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PartnersCapitalAbstract

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                   

Commission file number: 001-38075

Graphic

ANTERO MIDSTREAM CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

61-1748605

(State or other jurisdiction of
incorporation or organization)

(IRS Employer Identification No.)

1615 Wynkoop Street
Denver, Colorado

80202

(Address of principal executive offices)

(Zip Code)

(303357-7310

(Registrant’s telephone number, including area code)

Securities registered pursuant to section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01

AM

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  Yes   No

The registrant had 477,503,787 shares of common stock outstanding as of October 22, 2021.

Table of Contents

TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

    

2

PART I—FINANCIAL INFORMATION

4

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

40

Item 4.

Controls and Procedures

41

PART II—OTHER INFORMATION

42

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

Item 5.

Other Information

43

Item 6.

Exhibits

44

SIGNATURES

45

1

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the information in this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. Words such as “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking statements, although not all forward-looking statements contain such identifying words. When considering these forward-looking statements, investors should keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q. These forward-looking statements are based on management’s current beliefs, based on currently available information, as to the outcome and timing of future events. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

Antero Resources Corporation’s (“Antero Resources”) expected production and development plan;
impacts to producer customers of insufficient storage capacity;
our ability to execute our business strategy;
our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;
our ability to realize the anticipated benefits of our investments in unconsolidated affiliates;
natural gas, natural gas liquids (“NGLs”), and oil prices;
impacts of world health events, including the coronavirus (“COVID-19”) pandemic;
our ability to complete the construction of or purchase new gathering and compression, processing, water handling or other assets on schedule, at the budgeted cost or at all, and the ability of such assets to operate as designed or at expected levels;
our ability to execute our share repurchase program;
competition and government regulations;
actions taken by third-party producers, operators, processors and transporters;
pending legal or environmental matters;
costs of conducting our operations;
general economic conditions;
credit markets;
operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control;
uncertainty regarding our future operating results; and
our other plans, objectives, expectations and intentions contained in this Quarterly Report on Form 10-Q.

We caution investors that these forward-looking statements are subject to all of the risks and uncertainties incidental to our business, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, commodity price volatility, inflation, environmental risks, Antero Resources’ drilling and completion and other operating risks, regulatory changes, the uncertainty inherent in projecting Antero Resources’ future rates of production, cash flows and access to

2

Table of Contents

capital, the timing of development expenditures, impacts of world health events (including the COVID-19 pandemic), cybersecurity risks and the other risks described or referenced under the heading “1A. Risk Factors” herein, including the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”), which is on file with the Securities and Exchange Commission (“SEC”).

Should one or more of the risks or uncertainties described or referenced in this Quarterly Report on Form 10-Q occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

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PART I—FINANCIAL INFORMATION

ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

December 31,

September 30,

    

2020

   

2021

 

Assets

Current assets:

Cash and cash equivalents

$

640

Accounts receivable–Antero Resources

73,722

85,152

Accounts receivable–third party

839

857

Income tax receivable

17,251

940

Other current assets

1,479

541

Total current assets

93,931

87,490

Property and equipment, net

3,254,044

3,345,843

Investments in unconsolidated affiliates

722,478

703,780

Deferred tax asset

103,402

14,855

Customer relationships

1,427,447

1,374,443

Other assets, net

9,610

7,222

Total assets

$

5,610,912

5,533,633

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable–Antero Resources

$

3,862

3,157

Accounts payable–third party

9,495

24,944

Accrued liabilities

74,947

85,576

Other current liabilities

5,701

5,013

Total current liabilities

94,005

118,690

Long-term liabilities:

Long-term debt

3,091,626

3,095,560

Other

6,995

6,790

Total liabilities

3,192,626

3,221,040

Stockholders' Equity:

Preferred stock, $0.01 par value: 100,000 authorized as of December 31, 2020 and September 30, 2021

Series A non-voting perpetual preferred stock; 12 designated and 10 issued and outstanding as of December 31, 2020 and September 30, 2021

