Q3 2023 Antero Midstream Corp Earnings Call

[music].

Speaker 1: Yes.

Speaker 2: Greetings and welcome to the Antaro midstream 3rd quarter 2023 earnings call. At this time all participants are in a listen only mode.

Greetings and welcome to the Antero Midstream third quarter 2023 earnings call.

At this time all participants are in a listen only mode.

Brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Speaker 2: If anyone should require operator assistance during the conference, please press on your telephone key pen. As

As a reminder, this conference is being recorded and it is now my pleasure to introduce to you Justin Agnew director of finance. Thank you Justin you may begin.

Speaker 2: And it is now my pleasure to introduce to you Justin Agnew, Director of Finance. Thank you Justin, you may be.

Speaker 3: Good morning, and thank you for joining us for Interim midstream third quarter investor conference.

Good morning, and thank you for joining us for Antero Midstream third quarter Investor Conference call.

Speaker 3: spend a few minutes going to the financial and operating highlights and then we'll open it up for Q&A.

Spend a few minutes going through the financial and operating highlights and then we'll open it up for Q&A.

Speaker 3: I would also like to direct you to the homepage of our website at www.dero-midstream.com, where we've provided a separate learnings call presentation that will be reviewed during today's call. Today's call may also contain...

I would also like to direct you to the homepage of our website at Www Dot Antero midstream Dot com, where we've provided a separate earnings call presentation that will.

During today's call.

Today's call May also contain certain non-GAAP financial measures.

Speaker 3: Please refer to our earnings press release for important disclosures regarding such measures, including reconciliation to the most comparable gap finance.

Please refer to our earnings press release for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures.

Speaker 3: Joining me on the call today are Paul Rady, Chairman, CEO and President of Intero Resources and Intero Ministry, Brendan Krueger, CFO of Intero Ministry, and Michael Kennedy, CFO of Intero Resources, and Director of Intero Ministry.

Joining me on the call today are Paul Rady, Chairman, CEO, and President of Antero resources, Antero Midstream Brendan Krueger CFO of Antero Midstream and Michael Kennedy CFO of Antero resources and director of inter midstream.

With that I'll turn the call over to Paul.

Speaker 4: Thanks, Justin. In my comments, I will discuss the multi-decade inventory dedicated to AM at the AR Capital Efficiency Achievements in 2023.

Thanks, Justin.

In my comments I will discuss the multi decade inventory dedicated to a M.

Our capital efficiency achievements in 2023.

Speaker 4: Both of these attributes support the attractive and de-risk long-term outlook at AM.

Both of these attributes to support the attractive and de risked long term outlook at AAM.

Speaker 4: Brendan will then discuss our third quarter financial results, repeatable free cash flow business model, and 2022 ESG Highlight.

Brendan will then discuss our third quarter financial results repeatable free cash flow business model and 2022 ESG highlights.

Speaker 4: I'm going to start my comments on slide number three titled consistent growth and large low cost inventory dedicated to AM.

Going to start my comments on slide number three titled consistent growth and large low cost inventory dedicated to am.

Speaker 4: This slide highlights the throughput growth at AM and drilling inventory for the natural gas piers at a $2.75 break even 9 max gas price.

This slide highlights the throughput growth at AAN and drilling inventory for the natural gas peers at a 275 $2 75 breakeven Nymex gas price.

Speaker 4: During the third quarter, AM once again delivered double digits year over year through foot growth.

During the third quarter once again delivered double digit year over year throughput growth.

Speaker 4: gathering volume is well over 3 B.C. have a day. AM now gathers roughly 3% of the total natural gas production in the United States, highlighting the growth and scale of AM's operations since 2020.

With gathering volumes well over three Bcf a day AAM now gathers roughly 3% of the total natural gas production in the United States highlighting the growth in scale of Aam's operations since 2021.

Speaker 4: Similar to AM's organic growth strategy, AR has executed its organic leasing program investing $340 million in landcap since 2021.

Similar to Aam's organic growth strategy.

As executed its organic leasing program investing $340 million in land capital since 2021.

Speaker 4: The result is over 22 years of inventory dedicated to AM based on the 2023 development pace as depicted on the right hand side of the page.

The result is over 22 years of inventory dedicated to AAM based on the 2023 development pace as depicted on the rates right hand side of the page.

Speaker 4: So while Centero midstreams gathering volumes have increased nearly 15% since 2021.

So while antero midstream gathering volumes have increased nearly 15% since 2021.

Speaker 4: AR has more than replenished a multi-decade inventory that drove the throughput growth over that time frame.

Hey, R has more than replenish the multi decade inventory that drove the throughput growth over that time frame.

Speaker 4: This organic leasing strategy is not only cost effective for AR, but incredibly capital-efficient at AM.

This organic leasing strategy is not only a cost effective for a R, but incredibly capital efficient at a M <unk>.

Speaker 4: A majority of the land capital is invested to extend laterals.

A majority of the land capital is invested to extend laterals fill in acreage positions and block up a erez already contiguous acreage position.

Speaker 4: Fill in acreage positions and block of airs already contiguous acreage positions.

Speaker 4: This results in more production and reserves per well for AM, as well as more capital efficient infrastructure buildouts within the consolidated acreage position.

This results in more production and reserves per well for a M as well as more capital efficient infrastructure build outs within the consolidated acreage position.

Speaker 4: Now let's move to slide number four titled most capital-efficient customer in Appalachia.

