Q4 2019 Earnings Call
Greetings welcome to Antero midstream 2024th quarter earnings Conference call.
This time, all participants are in listen only mode.
A brief question answer session will follow the formal presentation.
Anyone should a car operator assistance during the conference. Please press star zero from your telephone keypad.
You know this conference is being recorded.
At this time I'll turn the conference over to Michael Kennedy Senior Vice President Finance.
Mr. Kenny you may now be good.
Thank you for joining us for Antero midstream fourth quarter and full year 2019 Investor Conference call.
I'll spend a few minutes going through the financial and operate operating highlights and then we'll open it up she went away.
I'd also like direct you to the home page of our website at Www Dot Antero midstream Dot com.
We provided a separate earnings call presentation that will be reviewed during today's call.
Before we start our comments.
I'd first like to remind you that during this call and Taro management will make forward looking statements such statements are based on our current judgments regarding factors that will impact the future performance of Antero resources, and Antero midstream and are subject to a number of risks and uncertainties many of which are beyond anteros control.
Actual outcomes and results could materially different from what is expressed implied or forecast.
Such statements.
Today's call May also contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures, including reconciliations to the most comparable gap.
Natural measures joining me on the call today, our Paul ready.
Chairman and CEO of Antero resources, and Antero midstream and Glenmore in <unk>.
And then CFO of Antero resources in President of Antero Midstream, what's that I'll turn the call over to Paul.
Thanks, Mike.
I'd like to start by discussing the 2020 outlook and development plan at a are that supports antero midstream 2020 capital budget and financial guideline.
Yesterday, Antero resources announced a drilling and completion capital budget of $1.15 billion that is expected to generate 9% net production growth in 2020 as compared to 2019.
Hey, errors 2020 capital budget utilizes an average of for drilling rigs and three to four completion crews consistent with 2019 levels.
This development program is approximately free cash flow neutral at A.R. and results in leverage trending toward the mid two times range, assuming execution of its previously announced asset sale program.
For those that were able to listen into the a our call. It. We just finished I highlighted that we remain focused on achieving our cost reduction strategies and achieving our asset sale target at a are.
The ability to continue growing production in the current commodity price environment is supported by a ours continued capital efficiencies liquids rich focus.
And industry, leading hedge portfolio.
Let me move to slide number three in our investor presentation, titled Marcellus well cost reductions.
Which illustrates the significant momentum in well cost reductions at a are.
Last quarter, a our announced a well cost savings initiative.
The targeted a 15.
18% reduction in well costs on a per lateral foot basis, or approximately 1.7 million to $2.8 million per well.
The left hand side of the page illustrates a ours January 29 change so little over a year ago, well costs of $970 per lateral foot that was assumed in a ours 2019 capital budget.
During the fourth quarter of 2019, a ours actual well costs were $840 per lateral foot.
This was driven primarily by lower costs for flowback water as am implemented slow flowback water blending.
And localized storage to operation operations, the coordinated effort between a yard am allowed us to quickly and successfully execute our blending program and deliver savings ahead of schedule.
For 2020, a our is targeting total well costs 795 to $825 per lateral foot driven by expanded flowback water services provided by am.
Drilling efficiencies achieved in 29 team.
And lower fresh water usage in completions that is included in Am's 2020 budget.
These savings allow a are to continue actively developing in today's commodity price environment and drive high margin stable gathering and processing cash flow growth for am.
Now, let's move to slide number four titled.
Well protected from near term gas pricing weakness.
Antero resources has a long track record of hedging and selling production forward generating $4.7 billion of hedge gains since 2008.
This has resulted in development program stability that we expect to continue in the future.
Looking to 2028 A., our has hedged 94% of its expected natural gas production at $2.87 per M. NBT, you or 42% above current strip pricing.
Hey, our is also well hedged in 2021 with 93% of expected natural gas production hedged at $2.80 per Ram MBT you.
In addition to the natural gas hedges detailed on this slide Antero resources is 100% hedged on its crude oil and pentane production at approximately $56 per barrel or 10% of current strip prices.
Moving to slide number five.
[noise] titled 2020 capital budget.
This details am's capital budget for 2020.
As depicted on the map on the right hand side of the page in 2019, we built the backbone of our mid for midstream infrastructure in Tyler County, West, Virginia that supports the majority of a ours development over the next several years.
In 2020, we optimized our capital plan to focused on the highest rate of return locations. Today are that are also in close proximity to existing gathering and water infrastructure.
This resulted in a capital budget of $300 million to $325 million in 2020 or more than a 50% reduction compared to 29 team.
Since we released our original 2019 capital budget and 2020 target one year ago, we have eliminated or deferred almost $400 million of capital in those two years combined.
