following the Closing of the Transactions, for the
year ended December 31, 2019. For the years ended December 31, 2017 and 2018, the Company recognized $35 million and $34
million, respectively, of equity-based compensation expense related to the Series B Units. As of December 31, 2019, there is no
unamortized expense related to these awards.
F-26
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
AMGP LTIP
On April 17, 2017, Antero Midstream GP LP adopted the AMGP LTIP pursuant to which certain non-employee directors of
Antero Midstream GP LP’s general partner and certain officers, employees and consultants of Antero Resources were eligible to
receive awards representing equity interests in Antero Midstream GP LP. For the years ended December 31, 2017, 2018 and 2019, the
Company recognized expense of $0.2 million, $0.7 million and $0.2 million, respectively, related to these awards. Expenses related to
these awards were recognized on a straight-line basis over the requisite service period of the entire award. Forfeitures were accounted
for as they occur by reversing the expense previously recognized for awards that were forfeited during the period. In connection with
the Transactions, the AMGP LTIP was terminated on March 12, 2019.
AMC LTIP
Effective March, 12, 2019, the Board of Directors of Antero Midstream Corporation (the “Board”) adopted the AMC LTIP
under which awards may be granted to employees, directors and other service providers of the Company and its affiliates. The AMC
LTIP provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents,
other stock-based awards, cash awards and substitute awards. The terms and conditions of the awards granted are established by the
compensation committee of the Board. The Company is authorized to grant up to 15,398,901 shares of common stock to employees
and directors under the AMC LTIP. As of December 31, 2019, a total of 13,596,444 shares were available for future grant under the
AMC LTIP. For the year ended December 31, 2019, the Company recognized expense of $2.7 million related to these awards.
Expenses related to restricted stock units are recognized on a straight-line basis over the requisite service period of the entire award.
Forfeitures are accounted for as they occur by reversing the expense previously recognized for awards that were forfeited during the
period.
Restricted Stock Unit Awards
As part of the Transactions, each of the unvested outstanding phantom units in the Antero Midstream Partners Long Term
Incentive Plan (“AMP LTIP”) was assumed by Antero Midstream Corporation and converted into 1.8926 restricted stock units under
the AMC LTIP representing a right to receive shares of AMC common stock for each converted phantom unit.
Restricted stock unit (“RSU”) awards vest subject to the satisfaction of service requirements. Expense related to each RSU
award is recognized on a straight-line basis over the requisite service period of the entire award. Forfeitures are accounted for as they
occur by reversing the expense previously recognized for awards that were forfeited during the period. The grant date fair values of
these awards are determined based on the closing price of Antero’s common stock on the date of the grant.
Summary Information for Restricted Stock Unit Awards
A summary of RSU awards activity during the year ended December 31, 2019 is as follows:
Number of
units
Aggregate
Weighted
Average
grant date intrinsic value
fair value (in thousands)
—
— $
Total AMC LTIP RSUs awarded and unvested—December 31, 2018
AMP LTIP Awards converted into AMC LTIP Awards(1)
Granted
Vested
Forfeited
Total AMC LTIP RSUs awarded and unvested—December 31, 2019
— $
1,068,900 $ 14.58
729,755 $ 13.60
(443,036) $ 13.57
(79,629) $ 14.37
1,275,990 $ 14.38 $
9,685
(1) Effective as of March 12, 2019, all unvested outstanding phantom units in the AMP LTIP were assumed by the
Company and converted into restricted stock units under the AMC LTIP at a conversion rate of 1.8926 restricted
stock units for each phantom unit.
Intrinsic values are based on the closing price of the Company’s common shares on the referenced dates. At December 31,
F-27
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
2019, unamortized expense of $13 million related to the unvested RSUs is expected to be recognized over a weighted average period
of approximately 2.5 years and the Company’s proportionate share will be allocated to it as it is recognized.
Performance Share Unit Awards Based on Return on Invested Capital (“ROIC”)
In 2019, the Company granted performance share units (“PSUs”) to certain of its employees and executive officers, a portion
of which vest based on the Company’s actual ROIC (as defined in the award agreement) over a three-year period as compared to a
targeted ROIC (“ROIC PSUs”). The number of shares of common stock that may ultimately be earned with respect to the ROIC
PSUs ranges from zero to 200% of the target number of ROIC PSUs originally granted. Expense related to the ROIC PSUs is
recognized based on the number of shares of common stock that are expected to be issued at the end of the measurement period, and
such expense is reversed if the likelihood of achieving the performance condition decreases.