Now, let's move to slide number four titled.

Most capital efficient customer and Appalachia.

Speaker 4: This slide illustrates the year-over-year change in production on the Y-axis and the year-over-year change in drilling and completion capital on the X-axis.

Yes.

This slide illustrates the year over year change in production on the Y axis and the year over year change in drilling and completion capital and excess X axis wild.

Speaker 4: while targeting a maintenance capital program, AR's third quarter, 2020's reproduction actually grew 9% year over year. This growth combined with the contributions from the both on acquisitions and drilling partnership translated to a 13% year over year increase in gathering volumes at AM.

While targeting a maintenance capital program.

Our third quarter 2023 production actually grew 9% year over year. This growth combined with the contributions from the bolt on acquisitions and drilling partnership.

Insulated to a 13% year over year increase in gathering volumes today yeah.

Speaker 4: Conversely, when AIR's peer group attempted to target a maintenance capital program, their volumes actually declined year-over-year.

Conversely, when Arris peer group attempted to target a maintenance capital program their volumes actually declined year over year.

Speaker 4: You compare the production growth to the drilling and completion capital invested to deliver this growth, AR has been far and away the most capital efficient operator in Appalachia over the last year.

When you compare the production growth to the drilling and completion capital invested to deliver this growth.

Our has been far and away the most capital efficient operator in Appalachia over the last year.

Speaker 4: For reference, AR is consistently running two to three rigs and one to two completion.

A reference a R is consistently running two to three rigs and one to two completion crews, which is a very manageable and balanced development program for one of the largest natural gas producers in the U S.

Speaker 4: which is a very manageable and balanced development program for one of the largest natural gas producers in the U.S. This

This peer leading capital efficiency combined with a strong balance sheet at a R. Underpins the consistent development program that drives repeatable results at a M.

Speaker 4: combined with strong balance sheet at AR, underpins the consistent development program that drives repeatable results at AM.

Speaker 4: In summary, we continue to be one of the most capital efficient midstream companies in the industry.

In summary, we continue to be one of the most capital efficient midstream companies in the industry. The multi decade repeatable low cost inventory dedicated to am comeback combined with our unparalleled visibility consistently generates high teens return on invested capital.

Speaker 4: The multi-decade, repeatable, low-cost inventory dedicated to AM combined with our unparalleled visibility consistently generates high teens' return on invested capital or ROI.

All are or ROIC.

Speaker 4: These peer leading returns on invested capital further supported by AR's peer leading capital efficiency continue to drive value for AM shareholders. With that, I.

These peer leading returns on invested capital further supported by a Ars peer leading capital efficiency continue to drive value for a M shareholders.

With that I turn the call over to Brendan.

Speaker 3: Thanks, Paul. I will begin my comments on slide number five titled Operational Success Drives Earnings Growth.

Thanks, Paul I'll begin my comments on slide number five titled operational success drives earnings growth.

Speaker 3: During the third quarter, we generated a company record $251 million of EBITDA, or over $1 billion on an annualized basis, which was a 12% growth.

During the third quarter, we generated a company record $251 million of EBITDA or over $1 billion on an annualized basis.

Which was a 12% increase year over year.

Speaker 5: We also generated $138 million of free cash flow before dividends and $30 million of free cash flow after dividends.

We also generated $138 million of free cash flow before dividend and $30 million of free cash flow after dividends.

Speaker 5: This free cash flow is utilized to reduce absolute debt and resulted in leverage declining to 3.4 times, which is, which is a reduction from 3.7 times that year end.

This free cash flow was utilized to reduce absolute debt and resulted in leverage declining to three four times, which is which is a reduction from three seven times at year end 2022.

Speaker 5: These financial achievements were a direct result of Antero Midstream's growth strategy and operational.

These financial achievements were a direct result of Antero midstream growth strategy and operational success during the third quarter low pressure gathering and compression volumes increased by 13% and 17% respectively compared to the prior year quarter, both throughput measures set company records for Antero midstream.

Speaker 5: During the third quarter, low pressure gathering and compression volumes increased by 13% and 17% respectively, compared to the prior year quarter. Both throughput measures that companies

Speaker 5: Of the 13% growth in low pressure gathering volumes, approximately 6% was organic growth on our legacy assets, and 7% was attributable to the Crestwood acquisition that closed in the 4th quarter of last year.

Of the 13% growth in low pressure gathering volumes approximately 6% was organic growth on our legacy assets and 7% was attributable to the Crestwood acquisition that closed in the fourth quarter of last year.

Speaker 5: The outperformance in AM's gathering and compression business, which strove the increase in our EBIDA guidance, was a result of outperformance on wells turned to sales in 2023, as Paul discussed, as well as the acceleration of completions throughout.

The outperformance in Aam's gathering and compression business, which drove the increase in our EBITDA guidance was a result of outperformance on wells turned to sales in 2023, as Paul discussed as well as the acceleration of completions throughout the year.

Speaker 5: Now let's move on to slide number six, titled Transition to Repeatable Free Cash Flow After Devastation.

Now, let's move on to slide number six titled transitioned to repeatable free cash flow after dividends.

Speaker 5: This quarter was our fifth straight quarter of generating free cash flow after...

This quarter was our fifth straight quarter of generating free cash flow after dividends year to date free cash flow after dividends have totaled $107 million, which is above our original full year guidance midpoint of a $105 million and we have achieved this in just three quarters Antero midstream is 2023 free cash flow has benefited from a comp.

