Q4 2023 Antero Midstream Corporation Earnings Call

Operator: Subs by www.zeoranger.co.uk Greetings and welcome to the Antero Midstream 4th Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode.

Greetings and welcome to the Antero Midstream fourth quarter 2023 earnings call. At this time all participants are in a listen only mode. A 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 as a reminder, this conference is being recorded.

Operator: A 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Justin Agnew, Director of Finance and Investor Relations for Antero Midstream. Thank you. You may begin.

Now I'd like to turn the conference over to your host Justin Agnew Director of Finance and Investor Relations for Antero Midstream. Thank you you may begin.

Justin Agnew: Good morning, and thank you for joining us for Antero Midstream's fourth-quarter investor conference. 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.anteromidstream.com, where we've provided a separate earnings call presentation that will be reviewed during today's webinar. 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 Financial. Joining me on the call today are Paul Rady, Chairman, CEO, and President of Antero Resources and Antero Midstream Partners; Brendan Krueger, CFO of Antero Midstream, and Michael Kennedy, CFO of Antero Resources and Director of Antero. With that, I'll turn the call over to Paul. Thanks, Justin. And good morning, everyone.

Justin Agnew: Good morning, and thank you for joining us for a chair and midstream fourth quarter Investor Conference call, we'll spend a few minutes going through the financial and operating highlights and then we'll open it up for Q&A.

Justin Agnew: 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 be reviewed during today's call.

Justin Agnew: 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 GAAP financial measures.

Justin Agnew: Joining me on the call today are Paul Rady, Chairman, CEO, and President of Antero resources, and Antero Midstream Brent.

Speaker Change: Brendan Kruger CFO of Antero midstream and Michael Kennedy CFO of Antero resources, and director of Antero Midstream.

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

Paul M. Rady: Thanks, Justin and good morning, everyone.

Paul M. Rady: In my comments, I will discuss the financial and operational success at Antero Midstream since our IPO in 2014. I'll also discuss the 2024 capital budget and the capital efficiency of our primary customer, Antero Resources, or AR. Brendan will then highlight our 2023 results, 2024 guidance, and long-term outlook and Antero Midstream's capital allocation strategy. I will start my comments on slide number three, titled A Decade of Success Since our 2014 IPO. In 2023, we generated a company record $981 million of EBITDA and an 18% return on invested capital. Additionally, since the IPO in 2014, EBITDA has grown by an impressive 18% compound annual growth rate. This is a testament to AM's world-class assets, operational success, and the visibility it has into the development plans of Antero Resources, which is one of the premier E&P operators in North America.

In my comments I will discuss the financial and operational success at Antero midstream since our IPO in 2014.

Paul M. Rady: I'll also discuss the 2024, our capital budget and the capital efficiency of our primary customer Antero resources Okay.

Brendan will then highlight our 2023 results 2020 for guidance and long term outlook and Antero midstream had capital allocation strategy.

Paul M. Rady: I will start my comments on slide number three titled a decade of success since our 2014 IPO.

Paul M. Rady: In 2023, we generated a company record at $981 million of EBITDA at an 18% return on invested capital.

Additionally, since the IPO in 2014, EBITDA has grown by an impressive 18% compound annual growth rate.

Paul M. Rady: This is a testament to AAM is world class assets operational success and the visibility it has into the development plans of Antero resources.

Paul M. Rady: Who is one of the Premier E&P operators in North America.

Paul M. Rady: Looking ahead to 2024, we are guiding to a midpoint of one point over $4 billion based on a maintenance capital program at a R.

Paul M. Rady: Looking ahead to 2024, we're guiding to a midpoint of $1.04 billion of EBITDA based on a maintenance capital program at AR. This program is expected to generate ITEENS ROIC in 2024 as well as later as our capital budget declines and EBITDA increases. Now let's dive into AM's 2024 capital budget by turning to slide number four titled "Unparalleled Capital Flexibility." In 2023, our capital expenditures were $185 million, which was at the lower half of our guidance range and a 30% reduction compared to 2022. Looking ahead to 2024, we have budgeted $150-$170 million of capital, substantially all of which is invested in the Marcellus Liquids Rich Midstream Corridor. This is below our previous target of flat year-over-year capital in 2024 and illustrates the flexibility of our capital budget to changes in the development plan. At the midpoint, this represents a 14% decrease compared to 2023. The right side of the page depicts the breakdown of the capital budget by segment.

This program is expected to generate.

Paul M. Rady: Oh I see in the 'twenty 'twenty four as well as later our capital head as a capital budget declines in EBITDA increases.

Paul M. Rady: Now, let's dive into Aam's 'twenty 'twenty four capital budget.

Paul M. Rady: Turning to slide number four titled unparalleled capital flexibility.

Paul M. Rady: In 'twenty two 'twenty three capital expenditures were $185 million, which was at the lower half of our guidance range at a 30% reduction compared to 2022.

Paul M. Rady: Looking ahead to 2024, we had budgeted $150 million to $170 million of capital substantially all of which is invested in the Marcellus liquids rich midstream corridor.

Paul M. Rady: This is below our previous target.

Paul M. Rady: Oh flat year over year in capital in 2024, and illustrates the flexibility of our capital budget to changes in the development plans.

Paul M. Rady: At the midpoint this represents a 14% decrease compared to 2023.

Paul M. Rady: The right side of the page depicts the breakout of the capital budget by segment.

Paul M. Rady: As you can see a compression capital.