Common stock, $0.01 par value; 2,000,000 authorized; 476,639 and 477,460 issued and outstanding as of December 31, 2020 and September 30, 2021, respectively

4,766

4,775

Additional paid-in capital

2,877,612

2,518,919

Accumulated deficit

(464,092)

(211,101)

Total stockholders' equity

2,418,286

2,312,593

Total liabilities and stockholders' equity

$

5,610,912

5,533,633

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)

(In thousands, except per share amounts)

Three Months Ended September 30,

    

2020

    

2021

Revenue:

    

    

Gathering and compression–Antero Resources

$

190,214

188,716

Water handling–Antero Resources

61,001

53,511

Water handling–third party

245

Amortization of customer relationships

(17,800)

(17,668)

Total revenue

233,415

224,804

Operating expenses:

Direct operating

38,052

39,499

General and administrative (including $3,678 and $3,255 of equity-based compensation in 2020 and 2021, respectively)

13,232

14,810

Facility idling

2,527

870

Impairment of property and equipment

947

203

Depreciation

26,801

27,487

Accretion of asset retirement obligations

39

114

Total operating expenses

81,598

82,983

Operating income

151,817

141,821

Other income (expense):

Interest expense, net

(34,501)

(44,544)

Equity in earnings of unconsolidated affiliates

23,173

24,088

Total other expense

(11,328)

(20,456)

Income before income taxes

140,489

121,365

Provision for income tax expense

(34,982)

(32,038)

Net income and comprehensive income

$

105,507

89,327

Net income per share–basic

$

0.22

0.19

Net income per share–diluted

$

0.22

0.19

Weighted average common shares outstanding:

Basic

476,578

477,442

Diluted

478,694

479,695

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)

(In thousands, except per share amounts)

Nine Months Ended September 30,

    

2020

    

2021

Revenue:

    

    

Gathering and compression–Antero Resources

$

527,334

566,544

Water handling–Antero Resources

222,536

167,832

Water handling–third party

340

Amortization of customer relationships

(53,011)

(53,004)

Total revenue

696,859

681,712

Operating expenses:

Direct operating

128,847

118,368

General and administrative (including $9,713 and $10,326 of equity-based compensation in 2020 and 2021, respectively)

39,191

46,991

Facility idling

13,680

3,033

Impairment of goodwill

575,461

Impairment of property and equipment

90,030

1,582

Depreciation

81,889

80,956

Accretion of asset retirement obligations

142

347

Loss on asset sale

240

3,628

Total operating expenses

929,480

254,905

Operating income (loss)

(232,621)

426,807

Other income (expense):

Interest expense, net

(107,443)

(130,915)

Equity in earnings of unconsolidated affiliates

63,197

66,347

Loss on early extinguishment of debt

(20,701)

Total other expense

(44,246)

(85,269)

Income (loss) before income taxes

(276,867)

341,538

Provision for income tax benefit (expense)

77,882

(88,547)

Net income (loss) and comprehensive income (loss)

$

(198,985)

252,991

Net income (loss) per share–basic

$

(0.42)

0.53

Net income (loss) per share–diluted

$

(0.42)

0.53

Weighted average common shares outstanding:

Basic

478,831

477,196

Diluted

478,831

479,501

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(In thousands)

Additional

Preferred

Common Stock

Paid-In

Accumulated

Total

Stock

Shares

Amount

Capital

Deficit

Equity

Balance at December 31, 2019

    

$

    

484,042

    

$

4,840

    

3,480,139

    

(341,565)

    

3,143,414

Dividends to stockholders

(149,014)

(149,014)

Equity-based compensation

3,338

3,338

Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes

43

(26)

(26)

Repurchases and retirement of common stock

(4,700)

(46)

(15,778)

(15,824)

Net loss and comprehensive loss

(392,933)

(392,933)

Balance at March 31, 2020

479,385

4,794

3,318,659

(734,498)

2,588,955

Dividends to stockholders

(147,656)

(147,656)

Equity-based compensation

2,697

2,697

Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes

311

4

(370)

(366)

Repurchases and retirement of common stock

(3,210)