Speaker 5: Year-to-date, free cash flow after dividends has totaled $107 million, which is above our original full-year guidance midpoint of $105 million, and we have achieved this in just three quarters. Antero Midstream's 2023 free cash flow has benefited from a combination of outperformance in our base business.

Nation of outperformance in our base business, realizing synergies from our bolt on acquisitions and optimizing our capital budget.

Speaker 5: Realizing synergies from our bolt-on acquisitions and optimizing our capital.

Speaker 5: Looking back at the Crestwood and then Link acquisitions, we were well positioned to put both acquisitions on the balance sheet given our leveraged position and visibility over the near term. To put it into context, we expect to essentially pay off both of these acquisitions with just six to seven quarters of the excess free cash flow after.

Looking back at the Crestwood in Enlink acquisitions, we were well positioned to put both acquisitions on the balance sheet, given our leverage position and visibility over the near term to put it into context, we expect to essentially pay off both of these acquisitions acquisitions with just 6% to seven quarters of excess free cash flow after dividends.

Speaker 5: At the same time, we expect our leverage to decline by almost a turn over that period. This is an incredible feat and highlights just how strong AM's base business is, as well as demonstrating how free cash flow accretive those acquisitions were.

At the same time, we expect our leverage to decline by almost a turn over that period. This is an incredible feat and highlights just how strong am's based businesses as well as demonstrating how free cash flow accretive those acquisitions work.

Speaker 5: Before finishing up our prepared remarks, I wanted to briefly touch on our 2022 ESG achievements on slide number.

Before finishing up our prepared remarks I wanted to briefly touch on our 2022 ESG achievements on slide number seven.

Speaker 5: The data on this page was just recently published in our annual ESG report. In 2022, we delivered a methane leak loss rate of just 0.031 percent, one of the lowest in the mid-season.

The data on this page with just recently published in our annual ESG report in 2022, we delivered a methane leak loss rate of just 0.031% one of the lowest in the midstream industry.

Speaker 5: Our integrated water system, the largest in Appalachia, allowed us to reuse or recycle 86% of our wastewater and eliminated over 12 million miles of truck traffic in our local.

Our integrated water system, the largest in Appalachia allowed us to reuse or recycle 86% of our wastewater and eliminated over 12 million miles of truck traffic in our local communities importantly, while we have delivered significant growth over the last year. We have delivered it safely 2022 marked the eighth straight year.

Speaker 5: Importantly, while we have delivered significant growth over the last year, we have delivered

Speaker 5: 2022 marks the 8th straight year without an employee lost time.

Without an employee lost time incident, which is an incredible achievement is something we are very proud of here at Antero midstream.

Speaker 5: which is an incredible achievement. It's something we are very proud of here at Interrelig Stream.

Speaker 5: We also had a 59% reduction in the total recordable incident rate in 2022, further highlighting the corporate focus on safe and efficient operation.

We also had a 59% reduction in the total recordable incident rate in 2022 further highlighting the corporate focus on safe and efficient operations.

Speaker 5: I'll finish my comments on slide number eight titled Antero Midstream, checking all the boxes.

I'll finish my comments on slide number eight titled Antero Midstream checking all the boxes.

Speaker 5: The first three quarters of 2023 have been incredibly successful from an operating and financial standpoint, which is reflected in the second.

The first three quarters of 2023 have been incredibly successful from an operating and financial standpoint, which is reflected in our second guidance increase this year.

Speaker 5: The outperformance in our base business and successful integration of our complimentary acquisitions keep us on track to deliver a peer-leading ROIC in the high teens again in 2020.

The outperformance in our base business and successful integration of our complementary acquisitions and keep us on track to deliver at peer leading ROIC in the high teens again in 2023.

Speaker 5: We have significantly de-risked the business by transitioning to generate consistent free cash flow after dividends, which we now expect to total $145 million at the midpoint of guidance, which is almost 40% above our initial guidance of $105 million.

We have significantly derisked the business by transitioning to generate consistent free cash flow after dividends, which we now expect a total of $145 million at the midpoint of guidance, which is almost 40% above our initial guidance of $105 million.

Speaker 5: As we look to 2024, we expect a further meaningful increase in free cash flat.

As we look to 2024, we expect a further meaningful increase in free cash flow. After dividends. This will position <unk> well to achieve our three times leverage target and increase our return of capital to shareholders.

Speaker 5: This would position AM well to achieve our three times leverage target and increase our return of capital to share.

Speaker 5: In summary, we continue to build on our track record of delivering on our stated guidance and financial targets. More importantly, we deliver these through safe and efficient operations while being good stewards in our local communities. With that operation...

In summary, we continue to build on our track record of delivering on our stated guidance and financial targets more importantly, we deliver these through safe and efficient operations, while being good stewards and our local communities.

With that operator, we are ready to take questions.

Speaker 2: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the questioning queue. You may press star 2 if you.

Thank you Sir we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Speaker 2: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

A moment, while we poll for questions.

Speaker 2: And the first question comes from the line of Jeremy Tonnet with JP Morgan. Please proceed.

And the first question comes from the line of Jeremy Tonet with J P. Morgan. Please proceed with your question.

Speaker 5: Hey, this is Noah on for Jeremy. I wanted to touch on your leverage target of achieving three times by 2024. I guess just, how should we think about your capital allocation priorities after achieving this?