This speaks to the just in time nature of our investments visibility into areas development plan and a our success in consolidated it consolidating acreage through acreage trades that minimize the geographic footprint of am's infrastructure.
Our capital budget for 2020 is focused primarily in the Marcellus and includes our first processing plant at the Smith Bird processing complex located just west of Sherwood.
Or smithburg one.
As a reminder.
The joint venture with MPLX placed Sherwood plants, 12, and 13 online during the fourth quarter of 2019.
These plants added 400 million cubic feet, a day of additional processing capacity increase the joint increasing the joint ventures total processing capacity to 1.4 Bcf a day.
Including the 200 million a day of additional capacity from Smithburg, one the joint venture will add 600 million cubic feet, a day of processing capacity to support liquids rich production growth for Antero resources.
Looking more granular into 2020, we expect to invest approximately two thirds of our capital budget in the first year first half of the year and their remaining one third in the second half of the year.
Am's capital flexibility in addition to its visibility into areas development plan is a competitive advantage for am.
It gives us confidence in the volume metric growth and ability to maintain high asset utilization rates.
That drive peer leading returns right.
In our invested capital.
Slide number six.
Titled Consistency of returns in capital resiliency illustrates our track record of disciplined capital investment that drives our peer leading returns on invested capital.
Tap right chart on the slide depicts our asset utilization with blue illustrating our compression utilization and gray illustrating our joint venture processing utilization.
As you can see the utilization rates have continued to improve every seat every year since our IPO.
And we set company records in 2019 for compression and processing utilization rates of 88% and 98% respectively.
This is a testament to our integrated planning at efforts and appropriately sized infrastructure to match a ours visible production growth profile.
This just in time philosophy has proven to be very resilient over the last several years, where am has generated an average return on invested capital or ROI C.
12% since its IPO in 2014.
In 2019, our ability to defer a $130 million from our original capital budget allowed us to again deliver.
14% return on invested capital.
Looking ahead to 2020, we expect our our out I see to improve further into the mid teens range as a company we remain highly focused on ROI C.
But also leverage per share cash flow growth and safety all of which our metrics in our management and employee compensation plan.
Our focus on these metrics along with our C Corp structure and independent board puts am at the governance forefront.
The new midstream infrastructure model.
With that I'll turn the call over to Mike.
Thank you Paul.
I'll begin my am comments by highlighting the recently announced am cash dividend of 30.75 cents per share for the fourth quarter the dividend at am with the twentyth consecutive distribution or dividend paid since the IPO Antero midstream partners in 2014.
In addition, during the fourth quarter, we purchase 19.4 million shares from a are.
Today, we have repurchased 22.9 million shares for $125 million, resulting in a 175 million remaining capacity under our 300 million dollar share repurchase program.
Now, let's move on fourth quarter operational results, beginning with slide number seven title.
Year over year midstream throughput.
Starting in the top left a portion of the page low pressure gathering volumes for 2.6 Bcf per day in the fourth quarter, which represents a 1% increase from the prior year quarter.
Compression volumes during the quarter averaged 2.4 Bcf per day, a 9% increase compared to the prior year. Our 50 50, JV gross processing volumes averaged 1.2 Bcf per day of 51% increase compared to prior year quarter.
Processing capacity was 92% utilized during the quarter.
Joint venture growth fractionation volumes averaged 31000 barrels per day, 63% increase from the prior year.
Freshwater delivery volumes averaged 148000 barrels per day, a 9% increase over the prior year quarter.
Moving on the financial results.
Adjusted EBITDA for the quarter was $203 million, 6% increase compared to the prior year quarter.
Distributable cash flow for the fourth quarter was $159 million, resulting in a DCF coverage ratio of approximately 1.1 times.
Capital expenditures during the quarter $125 million or $30 million below the midpoint of our revised guidance range.
As a result full year capital investments totaled $646 million or 130 million lower than our original capital budget at the beginning of 2019.
This highlights the capital flexibility Paul mentioned in his comments.
Moving onto the balance sheet liquidity as of December 31, 2019, Antero midstream had $960 million drawn on its $2.1 billion revolving credit facility.
Resulting in 1.2 billion up liquidity.
Additionally, am's net debt to LTM adjusted EBITDA was 3.5 times at year end.
I'll finish my comments on slide number eight.
Summarizes how far we've come as a company since our 2014 IPO.
In 2019, we took significant steps to improve our corporate structure and governance, eliminating the GP and I'd ours in converting to C Corp, with aboard comprised of a majority of independent directors.
Looking ahead to 2020, we look to continue to deliver on organic growth strategy.
Bite natural gas prices declining over 50% since 2014, our 2020, adjusted EBITDA guidance of $850 million to $900 million represents over 1200% increase since our IPO highlighting the significant growth underpinned by Antero resources are.