Paul M. Rady: As you can see, our compression capital, compression capital, declines year over year. This is driven by our compression, what we call relocation and reuse savings, and the completion of our Grays Peak Compressor Station, which will add 160 million cubic feet of compression capacity in the second quarter. In addition, Antero's midstream freshwater delivery and water blending capital declines in 2024 as a result of modestly lower activity levels and the completion of a main water pipeline artery in the liquids-rich Marcellus shale.

Paul M. Rady: Compression capital declines year over here.

Paul M. Rady: This is driven by a compression in what we call relocation and reuse savings and the completion of our Grays peak compressor station, which will add 160 million cubic feet of compression capacity in the second quarter.

Paul M. Rady: In addition, antero midstream freshwater delivery and water blending capital declines in 2024, as a result of modestly lower activity levels and the completion of a main water pipeline artery in the liquids rich Marcellus shale.

Paul M. Rady: On a quarterly basis, it is worth noting that AM expects to invest approximately 60 to 65 percent of its full-year capital budget in the second and third quarters, during the summer months, which are more favorable for infrastructure build-out. One of the foundations of AM's flexible and capital efficient investment approach is the visibility it shares with AR. The chart on slide five, titled Most Capital Efficient Customer, compares the capital efficiency of the natural gas puritan. Based on expected 2024 drilling and completion capital budgets relative to its production, AR will have the lowest capital per unit of production of the peer group at just 55 cents per MCF equivalent. This is 40% below the natural gas peer average of 2% for MCSA. This measure is important when comparing the asset quality and operational efficiency of each company.

Paul M. Rady: On a quarterly basis. It is worth noting that AAM expects to invest approximately 60% to 65% of its full year capital budget in the second and third quarters during the summer months, which are more favorable for infrastructure build out.

Paul M. Rady: One of the foundations of Aam's flexible and capital efficient investment approach is the visibility it shares with a R.

Paul M. Rady: The chart on slide five titled most capital efficient customer compares the capital efficiency of the natural gas peer group.

Paul M. Rady: Based on expected 2020 for drilling and completion capital budget relative to its production.

Paul M. Rady: We will have the lowest capital per unit of production of the peer group at just 55 cents per Mcf equivalent.

This is 40% below the natural gas peer average of.

Paul M. Rady: 62% per M. CSA. This measure is important when comparing the asset quality and operational efficiency.

Paul M. Rady: Such comfort of each company.

Paul M. Rady: In the case of AR, the quality and depth of the inventory, along with its operational efficiency, achieved in 2023 provide tremendous opportunities for AM's Long-Term Operations. I'll finish my comments on slide number six titled, AR benefiting from liquids pricing. The left-hand side of the page depicts year-to-year propane inventories relative to the 2023 five-year average. As a result of strong exports and winter weather, inventories have declined by more than 45 million barrels, and Zach Dober.

Paul M. Rady: In the case of a are the quality and depth of the inventory along with its operational efficiencies.

Paul M. Rady: Achieved in 'twenty two 'twenty three provides tremendous ability for AAM as long term operations.

Paul M. Rady: I'll finish my comments on slide number six titled.

Paul M. Rady: Hey are benefiting from liquids pricing improvement the left hand side of the page depicts year to year propane inventories relative to 2023 and the five year average as a result of strong exports and winter weather inventories have declined by more than 45 billion barrels since October.

Paul M. Rady: Sure.

Paul M. Rady: Just a few months propane stocks have moved towards the high end of the five year range to five year average levels.

Paul M. Rady: In just a few months, propane stocks have moved from the high end of the five-year range to the five-year average. This return of propane inventories to the historical average has tightened the market and driven bullish sentiment from Mach-Bellevue propane prices as a percent of WTI increasing from 43% last fall to 57% today as prices have risen above $0.90 a gallon. This pricing uplift uniquely benefits AR due to its productivity and diversity compared to traditional dry gas producers. Approximately 50% of AR's 2023 revenues were derived from liquids, including putting a dollar value on the pricing uplift. Each dollar per barrel change in C3PLUS NGL pricing results in approximately $40 million of incremental free cash flow for AR since AR will produce about 40 million barrels of C3PLUS NGL. This pricing improvement, combined with the reduced maintenance capital at AR, more than offsets the impact of the decline in natural gas prices and supports the stable development plan at AR that underpins AM's 2024 guide. With that, I'll turn the call over to Brandon.

Paul M. Rady: This return of propane inventories until the historical average has tightened the market and driven bullish sentiment from my value knocked out belvieu propane prices as a percent of WCS ti increasing from 43% last fall to 57% today as prices.

Have really risen above 90 cents a gallon.

Paul M. Rady: This pricing uplift uniquely benefits. He argued at its productivity diversity compared to traditional dry gas producers approximately 50% of ARAS 20, twenty-three revenues were derived from liquids, including Ngls.

Paul M. Rady: Put a dollar value on the pricing uplift each dollar per barrel change in <unk>, plus NGL pricing resulted in approximately $40 million.

Paul M. Rady: Incremental free cash flow for a R. Since they are will produce about 40 million barrels of Ctrip plus Ngls.

Paul M. Rady: As pricing improvement combined with the reduced maintenance capital at a are more than offsets the impact from the decline in natural gas prices and supports the stable development plan at a that underpins Ams 'twenty 'twenty four guidance.

Paul M. Rady: With that I'll turn the call over to Brandon.

Brendan Krueger: Thanks, Paul. I will begin my comments on slide number seven, title 2023. During the fourth quarter, we generated a company record $254 million, which is a 10% increase year-over-year. We also generated $156 million of free cash flow before dividends and $48 million of free cash flow. These financial achievements were a direct result of Antero Midstream's organic growth strategy and operations. During the fourth quarter, low pressure gathering and compression volumes increased by 10 percent and 14 percent, respectively, compared to last year, both throughput measures that company records for.