On December 17, 2019, the compensation committee of the Board modified the terms for the ROIC PSU agreement.
Accordingly, the Company accounted for the amended agreement as a share-based payment modification under ASC 718, Stock
Compensation and revalued the awards as of the modification date. Expense for the awards are recognized on a straight-line basis
over the requisite service period of the entire award. For the year ended December 31, 2019, the Company recognized $0.2 million of
expense related to these awards.
Summary Information for Performance Share Unit Awards
A summary of PSU activity for the year ended December 31, 2019 is as follows:
Total awarded and unvested—December 31, 2018
Granted
Vested
Forfeited
Total awarded and unvested—December 31, 2019
Number of
units
—
164,196
—
(15,890)
148,306
$
$
$
$
$
Weighted
Average
grant date
fair value
—
6.32
—
6.32
6.32
The grant-date fair value for the ROIC PSUs is based on the closing price of the Company’s common stock on the date of the
modified terms for the ROIC PSU agreement, assuming the achievement of the performance condition.
As of December 31, 2019, there was $0.7 million of unamortized equity-based compensation expense related to unvested
PSUs that is expected to be recognized over a weighted average period of 2.3 years.
F-28
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
(13) Cash Distributions and Dividends
The following table details the amount of distributions and dividends paid with respect to the quarter indicated (in thousands,
except per share data):
Quarter
and Year Record Date
*
Q2 2017
Q3 2017
May 9, 2017
August 3, 2017
November 1, 2017
Total 2017
Distribution Date
September 13, 2017
August 23, 2017
November 23, 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
February 1, 2018
May 3, 2018
August 2, 2018
November 2, 2018
February 20, 2018
May 23, 2018
August 22, 2018
November 21, 2018
Total 2018
Q4 2018
Q1 2019
Q1 2019
Q2 2019
Q2 2019
Q3 2019
Q3 2019
***
February 1, 2019
April 26, 2019
May 15, 2019
July 26, 2019
August 14, 2019
November 1, 2019
November 14, 2019
December 31, 2019
Total 2019
February 21, 2019
May 8, 2019
May 15, 2019
August 7, 2019
September 18, 2019
November 13, 2019
November 14, 2019
December 31, 2019
Distributions/
Dividends
—
5,026
10,985
16,011
13,964
20,109
23,276
26,817
84,166
30,543
152,082
98
154,146
138
153,033
138
2,299
492,477
$
$
$
$
$
$
Antero
Resources
Investment
15,908
—
—
15,908
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Distributions/
Dividends
per share
*
0.027
0.059
0.075
0.108
0.125
0.144
0.164
0.3025
**
0.3075
**
0.3075
**
***
$
$
$
$
$
$
$
$
$
$
*
Income relating to periods prior to May 9, 2017, the closing of our IPO, was distributed to Antero Investment prior to its
liquidation.
** Dividends are paid in accordance with the terms of the Series A Preferred Stock as discussed in Note 14—Equity and Earnings
Per Common Share.
*** Distributions declared on unvested Series B Units prior to the closing date of the Transactions that were paid upon the vesting
date to the holders of the Exchanged B Units.
On January 15, 2020, the Board declared a cash dividend on the shares of AMC common stock of $0.3075 per share for the
quarter ended December 31, 2019. The dividend will be payable on February 12, 2020 to stockholders of record as of January 31,
2020. The Company pays dividends (1) out of surplus or (2) if there is no surplus, out of the net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year, as provided under Delaware law.
The Board also declared a cash dividend of $138 thousand on the shares of Series A Preferred Stock of Antero Midstream
Corporation to be paid on February 14, 2020 in accordance with the terms of the Series A Preferred Stock, which are discussed in
Note 14—Equity and Earnings Per Common Share. As of December 31, 2019, there were dividends in the amount of $69 thousand
accumulated in arrears on the Company’s Series A Preferred Stock.