Capital budget for 2020 of 300 million to $325 million is 44% lower than our 2004 capital expenditures as we leverage our existing infrastructure and drive capital efficiencies.
Based on the midpoint of the adjusted EBITDA and capital budget ranges, we expect to generate over $400 million of free cash flow before return of capital in 2020.
We expect the transition away from the MLP model paying out a majority of cash flows generated to the C Corps motto generating free cash flow after dividends over the next several years as we grow our EBITDA and reduce future capital expenditures.
The output of this growth profile and capital discipline as an improving return on invested capital into the mid teens are higher.
In the future.
This consistent return on invested capital supported an increase in our return of capital to shareholders by 242% since our IPO, while still maintaining a strong balance sheet leverage in the mid three times range and $1.2 billion liquidity.
In summary, we remain highly focused on capital discipline in generating free cash flow.
During sustained periods of low commodity prices. This results in lower am capital budgets and non speculative short cycle time investments, that's still generate high asset utilization rates.
This capital flexibility results from that attractive cash flow profile that should drive shareholder value.
That operator, we're ready to take questions.
Thank you at this time will be conducting a question and answer session. If you want to ask a question. Please press star one on your telephone keypad and the confirmation tomo indicate your line is in the question Q.
Let me press star to if you'd like to remove your question from the Q.
Since you think speaker equipment, it may be necessary to pick up your handset before pressing the star Keith.
One moment, please let me pull for questions.
Thank you. Our first question is from the line of Jeremy Tonet with Jpmorgan. Please proceed with your question.
Hi, guys as James on for Jeremy.
Hey, just.
Looking at the high pressure gathering fees, okay step down sequentially.
And year over year.
Maybe I missed this in the K about what's the driver there for that.
Hi prices stayed the same at 21 cents, we just had some prior period adjustments that we caught up in the fourth quarter. So.
That's the reason that showed a decline of 21 cents is still applicable to high pressure fees.
Okay. So for 2020.
When someone would be good.
Yes.
Hi, Great and then just limited capex.
What was really the driver for the coming under budget and working 19.
And then looking out to 2020, as well, where we're kind of the biggest cuts in terms of segments for just slower.
Capex there.
The lower capital in 2019, we just continue to deferred projects.
And focus and focus on Anteros current development plan, which has become more concentrated in Tyler County, which is where our.
Infrastructure Buildout occurred earlier in the years, so just leveraging existing infrastructure that continues in 2020 on that map. It showed you know deferring the whetsell build out it's really just focusing on that Tyler County in 2020, and 21 and 22, having the capital associated with the Whetsell Bill.
Great. Thanks, that's it for me.
As a reminder to ask a question today you May press star one from your telephone keypad.
Thank you. Our next question is from the line of Gregg Brody with Bank of America. Please proceed with your question.
Hey, guys just to high grading questions a few questions for you.
Your your share repurchase program, how you're thinking about that today.
Sort of the cadence of what we should expect this year in terms of how much you think about buying back.
Yes, so theres still a $175 million of purchasing power authorized by the board at A.M., just as a reminder, and.
I am certainly expressed an interest and repurchasing shares from from a are so thats kind of an ongoing.
Dialogue subject to coming together on price.
I would anticipate anything in the near term there at these prices but.
The city buying shares obviously, you eliminate those dividends and it's it's great for free So I think we'll execute on that throughout the.
Here in one fashion and other it made it may by some of the open market as well.
Got it.
I think.
So in our presentation.
Showed some incremental gathering processing and transportation improvements since the end of December.
Just wanted to clarify I was was any of that at am or or.
Was it all incremental third party.
Not really to third party.
In 2020 that 48 million of it was a there is an additional.
27 million, which totaled 75 million.
From that Cpnt that where third party.
Our third party. That's some of that was realized after you made the December 9th announcement.
No that was all December nine.
Simonize announcements with $350 million total overall.
For years, and 250 of that 350 was as I am as anticipated we from a rebate. The rest is the third parties.
Got it. So there was just maybe I know this is I am call was there anything on a are there was incremental then there is nothing incremental now.
Okay.
And then it looks like you change your targeted your and leverage metrics for year end to actually there are improving a bit.
This is what you provided on on December nine.
Slight changes what's driving that.
I think the mid threes is where we were in the summer there hasn't been a material change from that.
You know EBITDA is exactly as we expected and capital.
The same levels too so I don't see any change.
The announcements that we had in December.
I'm, probably being just a little with the language. So that's that's helpful.
Hi, guys. Thank you for the time I appreciate it sure. Thanks, Greg.
Thank you. Our next question is from the line of the Neil Deval with Seaport Global. Please proceed with your question.
Yes, hi, good morning, guys.
Question for me first on the cost reduction side.
You guys have done a pretty good job so far on Monday and cost side I was wondering if then it more levered labor pool.