Brandon: Thanks, Paul.

Brandon: My comments on slide number seven titled 2023 highlights during the fourth quarter, we generated a company record $254 million of EBITDA, which is a 10% increase year over year. We also generated $156 million of free cash flow before dividends.

Brandon: And $48 million of free cash flow after dividends during the quarter. These financial achievements were a direct result of antero midstream organic growth strategy and operational success.

During the fourth quarter, low pressure gathering and compression volumes increased by 10% and 14% respectively compared to last year.

Brandon: Both throughput measures set company records for Antero midstream.

Brendan Krueger: As Paul mentioned, full year 2023 EBITDA was $980,000, a 12% increase, and all-year free cash flow before and after taxes was company records at $587 million and $155 million. Free Cash Flow After Dividends was at the top of our updated guidance range of 145 to 155 and nearly 50% above our initial. This free cash flow was utilized to reduce absolute debt by approximately $150 million in 2023 and resulted in leverage declining to $3.3 billion at year-end.

Brandon: Paul mentioned full year 2023, EBITDA was 989, million% to 12% increase compared to 2022.

Brandon: Full year free cash flow before and after dividends were company records at $587 million and $155 million respectively.

Brandon: Free cash flow after dividends was at the top of our updated guidance range of $145 million to $155 million and nearly 50% above our initial guidance range.

Brandon: This free cash flow was utilized to reduce absolute debt by approximately $150 million in 2023 and resulted in leverage declining to three three times at year end 2023.

Brendan Krueger: Now let's discuss our 2024 outlook by turning to slide number eight, titled 2024, EBITDA increasing capital. For 2024, we are forecasting over 1 billion of EBITDA, or 5% growth from 2023 at the midpoint of guidance. The EBITDA growth is driven primarily by flat to low single-digit throughput.

Speaker Change: Now, let's discuss our 2024 outlook by turning to slide number eight titled 2024, EBITDA, increasing in capital declining.

Speaker Change: For 2024, we are forecasting over $1 billion of EBITDA or 5% growth from 2023 at the midpoint of guidance.

Speaker Change: The EBITDA growth is driven primarily primarily by flat to low single digit throughput growth the exploration of the LTE gathering fee rebates with AAR and annual inflation adjustments to our fixed fees.

Brendan Krueger: The expiration of the LP gathering fee rebates with AR, an annual inflation adjustment. As Paul discussed earlier, we are also forecasting $160 million of capital investment at the midpoint of our guidance, which represents a 14% decrease. This is the second year in a row with EBITDA growth and capital declining by double digits and illustrates the significant operational leverage of our... The 2024 plan allows us to generate over $250 million of free cash flow after the tax benefit, for a 65% increase compared to. Slide number nine illustrates our capital allocation strategy for 2024 with sources on the left. Starting at the top, we are forecasting $190 million in interest payments at the midpoint of guidance, which is a 13% reduction year-over-year, and it's driven by lower absolute debt levels and interest savings.

Speaker Change: As Paul discussed earlier, we are also forecasting $160 million of capital investment at the midpoint of our guidance, which.

Speaker Change: Which represents a 14% decrease from 2023.

Speaker Change: This is the second year in a row with EBITDA growth and capital declining by double digits and illustrates the significant operational leverage of our assets.

Speaker Change: This 2024 plan allows us to generate over $250 million of free cash flow after dividends or a 65% increase compared to 2023.

Speaker Change: Slide number nine illustrates our capital allocation strategy for 2024 sources on the left and uses on the right starting at the top we are forecasting $190 million of interest payments at the midpoint of guidance, which is a 13% reduction year over year.

Speaker Change: And that's driven by lower absolute debt levels and interest savings from the successful senior note issuance in January of this year.

Brendan Krueger: Next are the highly efficient blocking and tackling capital investments that are the foundation of our capital allocation strategy; the peer-leading return on capital supports our return of capital to shareholders. In 2024, we plan on maintaining our stable 90 cents per share dividend, which represents an attractive 7% yield at today's share price. The remaining discretionary cash flow will first be allocated towards debt reduction to achieve our three times leverage target.

Speaker Change: Next to the highly economic blocking and tackling capital investments that are the foundation of our capital allocation strategy.

Our peer leading return on capital supports our return of capital to shareholders. In 2024, we plan on maintaining our stable 90 per share dividend, which represents an attractive 7% yield at today's share price. The remaining discretionary cash flow will first be allocated towards debt reduction to achieve our three times leverage target.

Speaker Change: In 2024.

Speaker Change: Thereafter, we plan to utilize any excess excess cash flow, we're further debt reduction and opportunistic share repurchases under our new $500 million.

Brendan Krueger: Thereafter, we plan to utilize any excess cash flow for further debt reduction and opportunistic share repurchases under our new $500 million Open Market Share Repurchase Plan. We believe this balanced approach to reducing both the debt and equity components of the capital structure is the most efficient way to accrue value to our shares. I'll finish my comments on slide number 10, titled Delivering on the Five-Year Outlook. Our transition to sustainable free cash flow after dividends over the last several years has allowed us to reduce absolute debt and leverage. execute an accretive bolt-on acquisition, and now announce a sizable $500 million share rebate. Looking ahead, despite the volatile commodity price environment, Antero Midstream remains on track to achieve its previously disclosed five-year targets through 2020. Our highly economic organic project backlog of $900 million to $1 billion is expected to continue to drive high teams' return on invested capital and generate $1.0 to $1.3 billion of free cash flow after. Our $500 million share repurchase program represents approximately 50% of our remaining $1 billion of pre-cash flow assets in 2024.