(14) Equity and Earnings Per Common Share
(a) Preferred Stock
The Board authorized 100,000,000 shares of preferred stock in connection with the closing of the Transactions (see Note 3—
Business Combination) on March 12, 2019, and issued 10,000 shares of preferred stock designated as "5.5% Series A Non-Voting
Perpetual Preferred Stock" (the "Series A Preferred Stock"), to The Antero Foundation on that date. Dividends on the Series A
F-29
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
Preferred Stock are cumulative from the date of original issue and payable in cash on the 45th day following the end of each fiscal
quarter, or such other dates as the Board will approve, at a rate of 5.5% per annum on (i) the liquidation preference per share of
Series A Preferred Stock (as described below) and (ii) the amount of accrued and unpaid dividends for any prior dividend period on
such share of Series A Preferred Stock, if any. At any time following the date of issue, in the event of a change of control, or at any
time on or after March 12, 2029, the Company may redeem the Series A Preferred Stock at a price equal to $1,000 per share, plus any
accrued and unpaid dividends, payable in cash; provided that if any shares of the Series A Preferred Stock are held by The Antero
Foundation at the time of such redemption, the price for redemption of each share of Series A Preferred Stock will be the greater of (i)
$1,000 per share, plus any accrued but unpaid dividends, and (ii) the fair market value of the Series A Preferred Stock. On or after
March 12, 2029, the holder of each share of Series A Preferred Stock (other than The Antero Foundation) may convert such shares, at
any time and from time to time, at the option of the holder into a number of shares of AMC common stock equal to the conversion
ratio in effect on the applicable conversion date, subject to certain limitations. The Series A Preferred Stock ranks senior to the AMC
common stock as to dividend rights, as well as with respect to rights upon liquidation, winding-up or dissolution of the Company.
Holders of the Series A Preferred Stock do not have any voting rights in the Company, except as required by law, or any preemptive
rights.
(b) Weighted Average Shares Outstanding
The following is a reconciliation of the Company’s basic weighted average shares outstanding to diluted weighted average
shares outstanding during the periods presented:
(in thousands)
Basic weighted average number of shares outstanding
Add: Dilutive effect of restricted stock units
Add: Dilutive effect of Series A preferred stock
Diluted weighted average number of shares outstanding
Weighted average number of outstanding equity awards
excluded from calculation of diluted earnings per common
share(1):
Restricted stock units
Preferred shares
2017
186,176
—
—
186,176
Year Ended December 31,
2018
186,203
—
—
186,203
2019
442,640
—
—
442,640
—
—
—
—
53
1,318
(1) The potential dilutive effects of these awards were excluded from the computation of earnings (loss) per common shares,
assuming dilution because the inclusion of these awards would have been anti-dilutive.
(c) Earnings Per Common Share
Earnings per common share—basic for (i) the years ended December 31, 2017 and 2018 is computed by dividing net income
attributable to AMGP by the basic weighted average number of common shares representing limited partner interest in AMGP
outstanding during the period and (ii) the year ended December 31, 2019 is computed by dividing net income (loss) attributable to
Antero Midstream Corporation by the basic weighted average number of shares of AMC common stock outstanding during the period.
Earnings per common share—assuming dilution for each period is computed after giving consideration to the potential dilution from
outstanding equity awards, calculated using the treasury stock method. During periods in which the Company incurs a net loss,
diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the effect of all equity
awards is anti-dilutive.
F-30
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
(in thousands, except per share amounts)
Net income (loss)
Pre-IPO net income attributed to parent
Less net income attributable to Series B Units
Less preferred stock dividends
Net income (loss) available to common shareholders
Net income (loss) per share–basic and diluted
Weighted average common shares outstanding–basic
Weighted average common shares outstanding–diluted
2017
Year Ended December 31,
2018
$
$
$
2,325
4,939
(784)
—
6,480
0.03
186,176
186,176
66,608
—
(5,236)
—
61,372
0.33
186,203
186,203
2019
(355,114)
—
—
(442)
(355,556)
(0.80)
442,640
442,640
(15) Fair Value Measurement
Business Combination
As the Transactions were accounted for under the acquisition method of accounting, the Company estimated the fair value of
assets acquired and liabilities assumed at March 12, 2019. See Note 3—Business Combination. In connection with the Transactions,
the Company, among other things, issued shares of common stock valued at the closing market price of the common shares at the
effective time of the Transactions, which was a Level 1 measurement.
The Company used the discounted cash flow approach, which is an income statement technique, to estimate the fair value of
the customer relationships and investments in unconsolidated affiliates using a weighted-average cost of capital of 14.1% as of March
12, 2019, which is based on significant inputs not observable in the market, and thus represents a Level 3 measurement within the fair
value hierarchy. The Company also used this approach in combination with the cost approach to estimate the fair value of property
and equipment whereby certain property and equipment was adjusted for recent purchases of similar items, economic and functional
obsolescence, location, normal useful lives, and capacity (if applicable). To estimate the fair value of the long-term debt, the
Company used Level 2 market data inputs.