(33)

(8,856)

(8,889)

Net income and comprehensive income

88,441

88,441

Balance at June 30, 2020

476,486

$

4,765

3,164,474

(646,057)

2,523,182

Dividends to stockholders

(146,802)

(146,802)

Equity-based compensation

3,678

3,678

Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes

111

1

(75)

(74)

Net income and comprehensive income

105,507

105,507

Balance at September 30, 2020

$

476,597

$

4,766

3,021,275

(540,550)

2,485,491

Balance at December 31, 2020

    

$

476,639

    

$

4,766

    

2,877,612

    

(464,092)

    

2,418,286

Dividends to stockholders

(147,332)

(147,332)

Equity-based compensation

4,012

4,012

Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes

268

3

(1,544)

(1,541)

Net income and comprehensive income

83,441

83,441

Balance at March 31, 2021

476,907

4,769

2,732,748

(380,651)

2,356,866

Dividends to stockholders

(108,936)

(108,936)

Equity-based compensation

3,059

3,059

Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes

451

5

(2,781)

(2,776)

Net income and comprehensive income

80,223

80,223

Balance at June 30, 2021

477,358

$

4,774

2,624,090

(300,428)

2,328,436

Dividends to stockholders

(107,857)

(107,857)

Equity-based compensation

3,255

3,255

Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes

102

1

(569)

(568)

Repurchases and retirement of common stock

Net income and comprehensive income

89,327

89,327

Balance at September 30, 2021

$

477,460

4,775

2,518,919

(211,101)

2,312,593

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

Nine Months Ended September 30,

    

2020

    

2021

 

Cash flows provided by (used in) operating activities:

    

    

  

Net income (loss)

$

(198,985)

252,991

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation

81,889

80,956

Payment of contingent consideration in excess of acquisition date fair value

(8,076)

Accretion of asset retirement obligations

142

347

Impairment

665,491

1,582

Deferred income tax expense (benefit)

(21,425)

88,547

Equity-based compensation

9,713

10,326

Equity in earnings of unconsolidated affiliates

(63,197)

(66,347)

Distributions from unconsolidated affiliates

69,313

87,115

Amortization of customer relationships

53,011

53,004

Amortization of deferred financing costs

3,299

4,152

Loss on early extinguishment of debt

20,701

Settlement of asset retirement obligations

(1,517)

(814)

Loss on asset sale

240

3,628

Changes in assets and liabilities:

Accounts receivable–Antero Resources

17,081

(11,429)

Accounts receivable–third party

1,139

594

Income tax receivable

(17,547)

16,311

Other current assets

1,036

810

Accounts payable–Antero Resources

(717)

(705)

Accounts payable–third party

6,239

11,058

Accrued liabilities

(50,240)

(7,337)

Net cash provided by operating activities

546,889

545,490

Cash flows provided by (used in) investing activities:

Additions to gathering systems and facilities

(137,978)

(120,727)

Additions to water handling systems

(27,287)

(36,221)

Investments in unconsolidated affiliates

(24,802)

(2,070)

Cash received in asset sale

123

1,653

Change in other assets

1,938

Net cash used in investing activities

(188,006)

(157,365)

Cash flows provided by (used in) financing activities:

Dividends to stockholders

(443,059)

(363,712)

Dividends to preferred stockholders

(413)

(413)

Repurchases of common stock

(24,713)

Issuance of senior notes

750,000

Redemption of senior notes

(667,472)

Payments of deferred financing costs

(9,449)

Borrowings (repayments) on bank credit facilities, net

228,000

(92,800)

Payment of contingent acquisition consideration

(116,924)

Employee tax withholding for settlement of equity compensation awards

(466)

(4,885)

Other

(150)

(34)

Net cash used in financing activities

(357,725)

(388,765)

Net increase (decrease) in cash and cash equivalents

1,158

(640)

Cash and cash equivalents, beginning of period

1,235

640

Cash and cash equivalents, end of period

$

2,393

Supplemental disclosure of cash flow information:

Cash paid during the period for interest

$

135,426

132,630

Cash received during the period for income taxes

$

38,910

16,913

Increase (decrease) in accrued capital expenditures and accounts payable for property and equipment

$

(11,318)

22,675

See accompanying notes to unaudited condensed consolidated financial statements.