Speaker Change: Open market share repurchase program, we believe this balanced approach to reducing both the debt and equity components of the capital structure is the most efficient way to accrue value to our shareholders.

I'll finish my comments on slide number 10, entitled delivering on five year outlook.

Speaker Change: Our transition to sustainable free cash flow after dividends over the last several years has allowed us to reduce absolute debt and leverage execute accretive bolt on acquisitions, and now announced the sizeable $500 million share repurchase program.

Speaker Change: Looking ahead, despite the volatile commodity price environment Antero midstream remains on track to achieve its previously disclosed five year targets from 2023 through 2027.

Speaker Change: Our highly economic organic project backlog of $900 million to $1 billion is expected to continue to drive high teens return on invested capital and generate 1.0 to $1 3 billion of free cash flow after dividends, excluding our 2023 actual results our $500 million share repurchase program.

Speaker Change: Represents approximately 50% of our remaining $1 billion of free cash flow after dividends from 2024 through 2027.

Operator: This program will allow A.M. to supplement its stable dividend with flexible and opportunistic share repayments in order to maximize value for our shareholders. And most importantly, debt reduction will continue to be an integral part of our overall capital allocation system to maintain a strong balance sheet, provide flexibility, and de-risk our business. The goal of this balanced capital allocation is to ultimately provide the highest risk-adjusted return profile for our shareholders. In summary, 2023 was a fantastic year for AM, both operationally and. We have been discussing our inflection point of expanding free cash flow, and we are now delivering on that plan. Our balance sheet strength, combined with multiple avenues to return capital to shareholders, positions A.M. as one of the most unique investments, not only in the midstream industry but in the domestic mid-cap investment. With that, Operator, we are ready to take questions. Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Speaker Change: This program will allow AAM to supplement its stable dividend with flexible and opportunistic share repurchases in order to maximize value for our shareholders importantly debt reduction will continue to be an integral part of our overall capital allocation strategy to maintain a strong balance sheet provides flexibility and derisk our business.

Speaker Change: All of this balanced capital allocation strategy is to ultimately provide the highest risk adjusted return profile for our shareholders in.

Speaker Change: In summary, 2023 was a fantastic year for AAM, both operationally and financially.

Speaker Change: We have been discussing our inflection point of expanding free flat free cash flow and we are now delivering on that plan in 2024 and beyond.

Speaker Change: Our balance sheet strength combined with multiple avenues to return capital to shareholders positions AAM is one of the most unique investment opportunities not only in the midstream industry.

Speaker Change: The domestic mid cap investment universe with that operator, we are ready to take questions.

Thank you if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is another question you May press star two if you'd 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.

Jeremy Toné: You may press star 2 if you'd 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 key. Our first question comes from the line of Jeremy Toné with JPMorgan Chase. Please proceed with your question. Hi, good morning.

Speaker Change: Our first question comes from the line of Jeremy Tonet with Jpmorgan. Please proceed with your question.

Jeremy Tonet: Hi, good morning.

Brendan Krueger: Morning. Thanks for all the color today. Looking forward to 2024. Just wanted to dive in, I guess, a little bit more on volume trajectory expectations as it relates to, I guess, AR's activity into 2024 and what that could maybe look like going into 2025. And also wanted to dive in, I guess, for the drilling partnerships, you know, the changes in working interest there for AR, and I guess just overall impact and what it means for AM volume. Yeah, I mean, on the AR side, AR came out with its guidance, which was, you know, overall production flat maintenance capital plan overall at AM. Again, we do have the drilling partnership with QL.

Jeremy Tonet: Good morning.

Jeremy Tonet:

Jeremy Tonet: Thanks for all the color today looking forward to 2024, just wanted to dive in I guess, a little bit more.

Jeremy Tonet: On volume trajectory expectations as it relates to I guess <unk> activity.

Jeremy Tonet: Into 'twenty, four and what that could maybe look like going into 'twenty five and also wanted to dive in I guess, but the drilling partnership.

Jeremy Tonet: The changes in working interest here and I guess, just overall impact and what it means for AAM volumes.

Jeremy Tonet: Yes.

Jeremy Tonet: Syed AAR came out with its guidance.

Jeremy Tonet: Which was.

Jeremy Tonet: Overall production flat maintenance capital plan overall.

Jeremy Tonet: Again, we do have the drilling partnership with few out.

Brendan Krueger: AR talked about gas volumes being down slightly, but again, with the drilling partnership, we'd expect more flat volumes at AM. And then, as noted, I think, in the prepared remarks, we have the fee rebates rolling away, which is about fifty-three million dollars, and then CPI adjustments as well, which is another ten to fifteen million dollar increase year over year. So, that's what drives the 5% outlook on EBITDA in 2024, and then AR talked on its call as well about its 2025 outlook, which was, again, maintenance capital levels, and so AM is well positioned, again, to service AR in 2025 at that maintenance capital level. Thank you for that.

<unk> talked about gas volumes being down slightly but again with the drilling partnership we'd expect more flat volumes at <unk> and then as noted I think in the prepared remarks, we have the fee rebates rolling away.

Jeremy Tonet: Which is about $53 million, and then CPI adjustment as well, which is another call it $10 million to $15 million increase year over year.

Jeremy Tonet: So that's what drives the 5% outlook on EBITDA and 24, and then I think <unk> talked on this call as well in 2025 outlook, which was again maintenance capital level.