Breaking that down for then how should we be thinking about that.
I would I would you say so deal that.
We've got a lot of.
Things always working there incremental things and.
We just continue to push things lower as we get better and better at all aren't logistics in sand supply ad.
The drilling and so on completions that ray of completions. So.
It's.
Pretty much the laundry list that you've heard of already but just.
Just continue to make improvements in all of that.
We think there there could be more to come at a our and as far as am goes it's really just getting more efficient about.
Planning and logistics, and where we're spending capital in front of and drill bit as Mike mentioned earlier. It it was a bit of concentrating the drill bit more and utilizing existing infrastructure. So thats really.
What's going on there I mean, you try to you certainly bit everything out and try to improve on.
Construction costs and all that but I think this is really more about.
Building, what was really needed and can be highly utilized.
Okay got it and then a one kind of.
Broader question, you know you highlighted a dozen MRRT capital.
As the important criteria I was kind of wondering if you.
And talk a little bit about your broader capital allocation policy.
And obviously seems like you know leverage will tick up a bit in 2020.
Considering all that's going on you know.
What is the kind of leverage target that you guys have in mind or do you may be funny I am.
Yeah, it's a mid threes leverage target our leverage doesn't inflate going forward we have.
No EBITDA growth.
Every year the high single digits. So.
Cash flow growth and your capital continues to come down so the leverage stays flat in the mid three times range.
And then on the broader capital allocation side, you know obviously you know.
Pretty markets don't seem to be they've already.
For the dividend payout.
And how do you think about died in Tom's looking at your broader the capital allocation philosophy.
Yeah. The similar you know like I mentioned, you've got growing cash flow.
Capital coming down came down over 50% this year.
So your leverage staying flat.
And the mid three times Thats very attractive for midstream company.
So at today's dividend rate, assuming holding it flat you're at 1.1 times that grows or next year two to 1.2 times and in a couple of years, you're actually have.
Cash flow free cash flow before return capital in excess of the dividends. So.
We don't see any reason right now that the dividend isn't a sustained at today's levels.
Okay to equity market will come back to the dividends so to speak so.
No need to have a knee jerk reaction over the last few quarters.
Okay got it thanks guys.
Thank you.
Our next question is a follow up from the line of chat Jeremy today with Jpmorgan. Please proceed with your question.
Hi, good afternoon. Thanks, Thanks for taking another question.
Just wanted to see on the the processing JV side. It seems like the capex pull back a bit there was a bit later I guess come forward at this point and just wondering if you could refresh us as far as what you expect kind of any cadence to new plants or what type of activity for future Capex, we should expect there.
Yeah, we have 30 million in the budget 20, Paul mentioned, we just put onshore with 12 and 13 in the fourth quarter. So.
Kind of a prebuild grow into those processing plants and the in the first part of that the year and then Smith for one comes on and a utilize that in the back half of the years, we only have $30 million. So that's a lot in those processing plants now into Belvita film and then just felt a plant or to each year from here on.
Now.
So that still is the current plan then I guess building a plan or two per year going forward.
That's correct.
Got it.
And then.
Maybe I'm looking at this you finally here, but it looks like on that.
Hey, ours, a lateral length, there had been kind of coming in recently and it was a bit shorter in subsequent quarters over the course of 19 I think the guide you laid out here talking about 12000 foot lateral so just wondering if there's any kind of shift here that expect going.
No. There's no shift I mean, just when you look at the 20 plan for Antero the completions average.
7400 feet the drilling averages like over 12500 feet around that so it's just timing innards.
Still trying to drill longer laterals in our type wells at 12000 foot lateral well.
Got it right and maybe just the last one I if I could sound like the card this dividend level, you're looking to sustain here.
In one of a knee jerk reaction to the market, but is there a certain length of time, where things don't change might you know kind of reevaluate the approach here given kind of the elevated yield or any other thought you could share on that.
Yeah, no thoughts to share on that that something the board discusses over time, but no no no inside thoughts there no.
Got it that's it for me. Thank you you. Thanks Jeremy.
Our next question is from the line of net barrels off with Wells Fargo. Please proceed with your question.
Hi, Thanks for taking the question just one for me could you maybe provide an update on your discussions with the Veolia regarding the idle Clearwater facility and then as a as part of that are there any other expenses related to the idling of the plant expecting 2020. Thank you.
What we can say is that.
Discussions continue with Veolia and.
That's about all we can say, we can't comment further, but and then on the no material expenses going or yet no no material expenses, it's been mothballed.
Thank you.
Yeah. Thank you.
Thank you.
I will turn to flow rate to management for further remarks.
Thank you for joining us on our conference call. Today. If you have any further questions. Please feel free to reach out to us. Thanks again.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.