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ANTERO MIDSTREAM CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

(1) Organization

Antero Midstream Corporation (together with its consolidated subsidiaries, “Antero Midstream,” “AM” or the “Company”) is a growth-oriented midstream company formed to own, operate and develop midstream energy infrastructure primarily to service Antero Resources Corporation (“Antero Resources”) and its production and completion activity in the Appalachian Basin’s Marcellus Shale and Utica Shale located in West Virginia and Ohio. The Company’s assets consist of gathering pipelines, compressor stations, interests in processing and fractionation plants and water handling assets. Antero Midstream provides midstream services to Antero Resources under long-term contracts. The Company’s corporate headquarters is located in Denver, Colorado.

(2) Summary of Significant Accounting Policies

(a)

Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information and should be read in the context of the Company’s December 31, 2020 consolidated financial statements and notes thereto for a more complete understanding of the Company’s operations, financial position, and accounting policies. The Company’s December 31, 2020 consolidated financial statements were included in the Company’s 2020 Annual Report on Form 10-K, which was filed with the SEC.

These unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, and, accordingly, do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments (consisting of normal and recurring accruals) considered necessary to present fairly the Company’s financial position as of December 31, 2020 and September 30, 2021, the results of the Company’s operations for the three and nine months ended September 30, 2020 and 2021, and cash flows for the nine months ended September 30, 2020 and 2021. The Company has no items of other comprehensive income (loss); therefore, net income (loss) is equal to comprehensive income (loss).

Certain costs of doing business incurred and charged to the Company by Antero Resources have been reflected in the accompanying unaudited condensed consolidated financial statements. These costs include general and administrative expenses provided to the Company by Antero Resources in exchange for:

business services, such as payroll, accounts payable and facilities management;
corporate services, such as finance and accounting, legal, human resources, investor relations and public and regulatory policy; and
employee compensation, including equity-based compensation.

Transactions between the Company and Antero Resources have been identified in the unaudited condensed consolidated financial statements (see Note 4—Transactions with Affiliates).

(b)

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Antero Midstream Corporation and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated in the Company’s unaudited condensed consolidated financial statements.

(c)

Recently Adopted Accounting Standard

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Simplifying the Accounting for Income Taxes. This ASU removes certain exceptions to the general principles in Accounting Standard Codifications Topic 740, Income Taxes (“ASC 740”), and also simplifies portions of ASC 740 by clarifying and

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

amending existing guidance. It is effective for interim and annual reporting periods after December 15, 2020. The Company adopted this ASU on January 1, 2021, and it did not have a material impact on the Company's consolidated financial statements.

(3) Goodwill and Intangibles

During the first quarter of 2020, the Company performed an interim impairment analysis of its goodwill due to changes in Antero Resources’ drilling plans as a result of the decline in commodity prices. As a result of this evaluation, the Company impaired all remaining goodwill of $575 million associated with its gathering and processing segment in the first quarter of 2020. Significant assumptions used to estimate the reporting units’ fair value included the discount rate as well as estimates of future cash flows, which were impacted primarily by commodity prices and producer customers’ development plans (which impact volumes and capital requirements).

All customer relationships are subject to amortization and are amortized over a weighted average period of 20 years, which reflects the remaining economic life of the relationships as of September 30, 2021. The changes in the carrying amount of customer relationships for the nine months ended September 30, 2021 were as follows (in thousands):

Customer relationships as of December 31, 2020

$

1,427,447

Amortization of customer relationships

(53,004)

Customer relationships as of September 30, 2021

$

1,374,443

Future amortization expense is as follows (in thousands):

Remainder of year ending December 31, 2021

$

17,668

Year ending December 31, 2022

70,672

Year ending December 31, 2023

70,672

Year ending December 31, 2024

70,672

Year ending December 31, 2025

70,672

Thereafter

1,074,087

Total

$

1,374,443

(4) Transactions with Affiliates

(a)

Revenues

Substantially all revenues earned in the three and nine months ended September 30, 2020 and 2021 were earned from Antero Resources, under various agreements for gathering and compression and water handling services. Revenues earned from gathering and processing services consists of lease income.