Jeremy Tonet: Levels.

Jeremy Tonet: And so am well positioned again debt service service. They are in the 2025 at that maintenance capital level.

Got it thank you for that and then moving to moving over to the buybacks.

Brendan Krueger: And then moving over to the buybacks, just wanted to be clear, I guess, on how the timing of that could unfold. It looks like when leverage hits three or lower, that would be an option on the table. Just wondering how you see a timeline for that playing out. And with this, would you look at more open market purchases or from AR? Just any thoughts in general would be helpful.

Jeremy Tonet: Just wanted to be clear I guess on how timing of that could unfold. It looks like when leverage hits three a lower that would be an option on the table just wondering how you see I guess.

Jeremy Tonet: Timeline for that playing out and would this would you look at more open market purchases or from just any thoughts in general would be helpful.

Speaker Change: Yes, no I mean, just to your latter point I think that'd be open market repurchases as <unk> stated in the past and certainly enjoys its ownership in an open.

Brendan Krueger: Yeah, no, I mean, just to get your latter point, I think that'd be, you know, open market repurchases. I think AR's stated in the past that it certainly enjoys its ownership in AM. So open market repurchases. And from a timing point of view, we did have the previous target out there for free cash flow after dividends. It was 1.15 billion at the midpoint.

Speaker Change: Open market repurchases and from a timing.

Speaker Change: We did have the previous target out there on on free cash flow after dividends.

Speaker Change: It was a $1.15 billion at the midpoint and that was for 2023 through 2027. So.

Brendan Krueger: And that was for 2023 through through 2027. So that's now a billion after taking out the 2023 results. So a billion over the next four years, $500 million share repurchase program. So it's about 50% of that billion of free cash flow after dividends. You know, we'd like to, like to put to work once you get that leverage of three times.

Speaker Change: That's now a $1 billion after taking out the 2023 results are $1 billion over the next four years.

Speaker Change: $500 million share repurchase program. So it's about 50% of that $1 billion of free cash flow after dividends that we'd like to look to put to work.

Speaker Change: Once you have that leverage of three times over the next several years here.

Brendan Krueger: Got it. And sorry, just to be clear on the point, the buybacks wouldn't start ahead of hitting three, right? You'd wait for that to materialize, and then the buybacks... Yeah, we're very committed to hitting that three times leverage. So, you know, if you expect you set off some sort of big dislocation, and you have high... times, you certainly could potentially take advantage of that like we have in the past. We're pretty committed to that three times before we really go in a big way on the cherry.

Speaker Change: Got it and sorry, just to be clear on the point that buybacks wouldn't start ahead of hitting three right you'd wait for that to materialize and then the buybacks, we're very committed to hitting that three times leverage though.

Speaker Change: To the extent you saw some sort of a big dislocation you had high visibility to the three times you certainly could potentially take advantage of that like we have in the past but.

Speaker Change: Any committed to that debt at three times before we really go in a big way on the share repurchases.

Brendan Krueger: Got it. That's helpful. I'll leave it there. Thanks.

Speaker Change: Got it that's helpful I'll leave it there thanks.

Speaker Change: Thanks, Jeremy.

Speaker Change: Yeah.

Speaker Change: Thank you. Our next question comes from the line of Ryan Reynolds with UBS. Please proceed with your question.

Brian Reynolds: Thank you. Our next question comes from the line of Brian Reynolds with UBS. Please proceed with your question. Hi, good morning, everyone. Maybe to follow up on some of the buyback commentary, but more through the lens of just, you know, flexibility and use of cash. Over the past few years, it's been pretty consistent, you know, but with the flexibility going forward, just kind of curious how, perhaps, some accretive M&A could compete with buybacks. Are there any?

Ryan Reynolds: Hi, Good morning, everyone, maybe to follow up on some of the buyback commentary, but more through the lens of just flexibility and use of cash over the past few years, it's been pretty consistent.

Ryan Reynolds: What's the flexibility going forward, just kind of curious how maybe perhaps some accretive M&A could compete with buybacks are there any.

Brendan Krueger: You know, the metrics that you're looking at, just given that there does seem to be a few more assets out there that could compete with buyback. Yeah, no, good, good question, Brian. I mean, you know, we look, we try to look at everything through the lens of just return on invested capital. And so, you know, the benefit that AM has, and I think we've talked about this on past calls, is the high visibility that it has into its capital plans, not only the next few years but really the next couple of decades with AR's development plan. And so that allows us to have a pretty strong view of what our equity should trade at. And so when we look at bolt-on acquisitions, we can look at return on invested capital for those acquisitions relative to what we could be buying our stock back at and what the return we'd expect on that.

Ryan Reynolds: Metrics that Youre looking at just given that there does seem to be a few more assets out there that could compete with buybacks. Thanks.

Speaker Change: Yeah. Good question, Brian I mean, we.

We try and look at everything.

Speaker Change: Through the lines of just return on invested capital and so yes.

Speaker Change: The benefit that AAM has and I think we've talked about this on past calls.

Speaker Change: Is the high visibility that it hasnt its capital plan for not only the next few years, but really the next couple of decades with where they are.

Speaker Change: Ar's development plan and so that allows us to have a pretty strong view of what our equity should trade at.

Speaker Change: So when we look at bolt on acquisitions, we can look at return on invested capital.

Speaker Change: For those acquisitions relative to what we could be buying our stock back at and what the return we would expect on that so we will certainly be thoughtful.