Hey, this is Noah on for Jeremy I wanted to touch on your leverage target of achieving three times by 2020 for I guess, just how should we think about Europe.

Your capital allocation priorities after achieving that.

Speaker 5: Yeah, I think, you know, we've we've talked about this on some past calls as well. I mean, I think overall.

Yeah, I think we've talked about this on past calls as well I mean I think overall.

Speaker 5: As we get closer to that target, we'll certainly evaluate where we are from an equity perspective and we'll look at whether shared refurgences or further debt pay down or increases to the dividend makes sense.

As we get closer to that target.

We'll certainly evaluate where we are from an equity perspective.

And and we will look whether share repurchases or further debt pay down or.

Our increase is going to be evident makes sense I think as we've talked about in the past having visibility significant visibility into the long term.

Speaker 5: I think as we've talked about it in the past, having this visibility, significant visibility into the long-term business of AM through the integration with AR, gives us a lot of perspective in terms of the underlying equity value. And as we sit here today, I think Sherry Purchases continue to make a lot of sense for that further return of capital. But we'll certainly look at all of those as we approach that leverage target.

Business <unk>.

Through the integration with a R.

It gives us a lot of perspective in terms of the underlying equity value and as we sit here today I think Jeff Sherrick share repurchases continue to make a lot of sense for that further return of capital, but we'll certainly look at all of those as we approach the leverage target.

Thank you.

Speaker 2: And the next question comes from the line of Brian Reynolds with UBS. Please proceed with...

And the next question comes from the line of Brian Reynolds with UBS. Please proceed with your question.

Speaker 6: Hi, good afternoon, everyone. Maybe to look ahead to 2024, given some of the recent 23-op performance, we're just kind of wondering if you could kind of characterize some of the tailwinds going into 24, just given the growth that should flow through some of the rate relief that'll go away, and then the CPI inflators. Should we kind of characterize this as mid-single digit EBITDA growth, or could we get into the low teens next year? Thanks.

Hi, Good afternoon, everyone. Maybe to look ahead to 2024, given some of the recent twenty-three outperformance was just kind of wondering if you could kind of characterize some of the tailwind going into 'twenty. Four you know just given the growth that should flow through.

Some of the right rate relief that'll that'll go away and then the CPI inflator should we kind of characterize it says as mid <unk>.

Single digit EBITDA growth or could we get into the low teens next year. Thanks.

Speaker 5: Yeah, good question, Brian . I think you kind of broke it down nicely. There's really the three components. So the fee rebates rolling off will be about 48 million next year. So that's roughly 5% growth on the midpoint of our guidance this year. The CPI, it's measured June to June . So we know that number already. It was that.

Yeah. Good question, Brian I think you kind of broke it down nicely, there's really the three components.

<unk> rebates rolling off will be about 48 $48 million next year. So that's you know that's roughly 5% growth on our on the midpoint of our guidance this year.

The CPI, it's measured June to June so we know that number already it was that it was a 3% CPI number and then you take 55% of that two year I'll call. It a percent and a half so that gets you in that 6% to 7% overall EBITDA growth and then.

Speaker 5: is a 3% CPI number and then you take 55% of that. So you're, you know, call it a percent and a half. So I get to do that six to seven percent overall, even on growth. And then, you know, if you look at the drilling partnership.

If you look at the drilling partnership and and what <unk> said that the benefit is that a R has continued to improve with well performance acceleration of completions until the production number.

Speaker 5: And what AR said, you know, the benefit is that AR has continued to improve with well-performance acceleration and completion, so the production number...

Speaker 5: at AR is up over 200 million a day from year end, 22 to year end, 23.

At a R is up over 200 million a day.

From year end, 20th year to year end 'twenty three and so.

Speaker 5: And so, depending on what they run from a maintenance capital plan, we'll drive kind of that third component of growth at...

Pending on what they run from a maintenance capital plan will drive kind of that third component of growth at am. So it can be anywhere I call. It in the 6% to 7% up to that that low double digit number that you you talked about just depending on the development plan that we see at the IR level and I am as well position just from a capital.

Speaker 5: So you can be anywhere at all in the 6 to 7% up to that low double digit number that you talked about just depending on...

Speaker 5: the development plan that we see at the AR level. And I am as well positioned just from a capital standpoint to be able to meet. What exactly that it is?

Standpoint to be able to meet.

Meet those levels.

Speaker 6: Great, makes sense, appreciate all the color. Maybe as my follow-up, let's look even a little further ahead to 2025. You know, the drill coat with AR is expected to end.

Great makes sense I appreciate all the color maybe as my follow up so it's look even a little further ahead to 2025, you know the drill co with a or is expected to end, which could impact the water volumes at eight am and twenty-five. So just just given where a ars balance sheet is relative to where it was a few years ago and then the call for natural gas given the LNG.

Speaker 6: which could impact the water volumes at AM in 25. So just given where AR's balance sheet is relative to where it was a few years ago, and then the call for natural gas given the LNG supplied their demand that's coming online, and the call for gas from that gas basin is just kind of curious of how we should think about maybe AR volumes picking up some of the drill co-activity, you know, that ultimately flows through to enter our midstream on the water side. Thanks.

Supply demand, that's coming online and the call for gas from Nat Cat Nat gas basins, just kind of curious how we should think about maybe a our volumes picking up some of the drill co activity you know that ultimately flows through to Antero midstream on the water side. Thanks.