(b)

Accounts receivable—Antero Resources and Accounts payable—Antero Resources

Accounts receivable—Antero Resources represents amounts due from Antero Resources, primarily related to gathering and compression services and water handling services. Accounts payable—Antero Resources represents amounts due to Antero Resources for general and administrative and other costs.

(c)

Allocation of Costs Charged by Antero Resources

The employees supporting the Company’s operations are concurrently employed by Antero Resources and the Company.  Direct operating expense includes costs charged to the Company of $2 million during both the three months ended September 30, 2020 and 2021, and $5 million and $7 million during the nine months ended September 30, 2020 and 2021, respectively. These costs were for services provided by employees associated with the operation of the Company’s gathering lines, compressor stations, and water handling assets.  General and administrative expense includes costs charged to the Company by Antero Resources of $6 million and $8 million during the three months ended September 30, 2020 and 2021, respectively, and $18 million and $24 million during the nine months ended September 30, 2020 and 2021, respectively.  These costs relate to: (i) various business

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

services, including payroll processing, accounts payable processing and facilities management, (ii) various corporate services, including legal, accounting, treasury, information technology and human resources and (iii) compensation, including certain equity-based compensation.  These expenses are charged to the Company based on (i) the nature of the expenses and are apportioned based on a combination of the Company’s proportionate share of gross property and equipment, capital expenditures and labor costs, as applicable, and (ii) an annual management services fee.  The Company reimburses Antero Resources directly for all general and administrative costs charged to it.  See Note 9—Equity-Based Compensation and Cash Awards.

(5) Revenue

(a)

Revenue from Contracts with Customers

All of the Company’s revenues are currently derived from service contracts with customers and are recognized when the Company satisfies a performance obligation by delivering a service to a customer. The Company derives substantially all of its revenues from Antero Resources. The following sets forth the nature, timing of satisfaction of performance obligations and significant payment terms of the Company’s contracts with Antero Resources.

Gathering and Compression Agreement

Pursuant to the gathering and compression agreement with Antero Resources, Antero Resources has dedicated substantially all of its current and future acreage in West Virginia, Ohio and Pennsylvania to the Company for gathering and compression services except for acreage subject to third-party commitments or pre-existing dedications. The Company also has an option to gather and compress natural gas produced by Antero Resources on any additional acreage it acquires during the term of the agreement outside of West Virginia, Ohio and Pennsylvania on the same terms and conditions. In December 2019, the Company and Antero Resources agreed to extend the initial term of the gathering and compression agreement to 2038 and established a growth incentive fee program whereby low pressure gathering fees will be reduced from 2020 through 2023 to the extent Antero Resources achieves certain quarterly volumetric targets during such time. For the three and nine months ended September 30, 2020, Antero Resources earned rebates of $12 million and $36 million, respectively, from the Company by achieving the first level volumetric target during the first, second and third quarters of 2020. Antero Resources did not earn any rebates from the Company for the three and nine months ended September 30, 2021 since Antero Resources did not achieve any volumetric targets during the first, second or third quarters of 2021. Upon completion of the initial contract term, the gathering and compression agreement will continue in effect from year to year until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the Company or Antero Resources on or before the 180th day prior to the anniversary of such effective date.

Under the gathering and compression agreement, the Company receives a low pressure gathering fee, a high pressure gathering fee and a compression fee, in each case subject to annual CPI-based adjustments. In addition, the agreement stipulates that the Company receives a reimbursement for the actual cost of electricity used at its compressor stations.