Goodwill
The Company estimated the fair value of its assets in performing its annual goodwill analysis. The Company utilized a
combination of approaches to discounted cash flow approach, comparable company method and the cost approach, whereby certain
property and equipment was adjusted for recent purchases of similar items, economic and functional obsolescence, location, normal
useful lives, and capacity (if applicable). The Company performed its fourth quarter quantitative analysis using a weighted-average
cost of capital of 10.0% as of December 31, 2019, which is based on significant inputs not observable in the market, and thus
represents a Level 3 measurement within the fair value hierarchy.
Contingent Acquisition Consideration
In connection with Antero Resources’ contribution of Antero Water and certain water handling assets to Antero Midstream
Partners in September 2015 (the “Water Acquisition”), Antero Midstream Partners agreed to pay Antero Resources (a) $125 million in
cash if Antero Midstream Partners delivered 176,295,000 barrels or more of fresh water during the period between January 1, 2017
and December 31, 2019 and (b) an additional $125 million in cash if Antero Midstream Partners delivers 219,200,000 barrels or more
of fresh water during the period between January 1, 2018 and December 31, 2020. This contingent consideration liability is valued
based on Level 3 inputs related to expected average volumes and weighted average cost of capital.
F-31
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
The following table provides a reconciliation of changes in Level 3 financial liabilities measured at fair value on a recurring
basis for the period shown below (in thousands):
Contingent acquisition consideration—December 31, 2018
Contingent acquisition consideration assumed from Antero Midstream Partners
Accretion and change in fair value of contingent acquisition consideration
Contingent acquisition consideration—December 31, 2019
$
$
—
116,924
8,076
125,000
The Company accounts for contingent consideration in accordance with applicable accounting guidance pertaining to
business combinations. Antero Midstream Partners is contractually obligated to pay Antero Resources contingent consideration in
connection with the Water Acquisition. The Company updates its assumptions each reporting period based on new developments and
adjusts such amounts to fair value based on revised assumptions, if applicable, until such consideration is satisfied through payment
upon achievement of the specified objectives or it is eliminated upon failure to achieve the specified objectives.
As of December 31, 2019, Antero Midstream Partners had delivered more than 176,295,000 barrels of fresh water during the
period between January 1, 2017 and December 31, 2019. As a result, Antero Midstream Partners paid Antero Resources $125 million
in January 2020. The Company does not expect to pay for the contingent consideration for delivery of 219,200,000 barrels or more
barrels of fresh water during the period between January 1, 2018 and December 31, 2020 based on Antero Resources’ disclosed 2020
budget. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3
measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with future milestone
payments was based on the risk adjusted present value of the contingent consideration payout.
Senior Unsecured Notes
As of December 31, 2019 the fair value of the Company’s 2024 Notes, 2027 Notes and 2028 Notes was approximately
$603 million, $571 million and $569 million, respectively, based on Level 2 market data inputs.
Other Assets and Liabilities
The carrying values of accounts receivable and accounts payable at December 31, 2018 and 2019 approximated fair value
because of their short-term nature. The carrying value of the amounts under the Credit Facility at December 31, 2018 and 2019
approximated fair value because the variable interest rates are reflective of current market conditions.
(16) Investments in Unconsolidated Affiliates
Investment in Antero Midstream Partners
Prior to the closing of the Transactions, AMGP did not consolidate Antero Midstream Partners, and AMGP’s share of Antero
Midstream Partners’ earnings as a result of AMGP’s ownership of the IDRs was accounted for using the equity method of accounting.
AMGP recognized distributions earned from Antero Midstream Partners as “Equity in earnings of unconsolidated affiliates” on its
statement of operations in the period in which they were earned and were allocated to AMGP’s capital account. AMGP’s long-term
interest in the IDRs on the balance sheet is recorded in “Investment in unconsolidated affiliates.” The ownership of the general
partner interests and IDRs did not provide AMGP with any claim to the assets of AMGP other than the balance in its Antero
Midstream Partners capital account. Income related to the IDRs was recognized as earned and increased AMGP’s capital account and
equity investment. When these distributions were paid to AMGP, they reduced its capital account and its equity investment in Antero
Midstream Partners. As a result of the Transactions, Antero Midstream Corporation assumed financial control of Antero Midstream
Partners and Antero Midstream Partners is now consolidated (see Note 3—Business Combination).