Speaker 5: Yeah, now thanks. I think overall, because you looked at 2025, I mean, the benefit for looking at it from an ARA and perspective here is the...

Yeah no. Thanks.

I think overall as you look to 2025, I mean the benefit for.

Just looking at it from an E. R. M perspective here is the.

Speaker 5: Gross wellhead volume, you've got the infrastructure in place from a gross wellhead volume perspective. And so once the drilling partnership rolls off, that's very efficient to grow from a net perspective an AR into that.

Gross wellhead volume you've got the infrastructure in place from a gross wellhead volume perspective, and so once the drilling partnership rolls off that's very it's very efficient to grow from a net perspective and they are into that.

Speaker 5: that infrastructure capacity that you already have from a processing, from a firm transport, from a gathering perspective. So, you know, if the price is hold with what the strip it entails, I think that'd probably be a fair assumption.

That infrastructure capacity that you already have from a processing from a firm transport from a gathering perspective, so if the prices hold with what the strip. It entails I think that'd probably be a fair assumption that you maintain that gross wellhead volume at the <unk> level.

Speaker 5: that you maintain that gross well head volume at the AR level. And that will flow through to you.

And that will flow through to them of course.

Speaker 6: Great, that makes sense. I appreciate all the color this afternoon. Have a great rest of your day. Thanks, Brian .

Great that makes sense I appreciate all the color. This afternoon and have a great rest of your day.

Thanks, Brian.

Operator: Greetings and welcome to the Antero Midstream 3rd quarter 2023 earnings call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone to require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded and it is now my pleasure to introduce to you Justin Agnew, director of finance. Thank you for antero midstream 3rd quarter investor conference call.

Speaker 2: And the next question comes from the line of Zach Van Everin with Tutor Pickering Holt. Please proceed with your call.

And the next question comes from the line of Zach than ever and with Tudor Pickering Holt. Please proceed with your question.

Speaker 7: Perfect. Thanks for taking my question. Just one on the processing fracks side. You know, I see you guys are running at or above name plate for both of those. Have you looked into expanding that capacity at all? And if so, what would the CapEx spend look like on those?

Perfect. Thanks for taking my question, just one on the processing and Frac side.

You guys are running at or above nameplate for both of those have you looked into expanding that capacity at all and if so what would the capex spend look like on those.

Speaker 5: Yeah, I mean, I think the benefit on the processing side is you typically can run about 10% above name plate.

Yeah, No I mean, I think that the benefit on the processing side as you typically can run about 10% above nameplate. So if you look just not to the JV.

Speaker 5: So if you look just net to the JV at the 1.6 BCF data, that'd be another 160 million of ability to grow.

Operator: We'll spend a few minutes going through the financial and operating highlights and then we'll open it up for Q&A. I would also like to direct you to the homepage of our website at www.intero midstream.com where we've provided a separate earnings call presentation that will be reviewed during today's call. Today's call may also contain certain non-gap financial measures. Please refer to our earnings press release for important disclosures regarding such measures, including reconciliation to the most comparable gap financial measures.

At the one six Bcf a day that'd be another $160 million of of ability to grow.

Speaker 5: In addition to that, you know, obviously you've got the utica, which there'll be a couple of pads that'll be turned on that A.M.s gathering in the utica.

In addition to that you know obviously, you've got the Utica, which there'll be a couple of pads it'll be turned on at Ams gathering in the Utica and the benefit in the Utica from a a M perspective, there's a lot of that infrastructure is already built out.

Speaker 5: and the benefit of the Udica from AM perspective is a lot of that infrastructure's already built out.

Speaker 5: So I think there's plenty of levers that can be pulled in terms of where development occurs plus the ability to run above

So I think there's there's plenty of.

Of levers that can be pulled in terms of where development occurs plus the ability to run above nameplate on the processing side.

Speaker 5: And then on the dry side, you've also got the assets we acquired from Cresward, which give you the ability to move over there. So you've got Utica dry assets in Cresward and the ability to run above the nameplate.

Justin Agnew: Joining me on the call today are Paul Rady, Chairman, CEO and President of Antero Resources and Antero Midstream, Brendan Krueger, CFO of Antero Midstream, and Michael Kennedy, CFO of Antero Resources and Director of Antero Midstream. We'll back up in the call of our call. Thanks Justin.

And then and then on the dry side and then on the dry side. You've also got the you know the assets, we acquired from Crestwood, which which give you the ability of them to move over there. So you've got Utica dry assets, and crestwood and the ability to to run above nameplate capacity and processing.

Speaker 7: God, that makes sense. Then on the fracks side, can you also run above that capacity? Or is that pretty limited?

Got it that makes sense and then on the Frac side can you also run above that capacity or is that pretty limited.

Paul Rady: In my comments I will discuss the multi-decade inventory dedicated to AM at the AR Capital Efficiency Achievements in 2023. Both of these attributes support the attractive and de-risk long-term outlook at AM.

Uh huh.

Speaker 5: The benefit on the frack side is that the last frack that was there anyway is essentially unutilized. So you've got full capacity. It's just our frack for, you know, we elected to participate in the fourth fractionation unit. The fifth one, Oakdale 5, we elected not to participate and that one's essentially pretty empty. So you've got the ability to grow from an AR perspective and move into that fractionation facility.

The benefit on the Frac side.

The last Frac that was there any ways is essentially unutilized. So you've got full capacity its just our frac four we elected.

Participating in the call.