Brendan Krueger: So we'll certainly be thoughtful between bolt-on acquisitions that could be attractive versus share buybacks versus further debt paydown. This just allows us to have another tool in the toolbox, I think, to continue to generate more and more pre-cash flux. Right, makes sense.

Speaker Change: Bolt on acquisitions that could be attractive.

Speaker Change: Versus share buybacks versus further debt pay down let's just allows us to have another another tool in the toolbox I think as we continue to generate more and more free cash flow after dividends moving forward.

Speaker Change: Right makes sense and then maybe as a follow up on the EBITDA Guide I think you ended the year at a call at 990, and you kind of talked about the bridge of where Youre basically guide is with the rate relief in the CPI. So maybe if you can just help sensitize, maybe the lower end of the guide I mean does that really just kind of imply limited to no activity.

Brendan Krueger: And then maybe as a follow-up on the EBITDA guide, I think, you know, you're ending the year at, I call it, 990. And you kind of talked about the bridge between where your base guide is with the rate relief and the CPI. So maybe if you can just help sensitize maybe the lower end of the guide, I mean, does that really just kind of imply, you know, limited to no activity? Because it seems like, you know, your base outlook given where AR came out today seems like it'll be trending towards the high end of that guide at this point. Thanks. Yeah, I think the guys just rode around.

Speaker Change: Because it seems like.

Speaker Change: You kind of your base outlook, given where AAR came out today. It seems like it would be trending towards the high end of that guide at this point. Thanks.

Speaker Change: Yeah, I think the guide just really around I mean, we're in a certainly a volatile gas price environment and <unk> got strong liquids prices, we've talked about it.

Brendan Krueger: I mean, we're certainly in a volatile gas price environment. And, you know, AR has got strong liquid prices, as we've talked about, but I think the low end is just to provide for, you know, the extent you had any further reduction because commodity prices have come off even further, and AR pulled back, you know, on completion. That would likely be the low end of the guide. But I think your point is fair.

Speaker Change: The low end is just to provide for the extent yet any further reduction because commodity prices have come off even further NAR pulled back a completion.

Speaker Change: That would likely be in the low end of the guide, but I think your point is fair we.

Brendan Krueger: We feel pretty good about the activity given given AR's strong balance, Liquids Focus, and the capital efficiency gains that ARs have made, you know, they pulled back capital over 25% and generated free cash flow despite..., you know, gas prices being at kind of a 25-year low outside of COVID. I feel pretty good about the outlook today, but... The Low End reflects, you know, potential slightly lower.

We feel pretty good about the activity again, given our strong balance sheet liquids focus and the capital efficiency gains.

Speaker Change: Sad they pulled back capital.

Speaker Change: Over 25% and generating free cash flow despite.

Speaker Change: Gas prices being at kind of a 25 year low outside of Covid.

Speaker Change: Feel pretty good about the outlook today, but.

Speaker Change: Hello, and reflects potential slightly lower activity.

Speaker Change: Yeah.

Brendan Krueger: Fair enough. I'll leave it there. Enjoy the rest of your morning.

Speaker Change: Fair enough I'll leave it there enjoy the rest of the morning.

John McKay: Thank you. Our next question comes from the line of John McKay with Goldman Sachs. Please proceed with your question. Hey, good morning.

Speaker Change: Brian Thank you.

Brian: Thank you. Our next question comes from the line of John Mackay with Goldman Sachs. Please proceed with your question.

John Mackay: Hey, good morning, Thanks for the time maybe.

Brendan Krueger: Thanks for the time. Maybe just to pick up one on the gas macro there. I'm pretty sure I know what the answer is going to be, but just so we can kind of talk through it. You know, we do need to see production kind of roll over somewhere in the U.S. on the gas side, given where we sit right now. You know, just curious to hear your high-level thoughts on kind of where you think that would hit, what any impact at all you could see on AM, and I know it was kind of answered on the AR call a little bit, but maybe just go through that again for us. Thank you. Yeah, no, good question. I mean, again, if you think about where it should come from, you know, on the AR front, given the liquids focus. Liquids are driving the economics, as we see other basins out there, and so liquids are driving the economics, and even at AR, you have gas volumes, you know, declining, declining 3%. And so to the extent you had similar producers take an approach, you know, I think that that AR is, you know, you'd have a significant decline in production on the gas side.

John Mackay: Maybe just to pick up one on the on the gas macro there.

John Mackay: I'm pretty sure I know what the answers can be but just so we can kind of talk through it.

John Mackay: We do need to see production kind of roll over somewhere in the U S. On the gas side, given where we sit right now.

John Mackay: Just curious to hear your high level thoughts on kind of where you think that would hit.

John Mackay: Any impact at all you can see on I am and I know it was kind of answered on the call a little bit, but maybe just go through that again for us. Thank you.

Speaker Change: Yeah No. Good question I mean, I think again, if you think about where it should come from.

Speaker Change: On the HR front, given the liquids focused liquids is driving the economics.

Speaker Change: As we see other basins out there and so.

Speaker Change: Liquids is driving the economics and even at a are you have gas volumes declining declining 3% and so to the extent you had.

Speaker Change: Similar producers taken approach.

Speaker Change: As you would have a significant decline in production.

Speaker Change: On the gas side, and so I think we view.

Brendan Krueger: And so I think we view producers that have dry gas focus basis challenges, you know, high declines, high capital intensity, uh... areas, those should all come down, which essentially is all the other gas basins if you don't have a liquid focus, I think, today. So we'd expect, you know, kind of an allocation across gas basins. Activity.