Investment in Stonewall and MarkWest Joint Venture
The Company has a 15% equity interest in the gathering system of Stonewall, which operates a 67-mile pipeline on which
Antero Resources is an anchor shipper.
F-32
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
Antero Midstream Partners has a 50% equity interest in the Joint Venture to develop processing and fractionation assets with
MarkWest, a wholly owned subsidiary of MPLX, LP. The Joint Venture was formed to develop processing and fractionation assets in
Appalachia. MarkWest operates the Joint Venture assets, which consist of processing plants in West Virginia and a one-third interest
in two MarkWest fractionators in Ohio.
The Company’s net income (loss) includes its proportionate share of the net income of the Joint Venture and Stonewall.
When the Company records its proportionate share of net income, it increases equity income in the consolidated statements of
operations and comprehensive income and the carrying value of that investment on its balance sheet. When distributions on the
Company’s proportionate share of net income are received, they are recorded as reductions to the carrying value of the investment on
the balance sheet and are classified as cash inflows from operating activities in accordance with the nature of the distribution approach
under ASU No. 2016-15. The Company uses the equity method of accounting to account for its investments in Stonewall and the
Joint Venture because it exercises significant influence, but not control, over the entities. The Company’s judgment regarding the
level of influence over its equity investments includes considering key factors such as its ownership interest, representation on the
applicable board of directors and participation in policy-making decisions of Stonewall and the Joint Venture.
The following table is a reconciliation of our investments in these unconsolidated affiliates:
(in thousands)
Balance at December 31, 2017
Equity in net income of unconsolidated affiliates
Distributions from unconsolidated affiliates
Balance at December 31, 2018
Distributions from unconsolidated affiliates
Balance at March 12, 2019
Investments in unconsolidated affiliates acquired
from Antero Midstream Partners
Additional investments
Equity in net income of unconsolidated affiliates(1)
Distributions from unconsolidated affiliates
Balance at December 31, 2019
$
Antero
Midstream
Partners LP
Stonewall
MarkWest
Joint Venture
Total Investment
in Unconsolidated
Affiliates
23,772
142,906
(123,186)
43,492
(43,492)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
142,071
—
4,117
(5,730)
140,458
426,214
154,359
47,198
(58,590)
569,181
23,772
142,906
(123,186)
43,492
(43,492)
—
568,285
154,359
51,315
(64,320)
709,639
(1) As adjusted for the amortization of the difference between the cost of the equity investments in Stonewall and the Joint Venture
and the amount of the underlying equity in the net assets of Stonewall and the Joint Venture as of the date of the acquisition of
Antero Midstream Partners.
(b) Summarized Financial Information of Unconsolidated Affiliates
The following tables present summarized financial information for the Company’s investments in unconsolidated affiliates.
F-33
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
Combined Balance Sheets
(in thousands)
Current assets
Noncurrent assets
Total assets
Current liabilities
Noncurrent liabilities
Noncontrolling interest
Partners' capital
Total liabilities and partners' capital
Statements of Combined Operations
December 31,
2018
90,481
1,327,947
1,418,428
76,605
6,986
172,865
1,161,972
1,418,428
$
$
$
$
2019
61,641
1,660,401
1,722,042
33,912
5,521
175,021
1,507,588
1,722,042
$
$
$
$
(in thousands)
Revenues
Operating expenses
Income from operations
Net income attributable to the equity method investments
$
Year Ended December 31,
2018
189,222
75,250
113,972
131,626
2017
119,371
40,059
79,312
88,717
2019
254,868
105,218
149,650
23,615
(17) Reporting Segments
Prior to the closing of the Transactions, AMGP had no reporting segment results. Following the completion of the
Transactions, the Company’s operations, which are located in the United States, are organized into two reporting segments:
(1) gathering and processing and (2) water handling.
Gathering and Processing
The gathering and processing segment includes a network of gathering pipelines and compressor stations that collect and
process production from Antero Resources’ wells in West Virginia and Ohio. The gathering and processing segment also includes
equity in earnings from the Company’s investments in the Joint Venture and Stonewall.