Fractionation units the first one hopefully on five we elected not to participate in and that was essentially a pre.

Paul Rady: Brendan will then discuss our 3rd quarter financial results, repeatable free cashflow business model, and 2022 ESG highlights. I'm going to start my comments on slide number three titled consistent growth and large low-cost inventory dedicated to AM. This slide highlights the throughput growth at AM and drilling inventory for the natural gas peers at a $2.75 break-even 9-max gas price. During the 3rd quarter, AM once again delivered double-digit year-over-year throughput growth. With gathering volume as well over 3 B.C, every day, AM now gathers roughly 3% of the total natural gas production in the United States, highlighting the growth and scale of AM's operations since 2021.

Pretty empty so you've got the ability to grow from an AUR perspective.

And move into that.

Fractionation facility.

Perfect. Thanks, that's all I had.

Thanks.

Speaker 2: Some ladies in gentlemen as a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tool will indicate that your line is in the queue.

And ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue.

Speaker 2: using speaker equipment and maybe necessary to pick up your hands up before pressing the star keys.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, while we poll for any additional questions.

Speaker 2: And the next question comes from the line of Greg Brody with Bank of America. Please proceed.

And the next question comes from the line of Gregg Brody with Bank of America. Please proceed with your question.

Speaker 8: I was trying to see if I can get back in within 30 minutes of the last call. But just the one more M&A related question, but this one very specific to Endterra midstream. So we obviously returning capital next year as a possibility. How do you think about the M&A landscape for Endterra midstream today? And if you think there's opportunities out there and does it make sense?

I was just trying to see if I can get back to them within 30 minutes of the last call.

Paul Rady: Similar to AM's organic growth strategy, AR has executed its organic leasing program investing $340 million in land capital since 2021. The result is over 22 years of inventory dedicated to AM based on the 2023 development pace as depicted on the right-hand side of the page. So while Henterro midstreams gathering volumes have increased nearly 15% since 2021, AR has more than replenished a multi-decade inventory that draws the throughput growth over that time frame.

Just.

One more M&A related question, but this one very specific to antero midstream so we.

Obviously, you're returning capital next year as a as a possibility.

Do you think about the M&A landscape for French our midstream.

Today, and if you take theirs.

If there's opportunities out there and does it make sense.

Speaker 5: Yeah, I mean, on the AEM side, you saw us do the two, what we call kind of cleanup acquisitions, which were end-length and crosswood assets last year. Those were nice fold-in AR volumes, drove the asset cash flow there. So, really for other opportunities, there are a few opportunities out there, probably smaller in scale. And then, occasionally, see some larger opportunities with thirds.

Yeah, I mean on the <unk>.

You saw us do that the two are what we call kind of cleanup acquisitions, which were enlink and Crestwood asset.

Last year that was a nice fall then our volumes drove drove the asset cash flow there. So.

Yeah, well look for other opportunities there are a few opportunities out there probably smaller in scale.

Paul Rady: This organic leasing strategy is not only cost-effective for AR, but incredibly capital-efficient at AM. A majority of the land capital is invested to extend laterals, fill-in acreage positions, and block-up ARs already contiguous acreage positions. This results in more production and reserves per well for AM, as well as more capital-efficient infrastructure buildouts within the consolidated acreage position. Now, let's move to slide number four titled most capital-efficient customer in Appalachia. This slide illustrates the year-over-year change in production on the Y-axis and the year-over-year change in drilling in completion capital on the X-axis.

And then you know you occasionally see some larger.

Opportunities with third parties.

Speaker 9: And that's where you just need to get comfortable with a third party perspective. Can you de-risk it enough relative to the organic opportunities you have on the AR side? That's essentially how we look at M&A and how we'll continue to do that going forward.

And that's where you just need to get comfortable with a third party perspective, and can you derisk it enough relative to the organic opportunities you have on the HR side.

Essentially how we look at M&A.

And how we will continue to do that going forward.

That's all I got thanks, guys. Thanks.

Thanks, Craig Craig.

Speaker 2: There are no further questions at this time, and I would like to turn the floor back over to Justin Agnew for any closing.

There are no further questions at this time I would like to turn the floor back over to Justin Agnew for any closing comments.

Speaker 3: Thanks everyone for joining us today. Please feel free to reach out with any questions.

Thanks, everyone for joining us today, please feel free to reach out with any questions.

Speaker 2: Ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your...

And ladies and gentlemen that does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

[music].

Paul Rady: While targeting a maintenance capital program, AR's third quarter-20-23 production actually grew 9 percent year-over-year. This growth, combined with the contributions from the both non-acquisitions and drilling partnership, translated to a 13 percent year-over-year increase in gathering volumes at AM. Conversely, when AR's peer group attempted to target a maintenance capital program, their volumes actually declined year-over-year. When you compare the production growth to the drilling in completion capital invested to deliver this growth, AR has been far and away the most capital-efficient operator in Appalachia over the last year.

Yeah.

Speaker 10: I.

[music].

Speaker 10: I.

Okay.

[music].

Paul Rady: For reference, AR is consistently running two to three rigs and one to two completion crews, which is a very manageable and balanced development program for one of the largest natural gas producers in the U.S. This peer-leading capital efficiency, combined with strong balance sheet at AR, under bins the consistent development program that drives repeatable results at AM.

