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Table of Contents

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 June 30, 2022

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 478,457,912 shares of common stock outstanding as of July 22, 2022.

Table of Contents

TABLE OF CONTENTS

Page

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

    

1

PART I—FINANCIAL INFORMATION

3

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

3

Item 2.

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

26

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

38

Item 4.

Controls and Procedures

39

PART II—OTHER INFORMATION

40

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 6.

Exhibits

42

SIGNATURES

43

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 geopolitical events and 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;
government regulations and changes in laws;
actions taken by third-party producers, operators, processors and transporters;
pending legal or environmental matters;
costs of conducting our operations;
our ability to achieve our greenhouse gas reduction targets and the costs associated therewith;
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.

1

Table of Contents

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 or changes in law, the uncertainty inherent in projecting Antero Resources’ future rates of production, cash flows and access to capital, the timing of development expenditures, impacts of world health events (including the COVID-19 pandemic), cybersecurity risks, the state or markets for, and availability of, verified quality carbon offsets 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, 2021 (the “2021 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.

2

Table of Contents

PART I—FINANCIAL INFORMATION

ANTERO MIDSTREAM CORPORATION

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

December 31,

June 30,

    

2021

   

2022

 

Assets

Current assets:

Accounts receivable–Antero Resources

$

81,197

75,098

Accounts receivable–third party

747

431

Income tax receivable

940

940

Other current assets

920

588

Total current assets

83,804

77,057

Property and equipment, net

3,394,746

3,492,489

Investments in unconsolidated affiliates

696,009

681,560

Customer relationships

1,356,775

1,321,439

Other assets, net

12,667

12,956

Total assets

$

5,544,001

5,585,501

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable–Antero Resources

$

4,956

2,227

Accounts payable–third party

23,592

24,510

Accrued liabilities

80,838

90,656

Other current liabilities

4,623

6,379

Total current liabilities

114,009

123,772

Long-term liabilities:

Long-term debt

3,122,910

3,157,966

Deferred income tax liability

13,721

68,187

Other

6,663

5,457

Total liabilities

3,257,303

3,355,382

Stockholders' Equity:

Preferred stock, $0.01 par value: 100,000 authorized as of December 31, 2021 and June 30, 2022

Series A non-voting perpetual preferred stock; 12 designated and 10 issued and outstanding as of December 31, 2021 and June 30, 2022

Common stock, $0.01 par value; 2,000,000 authorized; 477,495 and 478,437 issued and outstanding as of December 31, 2021 and June 30, 2022, respectively

4,775

4,784

Additional paid-in capital

2,414,398

2,198,375

Retained earnings (accumulated deficit)

(132,475)

26,960

Total stockholders' equity

2,286,698

2,230,119

Total liabilities and stockholders' equity

$

5,544,001

5,585,501

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 June 30,

    

2021

    

2022

Revenue:

    

    

Gathering and compression–Antero Resources

$

192,667

184,071

Water handling–Antero Resources

57,718

62,262

Water handling–third party

70

242

Amortization of customer relationships

(17,668)

(17,668)

Total revenue

232,787

228,907

Operating expenses:

Direct operating

39,555

43,299

General and administrative (including $3,059 and $5,641 of equity-based compensation in 2021 and 2022, respectively)

14,251

16,079

Facility idling

984

1,185

Depreciation

26,619

35,675

Impairment of property and equipment

3,702

Accretion of asset retirement obligations

114

64

Loss on settlement of asset retirement obligations

539

Gain on asset sale

(135)

(32)

Total operating expenses

81,388

100,511

Operating income

151,399

128,396

Other income (expense):

Interest expense, net

(43,505)

(45,426)

Equity in earnings of unconsolidated affiliates

21,515

22,824

Loss on early extinguishment of debt

(20,701)

Total other expense

(42,691)

(22,602)

Income before income taxes

108,708

105,794

Income tax expense

(28,485)

(26,399)

Net income and comprehensive income

$

80,223

79,395

Net income per share–basic

$

0.17

0.17

Net income per share–diluted

$

0.17

0.17

Weighted average common shares outstanding:

Basic

477,290

478,317

Diluted

479,530

480,270

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)

Six Months Ended June 30,

    

2021

    

2022

Revenue:

    

    

Gathering and compression–Antero Resources

$

377,828

366,514

Water handling–Antero Resources

114,321

115,583

Water handling–third party

95

637

Amortization of customer relationships

(35,336)

(35,336)

Total revenue

456,908

447,398

Operating expenses:

Direct operating

78,869

85,311

General and administrative (including $7,071 and $8,473 of equity-based compensation in 2021 and 2022, respectively)

32,181

34,010

Facility idling

2,163

2,333

Depreciation

53,469

63,975

Impairment of property and equipment

1,379

3,702

Accretion of asset retirement obligations

233

128

Loss on settlement of asset retirement obligations

539

Loss (gain) on asset sale

3,628

(150)

Total operating expenses

171,922

189,848

Operating income

284,986

257,550

Other income (expense):

Interest expense, net

(86,371)

(89,705)

Equity in earnings of unconsolidated affiliates

42,259

46,056

Loss on early extinguishment of debt

(20,701)

Total other expense

(64,813)

(43,649)

Income before income taxes

220,173

213,901

Income tax expense

(56,509)

(54,466)

Net income and comprehensive income

$

163,664

159,435

Net income per share–basic

$

0.34

0.33

Net income per share–diluted

$

0.34

0.33

Weighted average common shares outstanding:

Basic

477,071

477,983

Diluted

479,382

480,329

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)

Retained

Additional

Earnings

Preferred

Common Stock

Paid-In

(Accumulated

Total

Stock

Shares

Amount

Capital

Deficit)

Equity

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

Balance at December 31, 2021

    

$

477,495

$

4,775

2,414,398

(132,475)

    

2,286,698

Dividends to stockholders

(108,287)

(108,287)

Equity-based compensation

2,832

2,832

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

188

2

(1,331)

(1,329)

Net income and comprehensive income

80,040

80,040

Balance at March 31, 2022

477,683

4,777

2,307,612

(52,435)

2,259,954

Dividends to stockholders

(109,433)

(109,433)

Equity-based compensation

5,641

5,641

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

754

7

(5,445)

(5,438)

Net income and comprehensive income

79,395

79,395

Balance at June 30, 2022

$

478,437

$

4,784

2,198,375

26,960

2,230,119

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)

Six Months Ended June 30,

    

2021

    

2022

 

Cash flows provided by (used in) operating activities:

    

    

  

Net income

$

163,664

159,435

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

53,469

63,975

Accretion

233

128

Impairment

1,379

3,702

Deferred income tax expense

56,509

54,466

Equity-based compensation

7,071

8,473

Equity in earnings of unconsolidated affiliates

(42,259)

(46,056)

Distributions from unconsolidated affiliates

58,185

60,505

Amortization of customer relationships

35,336

35,336

Amortization of deferred financing costs

2,733

2,828

Settlement of asset retirement obligations

(602)

(916)

Loss on settlement of asset retirement obligations

539

Loss (gain) on asset sale

3,628

(150)

Loss on early extinguishment of debt

20,701

Changes in assets and liabilities:

Accounts receivable–Antero Resources

(16,274)

6,099

Accounts receivable–third party

777

517

Income tax receivable

16,311

Other current assets

1,070

158

Accounts payable–Antero Resources

376

(2,427)

Accounts payable–third party

5,365

9,480

Accrued liabilities

(7,297)

(1,911)

Net cash provided by operating activities

360,375

354,181

Cash flows provided by (used in) investing activities:

Additions to gathering systems and facilities

(51,658)

(131,665)

Additions to water handling systems

(22,707)

(30,369)

Investments in unconsolidated affiliates

(966)

Cash received in asset sale

1,627

147

Change in other liabilities

(805)

Net cash used in investing activities

(73,704)

(162,692)

Cash flows provided by (used in) financing activities:

Dividends to stockholders

(255,993)

(217,445)

Dividends to preferred stockholders

(275)

(275)

Issuance of senior notes

750,000

Redemption of senior notes

(667,472)

Payments of deferred financing costs

(8,755)

(302)

Borrowings (repayments) on bank credit facilities, net

(99,800)

33,300

Employee tax withholding for settlement of equity compensation awards

(4,317)

(6,767)

Other

(21)

Net cash used in financing activities

(286,633)

(191,489)

Net increase in cash and cash equivalents

38

Cash and cash equivalents, beginning of period

640

Cash and cash equivalents, end of period

$

678

Supplemental disclosure of cash flow information:

Cash paid during the period for interest

$

91,608

86,688

Cash received during the period for income taxes

$

16,913

Increase in accrued capital expenditures and accounts payable for property and equipment

$

25,490

2,822

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. 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, 2021 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, 2021 consolidated financial statements were included in the Company’s 2021 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, 2021 and June 30, 2022, the results of the Company’s operations for the three and six months ended June 30, 2021 and 2022, and the Company’s cash flows for the six months ended June 30, 2021 and 2022. The Company has no items of other comprehensive income; therefore, net income is equal to comprehensive income.