Water Handling
The Company’s water handling segment includes two independent systems that deliver fresh water from sources including
the Ohio River, local reservoirs and several regional waterways. The water handling segment also includes the Clearwater Facility
that was placed in service in 2018 and idled in September 2019 (See Note 4—Clearwater Facility Impairment), as well as other fluid
handling services, which includes high rate transfer, wastewater transportation, disposal and treatment. See Note 8—Property and
Equipment.
These segments are monitored separately by management for performance and are consistent with internal financial
reporting. These segments have been identified based on the differing products and services, regulatory environment and the expertise
required for these operations. Management evaluates the performance of the Company’s business segments based on operating
income. Interest expense is primarily managed and evaluated on a consolidated basis.
F-34
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
The operating results and assets of the Company’s reportable segments were as follows for the year ended December 31,
2019 (in thousands):
Year ended December 31, 2019
Revenues:
Gathering and
Processing
Water
Handling
Unallocated (1)
Consolidated
Total
Revenue–Antero Resources
Revenue–third-party
Amortization of customer relationships
Total revenues
$
543,538
—
(29,850)
513,688
306,010
50
(27,160)
278,900
—
—
—
—
849,548
50
(57,010)
792,588
Operating expenses:
Direct operating
General and administrative (excluding equity-
based compensation)
Facility idling
Equity-based compensation
Impairment of property and equipment
Impairment of goodwill
Impairment of customer relationships
Depreciation
Accretion and change in fair value of contingent
acquisition consideration
Accretion of asset retirement obligations
Total expenses
Operating income (loss)
Equity in earnings of unconsolidated affiliates
Total assets
Additions to property and equipment, net
41,546
154,272
—
195,818
20,660
—
5,561
592
—
—
39,652
—
—
108,011
405,677
51,315
4,891,114
267,383
$
$
$
$
10,898
11,401
2,130
409,147
340,350
11,871
55,874
8,076
187
1,004,206
(725,306)
—
1,287,245
124,607
13,038
—
65,826
—
—
—
—
—
—
78,864
(78,864)
—
104,519
—
44,596
11,401
73,517
409,739
340,350
11,871
95,526
8,076
187
1,191,081
(398,493)
51,315
6,282,878
391,990
(1) Certain expenses that are not directly attributable to gathering and processing and water handling are managed and evaluated on a
consolidated basis.
F-35
ANTERO MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Continued)
Years Ended December 31, 2017, 2018, and 2019
(18) Quarterly Financial Information (Unaudited)
The Company’s quarterly consolidated unaudited financial information for the years ended December 31, 2018 and 2019 is
summarized in the table below (in thousands, except per share data):
Year ended December 31, 2018
Total income
Total operating expenses
Net income and comprehensive income
Net income attributable to Series B units
Net income attributable to common shareholders
Net income per common share–basic and diluted
Year ended December 31, 2019
Total operating revenues
Total operating expenses
Operating income (loss)
Net income (loss) and comprehensive income (loss)
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
28,453
9,560
12,805
(413)
12,392
33,145
11,509
14,387
(506)
13,881
37,816
10,803
18,028
(598)
17,430
43,492
11,979
21,388
(3,719)
17,669
0.07
0.07
0.09
0.10
54,108
43,500
10,608
9,648
255,618
138,027
117,591
69,274
243,795
577,884
(334,089)
(289,477)
239,067
431,670
(192,603)
(144,559)
Net income (loss) per common share–basic and diluted
$
0.04
0.14
(0.57)
(0.29)
F-36
Antero Midstream
Business Strategy
Premier E&P Sponsor with Deep
Drilling Inventory and Diversified
Commodity Exposure
Disciplined Investment With
Unparalleled Visibility
Integrated Assets with
a Fixed-Fee Model
High Return on Invested Capital
Supports Return of Capital
to Shareholders
Peer-Leading Cash Flow
Per Share Growth
Strong Balance Sheet
with Ample Liquidity
LEADING SUSTAINABILITY
AND ESG METRICS
Cover photo: Underwood Compressor Station in Tyler County, WV
CORPORATE INFORMATION
BOARD OF DIRECTORS
PAUL M. RADY
Chairman and CEO
GLEN C. WARREN, JR.
President, CFO and Director
DAVID H. KEYTE
Lead Director
SENIOR MANAGEMENT
PAUL M. RADY
Chairman and CEO
GLEN C. WARREN, JR.