Paul Rady: In summary, we continue to be one of the most capital-efficient midstream companies in the industry. The multi-decade, repeatable, low-cost inventory dedicated to AM, combined with our unparalleled visibility consistently generates high-teens return on invested capital or ROIC. These peer-leading returns on invested capital further supported by AR's peer-leading capital efficiency continue to drive value for AM shareholders.

Speaker 10: The.

Brendan Krueger: With that, I turn the call over to Brandon. Thanks, Paul. I will begin my comments on slide number five titled operational success drives earnings growth. During the third quarter, we generated a company record 251 million of EBITDA or over $1 billion on an annualized basis, which was a 12% increase year over year. We also generated 138 million of free cash flow before dividends and 30 million of free cash flow after dividends. This free cash flow was utilized to reduce absolute debt and resulted in leverage declining to 3.4 times, which is a reduction from 3.7 times at year end 2022.

Brendan Krueger: These financial achievements were a direct result of Ancaro midstream's growth strategy and operational success, success. During the third quarter, low pressure gathering and compression volumes increased by 13% and 17% respectively, compared to the prior year quarter, both throughput measures that company records for Antero Midstream. Above the 13% growth in low pressure gathering volumes, approximately 6% was organic growth on our legacy assets, and 7% was attributable to the Crestwood acquisition that closed in the fourth quarter of last year.

Brendan Krueger: The outperformance and AMs gathering in compression business, which stroked the increase in our EBITDA guidance, was a result of outperformance on well-sterned sales in 2023 and Paul discussed, as well as the acceleration of completion throughout the year.

Brendan Krueger: Now let's move on to slide number 6, titled Transition to Repeatable Free Cash Flow After Dividends. This quarter was our fifth straight quarter of generating free cash flow after dividends. Year-to-date, free cash flow after dividends has totaled 107 million, which is above our original full-year guidance midpoint of 105 million, and we have achieved this in just three quarters. Antero Midstream's 2023 free cash flow has benefited from a combination of outperformance in our base business, realizing synergies from our bolt-on acquisitions, and optimizing our capital budget.

Brendan Krueger: Looking back at the Crestwood and then link acquisitions, we were well positioned to put both acquisitions on the balance sheet, given our leverage position and visibility over the near term. To put it into context, we expect to essentially pay off both of these acquisitions with just six to seven quarters of the excess free cash flow after dividends. At the same time, we expect our leverage to decline by almost a turn over that period. This is an incredible feat and highlights just how strong AMs base businesses, as well as demonstrating how free cash flow a creative those acquisitions were.

Brendan Krueger: Before finishing up our proprietary remarks, I wanted to briefly touch on our 2022 ESG achievements on slide number seven. The data on this page was just recently published in our annual ESG report. In 2022, we delivered a methane leak loss rate of just 0.031 percent, one of the lowest in the midstream industry. Our integrated water system, the largest in Appalachia, allowed us to reuse or recycle 86 percent of our wastewater and eliminated over 12 million miles of truck traffic in our local communities. Importantly, while we have delivered significant growth over the last year, we have delivered it safely.

Brendan Krueger: 2022 marked the eighth straight year without an employee lost time incident, which is an incredible achievement in something we are very proud of here at Interrovid Stream. We also had a 59 percent reduction in the total recordable incident rate in 2022, further highlighting the corporate focus on safe and efficient operations.

Brendan Krueger: I'll finish my comments on slide number eight, titled Interrovid Stream checking all the boxes. The first three quarters of 2023 have been incredibly successful from an operating and financial standpoint, which has reflected in the second guidance increase this year. The outperformance in our base business and successful integration of our complimentary acquisitions keep us on track to deliver a peer leading ROIC in the high teens again in 2023. We have significantly de-risked the business by transitioning to generate consistent free cash flow after dividends, which we now expect a total 145 million at the midpoint of guidance, which is almost 40 percent above our initial guidance of 105, million. As we look to 2024, we expect a further meaningful increase in free cashflow after dividends. This will position AM well to achieve our three times leveraged target and increase our return of capital to shareholders.

Brendan Krueger: In summary, we continue to build on our track record of delivering on our stated guidance and financial targets. More importantly, we deliver these through safe and efficient operations while being good stewards in our local communities.

Operator: With that operator, we are ready to take questions. Thank you, sir. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participant using speaker equipment, it may be necessary to pick up your hands set before pressing the star keys. One moment, what we pull for questions.

Noah: The first question comes from the line of Jeremy Tonnet with JP Morgan. Please proceed with your question. Hey, this is Noah on for Jeremy. I wanted to touch on your leveraged target of achieving three times by 2024. I guess how should we think about your capital allocation priorities after achieving this? Yeah, I think we talked about this on some past calls as well. I mean, I think overall, as we get closer to that target, we'll certainly evaluate where we are from an equity perspective and we'll look whether Jeremy purchases or further debt payout or increases to the dividend makes sense.

Noah: I think as we've talked about it in the past, having this visibility, significant visibility into the long-term business of AM through the integration with AR gives us a lot of perspective in terms of the underlying equity value. And as we sit here today, I think Jeremy purchases continue to make a lot of sense for that further return of capital, but we'll certainly look at all of those as we approach that leveraged target.

Noah: Thank you.

Brian Reynolds: And the next question comes from the line of Brian Reynolds with UBS. Please proceed with your question. Hi, good afternoon everyone. Maybe to look ahead to 2024, given some of the recent 23-op performance, we're just kind of wondering if you could kind of characterize some of the tailwinds going into 24, you know, just given the growth that should flow through, you know, some of the rate relief that'll go away and then the CPI inflators.