The Company determined that the gathering and compression agreement is an operating lease because Antero Resources obtains substantially all of the economic benefit of the asset and has the right to direct the use of the asset. The gathering system is an identifiable asset within the gathering and compression agreement, and it consists of underground low pressure pipelines that generally connect and deliver gas from specific well pads to compressor stations to compress the gas before delivery to underground high pressure pipelines that transport the gas to a third-party pipeline or plant. The gathering system is considered a single lease due to the interrelated network of the assets. When a modification to the gathering and compression agreement occurs, the Company reassesses the classification of this lease. The Company accounts for its lease and non-lease components as a single lease component as the lease component is the predominant component. The non-lease components consist of operating, oversight and maintenance of the gathering system, which are performed on time-elapsed measures. All lease payments under the future minimum volume commitments discussed below are considered to be in-substance fixed lease payments under the gathering and compression agreement.

The Company recognizes revenue when low pressure volumes are delivered to a compressor station, compression volumes are delivered to a high pressure line and high pressure volumes are delivered to a processing plant or transmission pipeline. The Company invoices the customer the month after each service is performed, and payment is due in the same month.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

Water Services Agreement

The Company is party to a water services agreement with Antero Resources, whereby the Company provides certain water handling services to Antero Resources within an area of dedication in defined service areas in West Virginia and Ohio. Upon completion of the initial term in 2035, the water services agreement will continue in effect from year to year until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the Company or Antero Resources on or before the 180th day prior to the anniversary of such effective date. Under the agreement, the Company receives a fixed fee per barrel for fresh water delivered by pipeline directly to the well site. Additionally, the Company receives a fixed fee per barrel for fresh water delivered by truck to high-rate transfer facilities. For flowback and produced water blending services, the Company receives a cost of service fee based on the costs incurred by the Company. All such fees under the agreement are subject to annual CPI-based adjustments and additional fees based on certain costs.

Under the water services agreement, the Company may also contract with third parties to provide water services to Antero Resources. Antero Resources reimburses the Company for third-party out-of-pocket costs plus a 3% markup.

The Company satisfies its performance obligations and recognizes revenue when the fresh water volumes have been delivered to the hydration unit of a specified well pad or when flowback and produced water blending services have been completed. The Company invoices the customer the month after water services are performed, and payment is due in the same month. For services contracted through third-party providers, the Company’s performance obligation is satisfied when the service to be performed by the third-party provider has been completed. The Company invoices the customer after the third-party provider billing is received, and payment is due in the same month.

Minimum Volume Commitments

The gathering and compression agreement includes certain minimum volume commitment provisions. If and to the extent Antero Resources requests that the Company construct new high pressure lines and compressor stations, the gathering and compression agreement contains options at the Company’s election for either (i) minimum volume commitments that require Antero Resources to utilize or pay for 75% of the high pressure gathering capacity and 70% of the compression capacity of such new construction for 10 years or (ii) a service fee that allows us to earn a 13% rate of return on such new construction over seven years. The Company recognizes lease income from its minimum volume commitments under its gathering and compression agreement on a straight-line basis and additional operating lease income is earned when excess volumes are delivered under the contract. The Company is not party to any leases that have not commenced.

Minimum revenue amounts under the gathering and compression minimum volume commitments as of September 30, 2021 are as follows (in thousands):

Remainder of year ending December 31, 2021

$

23,119

Year ending December 31, 2022

249,029

Year ending December 31, 2023

249,029

Year ending December 31, 2024

249,712

Year ending December 31, 2025

235,940

Thereafter

558,288

Total

$

1,565,117

(b)

Disaggregation of Revenue

In the following table, revenue is disaggregated by type of service and type of fee and is identified by the reportable segment to which such revenues relate. For more information on reportable segments, see Note 14—Reportable Segments.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

Three Months Ended

Nine Months Ended

September 30,

September 30,

(in thousands)

2020

2021

2020

2021

    

Reportable Segment

Revenue from contracts with customers

    

    

    

    

Type of service

Gathering—low pressure

$

92,673

87,139

259,612

265,206

Gathering and Processing (1)

Gathering—low pressure rebate

(12,000)

(36,000)

Gathering and Processing (1)

Gathering—high pressure

57,665

51,812