President, CFO and Director
MICHAEL N. KENNEDY
Chief Financial Offi cer and
Senior Vice President – Finance
Antero Resources
ALVYN A. SCHOPP
Chief Administrative Offi cer and
Regional Senior Vice President
STEVEN M. WOODWARD – Senior Vice
President – Business Development
W. PATRICK ASH
Senior Vice President – Reserves,
Planning and Midstream
PETER A. DEA
Director
W. HOWARD KEENAN, JR.
Director
BROOKS J. KLIMLEY
Director
JANINE J. MCARDLE
Director
JOHN C. MOLLENKOPF
Director
ROSE M. ROBESON
Director
DIANA O. HOFF
Senior Vice President – Operations
ROBERT H. KRCEK
Vice President – Midstream
YVETTE K. SCHULTZ
General Counsel and Vice President – Legal
TIMOTHY J.C. RADY
Vice President – Land
SHERI PEARCE
Chief Accounting Offi cer
and Director of Accounting
BRENDAN E. KRUEGER
Vice President – Finance and Treasurer
JOHN GIANNAULA
Vice President – Human Resources
and Administration
MARIA WOOD HENRY
Vice President – Geology
JUSTIN B. FOWLER
Vice President – Gas Marketing
and Transportation
DAVID A. CANNELONGO
Vice President – Liquids Marketing
and Transportation
AARON S. G. MERRICK
Vice President – Information Technology
TOFFAZZEL HAQUE
Vice President – Production
TROY R. ROACH
Vice President – Health, Safety,
and Environment
MICHAEL SMITH
Vice President – Logistics and
Cost Management
INVESTOR RELATIONS
ANTERO MIDSTREAM CORPORATION
1615 Wynkoop Street
Denver, Colorado 80202
(303) 357-7310 extension 6782
www.anteroresources.com
TRANSFER AGENT AND REGISTRAR
AMERICAN STOCK TRANSFER
& TRUST COMPANY, LLC
6201 15th Avenue
Brooklyn, New York 11219
(800) 937-5449
RESERVE AUDITOR
DEGOLYER AND MACNAUGHTON
Dallas, Texas
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
KPMG LLP Denver, Colorado
SHAREHOLDER INFORMATION
Our common shares are publicly traded
on the NYSE under the symbol “AM”
CORPORATE HEADQUARTERS
ANTERO MIDSTREAM CORPORATION
1615 Wynkoop Street
Denver, Colorado 80202
FORWARD-LOOKING STATEMENTS
The 2019 Annual Report includes “forward-looking statements.” Such forward-looking statements are subject to a number of risks and uncertainties, many of which are not under
Antero Midstream Corporation’s (“Antero Midstream”) control.
All statements, except for statements of historical fact, made herein regarding activities, events or developments Antero Midstream expects, believes or anticipates will or may
occur in the future, such as those regarding Antero Midstream’s cash fl ow coverage expectations, growth opportunities, 2020 and long-term fi nancial and operational outlooks
for Antero Midstream and Antero Resources Corporation (“Antero Resources”), future plans and future business lines for processing plants and fractionators, Antero Resources’
estimated production, Antero Resources’ expected future growth and Antero Resources’ ability to meet its drilling and development plan, are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although Antero Midstream believes that the plans, intentions and
expectations refl ected 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 or
initiatives with Antero Resources or with other third parties may materially impact the forecasted or targeted results described herein. Therefore, actual outcomes and results could
materially diff er from what is expressed, implied or forecast in such statements.
Antero Midstream cautions you that these forward-looking statements are subject to all of the risks and uncertainties incident to Antero Midstream’s business, most of which are
diffi cult to predict and many of which are beyond the Antero Midstream’s control. These risks include, but are not limited to, Antero Resources’ expected future growth, Antero
Resources’ ability to meet its drilling and development plan, potential shut-ins by Antero Resources to lack of downstream demand or storage capacity, commodity price volatility,
ability to execute Antero Midstream’s business strategy, competition and government regulations, actions taken by third-party producers, operators, processors and transporters,
infl ation, environmental risks, drilling and completion and other operating risks, regulatory changes, the uncertainty inherent in projecting future rates of production, cash fl ows
and access to capital, the timing of development expenditures, the impacts of world health events, including the coronavirus (COVID-19) pandemic, and the other risks described
under “Risk Factors” in Antero Midstream’s and Antero Resources’ Annual Reports on Form 10-K for the year ended December 31, 2019.
Any forward-looking statement speaks only as of the date on which such statement is made, and Antero Midstream does not undertake any obligation to correct or update any
forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.
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