Brian Reynolds: Should we kind of characterize this as mid-single digit EBITDA growth, or could we get into the low-teens next year? Thanks. Yeah, good question, Brian. I think you kind of broke it down nicely. There's really the three components. So the fee rebates rolling off will be about 48, 48 million next year. So that's, you know, that's roughly 5% growth on the midpoint of our guidance this year. The CPI, you know, it's measured June to June.

Brian Reynolds: So we know that number already. It was a 3% CPI number and then you take 55% of that. So you're, you know, call it a percent and a half. So I get, you know, that's 6 to 7% overall EBITDA growth. And then, you know, if you look at the drilling partnership and what ARs said, you know, the benefit is that ARs continued to improve with well-performance acceleration and completion. And so the production number at ARs up over 200 million a day from year and 22 to year and 23.

Brian Reynolds: And so, depending on what they run from a maintenance capital plan, we'll drive kind of that third component of growth at at AM. So you can be anywhere call it in the 6 to 7% up to that that low double digit number that you talked about just depending on the development plan that we see at the AR level. And AM is well positioned just from a capital standpoint to be able to meet. Great, makes sense. Appreciate all the color.

Brian Reynolds: Maybe as my follow-up let's look even a little further ahead to 2025. You know, the drill co with AR is expected to end, which could impact the water volumes at AM in 25. So just, just given where AR's balance sheet is relative to where it was a few years ago, and then the call for natural gas given the LNG supply to our demand that's coming online, and the call for gas from that gas basin is kind of curious of how we should think about maybe AR volumes picking up some of the drill co activity, you know, that ultimately flows through to the entire midstream on the water side.

Brian Reynolds: Thanks. Yeah, now thanks. I think overall, as you looked at 2025, I mean, the benefit for looking at it from an ARM perspective here is the gross wellhead volume. You've got the infrastructure in place from a gross wellhead volume perspective. And so once the drilling partnership rolls off, that's very efficient to grow from a net perspective at AR into that infrastructure capacity that you already have from a processing, from a firm transport, from a gathering perspective.

Brian Reynolds: So, you know, if the price is hold with what the strip entails, I think that'd probably be a fair assumption that you maintain that gross wellhead volume at the AR level. And that will flow through to AM, of course.

Brian Reynolds: Great. That makes sense. I appreciate all the color this afternoon.

Brian Reynolds: Have a great rest of your day. Thanks, Brian.

Zach Van Everin: And the next question comes from the line of Zach Van Everin with Tudor Pickering Holt. Please proceed with your question. Perfect. Thanks for taking my question. Just one on the processing fracks side. You know, I see you guys are running at or above name plate for both of those. Have you looked into expanding that capacity at all? And if so, what would the CAPEX spend look like on those? Yeah. I mean, I think that the benefit on the processing side is you typically can run about 10% above name plate.

Zach Van Everin: So if you look just net to the JV at the 1.6 BCF data, that'd be another 160 million of ability to grow. In addition to that, you know, obviously you've got the Utica, which there'll be a couple of pads. It'll be turned on that AMs gathering in the Utica and the benefit in the Utica from an AM perspective is a lot of that infrastructure is already built out. So I think there's plenty of levers that can be pulled in terms of where development occurs, plus the ability to run above name plate on the processing side.

Zach Van Everin: And then on the dry side. On the dry side, you've also got the assets we acquired from Cresswood, which give you the ability to move over there. So you've got Utica dry assets in Cresswood and the ability to run above the name plate capacity of processing. Got it.

Zach Van Everin: That makes sense. And then on the, the frag side, can you also run above that capacity? Is that pretty limited? The benefit on the frag side is that the last frag that was there anyway is essentially unutilized. So you've got full capacity. It's just our, our frag for, you know, we elected to participate in the, in the fourth fractionation unit. The fifth one, hopefully, or five, we elected not to participate, and that one's essentially pretty empty. So you've got the ability to grow from an AR perspective and move into that, that fractionation. Absolutely. Perfect.

Operator: Thanks, it's all I had. Thanks. Thanks, sir. And ladies and gentlemen, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tool will indicate that your line is in the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we pull for any additional questions.

Gregg Brody: And the next question comes in the line of Gregg Brody with Bank of America. Please proceed with your question. I was trying to see if I can get back in within 30 minutes of the last call. But just the one more M&A related question, but this one very specific to Entero Midstream. So we obviously returning capital next year is a possibility. How do you think about the M&A landscape for Entero Midstream today?

Gregg Brody: And if you think there's opportunities out there, and does it make sense? Yeah, I mean, on the AM side, you saw us do the two, what we call kind of cleanup acquisitions, which were N-Link and Cresswood asset last year. Those were nice fold-in AR volumes, drove the asset cash flow there. So, you know, really for other opportunities, there are a few opportunities out there, probably smaller in scale. And then, you know, you occasionally see some larger opportunities with third parties. And that's where you just need to get comfortable with a third-party perspective. And can you be risky enough relative to the organic opportunities you have on the AR side?

Gregg Brody: That's essentially how we look at M&A, and how we'll continue to do that going forward.

Gregg Brody: That's all I got. Thanks, Cress.

Justin Agnew: There are no further questions at this time, and I would like to turn the floor back over to Justin Agnew for any closing comments. Thanks, everyone, for joining us today. Please feel free to reach out with any questions.

Operator: And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator: [inaudible]