Speaker Change: Producers that have dry gas focused basis challenges high declines high capital intensity.

Speaker Change: Areas those should all come down, which essentially is all of the other gas basins. If you don't have a liquids focused I think today.

Speaker Change: So we'd expect kind of an allocation across gas basins to see activity you've seen some of that has come out already with some producers.

Brendan Krueger: You've seen some of that come out already with some producers, and we expect more of that as we move forward through earnings. I appreciate that. And like you guys, I guess the second question: you guys give a lot of guidance on the forward look. So I'm not trying to pick apart too much, but I guess last year, you guys kind of gave the forward look to 27. This year, your kind of forward look didn't roll over for another year.

Speaker Change: And we would expect more of that as we move forward through the earnings season here.

Speaker Change: No I appreciate that.

Speaker Change: So like you guys I guess second question you guys gave a lot of guidance on the forward look so I'm not trying to pick apart too much but I guess.

Speaker Change: Last year, you guys kind of gave the forward look to 27 this year youre kind of forward look it.

Didn't rollover a year is there anything special about about 'twenty, seven or 2028 or is this kind of you've gotten into a pretty steady EBITDA look pretty steady capex outlook you'd.

Brendan Krueger: Is there anything special about 27 or 2028? Or is this kind of, you know, you've gotten into a pretty steady EBITDA outlook, pretty steady CapEx outlook. You'd, you know, generally expect that to hold through past 27, I guess that's the crux of the answer. Is that fair?

Speaker Change: Generally expect that to hold through past.

Speaker Change: Past 27, I guess is the crux of the answer is that fair.

Brendan Krueger: Yeah, that's well said. I mean, there's no material change to our outlook. And I think you can look at the remaining years and come to an average in terms of free cash left or dividends. And there's nothing, in particular, that would change that as you move into 2028 and beyond. So, you know, we're executing on the plan we put out there. And to the extent something changed over time, we'd certainly update, but I think we'd continue to expect those expectations. You know, AR's got got plenty of inventory.

Speaker Change: Yes, that's well said I mean, there's no material change to our outlook and I think you can look at the remaining years and come to an average in terms of free cash flow after dividends and Theres nothing nothing in particular that would change that as you move into 2028 and beyond so.

We're executing on the plan, we put out there and to the extent something changed overtime, we'd certainly update but I think we would continue to expect.

Speaker Change: <unk>.

Speaker Change: Expectations.

Speaker Change: <unk> got plenty of inventory.

Brendan Krueger: You know, there's over 22 over 20 years of inventory; I think 22 years was the number that they talked about on their call. And so plenty of inventory, like I said, multi-decade inventory at AR. So no, no impact from an inventory. It's just a matter of, There's no real material change beyond 27, and so I did not really feel the need to go out another year just to extend the years that we've already put out. And that makes it down to 27's far enough array already.

Speaker Change: Yes, there is over 22 over 20 years of inventory I think 22 years is the number that they talked about on their call.

Speaker Change: And so plenty of inventory like I said multi decade inventory.

Speaker Change: No impact from inventory, it's just a matter of there's no real material change beyond 2007, and so did not really feel the need to go out another year just to extend that.

Speaker Change: Theaters that we've already put out there.

Speaker Change: That makes sense I was 27.

Speaker Change: Far enough array already I appreciate the time thank you.

Brendan Krueger: Alright, I appreciate the time. Thank you. Thanks, John.

Speaker Change: Thanks, Sean.

Thank you, ladies and gentlemen, as a reminder, its star one to join the question queue. Our next question comes from the line Zack.

Operator: Thank you. Ladies and gentlemen, as a reminder, it's star number one to join the question queue. Our next question comes from the line of Zach Van Eberen with TPH.

Zack: Brian <unk> with <unk>. Please proceed with your question.

Zach Van Eberen: Please proceed with your, Hey guys, thanks for taking my question. Just want to circle back on the production side to help me think through that. You know, I believe AR mentioned 1% declines on total volumes 3% like you guys had mentioned on gas. So maybe just a refresher on that drilling partnership, are they just more incentivized to keep volumes flat around your system based on contracts, or just any kind of clarity there would be helpful? Yeah, so just a reminder that the drilling partnership is that all of the wells that they drill during the year. And so with AR declining, you know, AM gathers gross gas, of course, gross wellhead gas. So AR's net gas volumes are not really reflective of the gross operated wellhead volumes.

Zack: Hey, guys. Thanks for taking my question just wanted to circle back on the production side to help me think through that.

Zack: I believe <unk> mentioned, 1% declines on total volumes, 3% like you guys had mentioned on gas. So maybe just a refresher on that drilling partnership or are they just more incentivized to keep volumes flat around your system based on contracts or just any kind of clarity there would be helpful.

Zack: Yes. So just a reminder, the drilling partnership is in all of the wells.

Zack: Our.

Zack: Drills during the year.

Zack: And so what they are declining AAM gathers gross gas of course gross wellhead gas so nat.

Zack: Nat gas volumes are not really reflective of the gross operated well head volumes with the gross operated well head volumes, which include <unk> and other non op interest owners, which is a small component, that's where you get to a flat gross wellhead volumes year over year, which is why we talked about.

Brendan Krueger: So with the gross operated wellhead volumes, which include, you know, QL and other non-op interest donors, which is, you know, a small component, that's where you get to flat gross wellhead volumes year over year talked about. Okay, that makes sense. And then just one on the, I'll probably mispronounce this, but the Veolia lawsuit.

Zack: Okay.

Speaker Change: That makes sense and then just one on <unk>.

Speaker Change: Mispronounce this but the veolia lawsuit I know in <unk> three it was kind of going back and forth any update there on when that might come through and what you might do with that cash if it does.

Brendan Krueger: I know in 23, it was kind of going back and forth. Any update on when that might come through and what you might do with that cash if it does? Yeah, no, no update outside of what we've disclosed in the 10k. So it's always hard to pinpoint timing on those things.

Speaker Change: Yes, no no update outside of what we've disclosed in the 10-K, so always hard to pinpoint the timing on those things.

Brendan Krueger: And no update there. In terms of nothing, you know, none of the guidance we put out there includes the extent to which the cash comes in. We'll certainly just evaluate, like we do with our regular free cash flow, and what's the best return on that, that cash flow to the extent, All right, perfect. That's all I had.

Speaker Change: No update there.

Speaker Change: In terms of.

Speaker Change: None of the guidance, we put out there includes.

Speaker Change: The extent of cash comes down we'll certainly just evaluate like we do with our regular free cash flow and what's.

Speaker Change: What's the best return on that cash flow to the extent it comes in.

Speaker Change: Alright, perfect. That's all I had thanks guys.

Ned Baramoff: Thanks, guys. That. Our next question comes from the line of Ned Baramoff with Wells Fargo. Please proceed with your question. Hi, thanks for taking the question. It seems you'd continue to pay down debt even after hitting your three times target later this year. So what is the ultimate leverage metric you would like to get to at AM?

Speaker Change: Exactly.

Speaker Change: Thank you. Our next question comes from the line of Matt <unk> with Wells Fargo. Please proceed with your question.

Matt: Hi, Thanks for taking the question.

Matt: It seems you would continue to pay down debt even after heating your three times target later this year. So what is what is the ultimate leverage metric you would like to get to eight a M.

Brendan Krueger: Yeah, I mean, again, I think we put out the three times. I don't think we're necessarily saying we're going to pay down more than the three times leverage. I think we're just saying, once we get to that level, what makes the most sense between share repurchases, asset bolt-on acquisition, and further dividend increases. I mean, I think we'll evaluate once we get to that point, but as we sit here today, share repurchases certainly make a lot of sense, which is why we came out with our $500 million share repurchase program.

Matt: Yeah, I mean again I think we've put out the three times I don't think we're necessarily saying, we're going to pay down more than the three times leverage I think we're just saying, we'll evaluate once we get to that level what makes the most sense between share repurchases.

Matt: Asset bolt on acquisitions are there dividend increases I mean, I think we'll evaluate once we get to that point as we sit here today share repurchases certainly make a lot of sense, which is why we came out with our.

Matt: Our $500 million.

Matt: Share repurchase program, but we will just continue to evaluate and if you need to re up the share repurchase program. If you can get through it over the next few years and then you'll do that.

Brendan Krueger: But we'll just continue to evaluate. And if you need to re-up the share repurchase program, if you get through it over the next few years, then you'll do that. But there is no magic to that and no identified further leveraged targets beyond the three times right now.

Matt: But no magic.

Matt: To that and no no identified.

Matt: Further leverage target beyond the three times right now.

Speaker Change: Got it and then.

Brendan Krueger: Got it. And then a quick clarification on slide 10. Does the 2025 through 2027 outlook for free cash flows after dividends reflect the impact of share repurchases?

Quick clarification on slide 10.

Speaker Change: Does the 2025 through 2027 outlook for free cash flows after dividends does does that reflect the impact of share repurchases.

Speaker Change: Okay.

Brendan Krueger: That is before Sherry Purchases, so you'd have a slightly different after Sherry Purchases. Okay, understood. And then a housekeeping item, if I may, on some of the drivers for the water business. It seems that you're looking for fewer wells to be serviced in 2024. However, the lateral length is now longer, and I presume the barrels per foot are essentially unchanged, but net net, my math seems to indicate that total water volumes should be pretty much unchanged in 24 relative to 2023. Am I thinking this correctly?

Speaker Change: That that is before share repurchases that you'd have slightly slightly different after share repurchases.

Speaker Change: Okay understood and then.

Speaker Change: Keeping item if I may just on some of the drivers for the water business.

Speaker Change: It seems that youre looking for fewer wells to be serviced in 2024.

Speaker Change: However, lateral length is now longer and I presume the barrels per foot is essentially unchanged but.

Net net my math seems to indicate that total water volumes should be pretty much unchanged in 24 relative to 2023 am I thinking about this correctly.

Brendan Krueger: No, they should be down. So, you know, the guidance we gave was about 20 fewer completions, and lateral feet are up 2000 feet. So you're down about 180,000 feet.

They should be down so.

Speaker Change: The guidance, we gave was about 20 fewer completions.

Speaker Change: And lateral feet are up 2000 feet, so you're down about 100.

Speaker Change: 80000 feet and so volumes are down about 15% to 20% overall, which is part of that part of the guidance that we gave.

Brendan Krueger: And so volumes are down about 15, overall, which is part of the part of the guidance that we gave. Understandable. Thanks for that. That's all I had.

Speaker Change: Understood. Thanks for that that's all I had.

Speaker Change: Thanks, Greg.

Justin Agnew: Thank you. Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Agnew for any final comments. Thank you, everybody, for joining today's conference call. Please feel free to reach out with any further questions. Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you.

Speaker Change: Thank you, ladies and gentlemen that concludes our question and answer session I'll now turn the floor back to Mr. Abu <unk> for any final comments.

Abu: Thank you everybody for joining today's conference call. Please feel free to reach out with any further questions.

Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.