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) Intangibles

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 June 30, 2022. The changes in the carrying amount of customer relationships were as follows (in thousands):

Customer relationships as of December 31, 2021

$

1,356,775

Amortization of customer relationships

(35,336)

Customer relationships as of June 30, 2022

$

1,321,439

Future amortization expense is as follows (in thousands):

Remainder of year ending December 31, 2022

$

35,336

Year ending December 31, 2023

70,672

Year ending December 31, 2024

70,672

Year ending December 31, 2025

70,672

Year ending December 31, 2026

70,672

Thereafter

1,003,415

Total

$

1,321,439

(4) Transactions with Affiliates

(a)

Revenues

Substantially all revenues earned in the three and six months ended June 30, 2021 and 2022 were earned from Antero Resources, under various agreements for gathering and compression and water handling services. Revenues earned from gathering and compression 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 and $3 million during the three months ended June 30, 2021 and 2022, respectively, and $5 million and $7 million during the six months ended June 30, 2021 and 2022, 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 $7 million and $8 million during the three months ended June 30, 2021 and 2022, respectively, and $16 million during the six months ended June 30, 2021 and 2022.  These costs relate to (i) various business services, including payroll processing, accounts payable processing and facilities management, (ii) various corporate services, including legal, accounting, treasury, information technology and human resources and (iii) compensation, including certain equity-based compensation.  These expenses are charged to the Company based on the nature of the expenses and are apportioned based on a combination of the Company’s proportionate share of gross property and equipment, capital expenditures and labor costs, as applicable.  The Company reimburses Antero Resources directly for all general and administrative costs charged to it, except costs attributable to noncash equity-based compensation.  For further information on equity-based compensation, see Note 9—Equity-Based Compensation and Cash Awards.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(5) Revenue

All of the Company’s gathering and compression revenues are derived from an operating lease agreement, and all of the Company’s water handling revenues are derived from service contracts with customers. The Company currently earns substantially all of its revenues from Antero Resources.

(a)

Gathering and Compression

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. Antero Resources did not earn any rebates from the Company for the three and six months ended June 30, 2021 since Antero Resources did not achieve any volumetric targets during the first or second quarters of 2021. For the three and six months ended June 30, 2022, Antero Resources earned rebates of $12 million and $24 million, respectively, from the Company by achieving the first level volumetric target during the first and second quarters of 2022. 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 Consumer Price Index (“CPI”)-based adjustments, or a cost of service fee, at the Company’s election when such assets are placed in-service. In addition, the agreement stipulates that the Company receives a reimbursement for the actual cost of (i) electricity used at its compressor stations where the compression services are provided based on a compression fee and (ii) operating expenses for all services provided for a cost of service fee.

The Company determined that the gathering and compression agreement is an operating lease as Antero Resources obtains substantially all of the economic benefit of the asset and has the right to direct the use of the asset. The gathering system is an identifiable asset within the gathering and compression agreement, and it consists of underground low pressure pipelines that generally connect and deliver gas from specific well pads to compressor stations to compress the gas before delivery to underground high pressure pipelines that transport the gas to a third-party pipeline, third-party plant or Joint Venture (as defined in Note 13— Investments in Unconsolidated Affiliates) 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.

The gathering and compression agreement includes certain fixed fee provisions. If and to the extent Antero Resources requests that the Company construct new low pressure lines, high pressure lines and/or 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 cost of service fee that allows the Company to earn a 13% rate of return on such new construction over seven years, which election is made individually for each piece of equipment placed in service. All lease payments under the minimum volume commitments and cost of service fees are considered to be in-substance fixed lease payments under the gathering and compression agreement.

The Company recognizes lease income from its minimum volume commitments and cost of service fees under its gathering and compression agreement on a straight-line basis. Additional variable operating lease income is earned when volumes in excess of the minimum commitments are delivered under the contract. The Company recognizes variable lease income when low pressure volumes are delivered to a compressor station, compression volumes are delivered to a high pressure line and high pressure volumes

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

are delivered to a processing plant or transmission pipeline. Minimum volume commitments for high pressure gathering capacity and compression capacity are aggregated such that there is a single minimum volume commitment for the respective service each year. The Company invoices the customer the month after each service is performed, and payment is due in the same month. The Company is not party to any leases that have not commenced.

Minimum future lease cash flows to be received by the Company under the gathering and compression agreement as of June 30, 2022 are as follows (in thousands):

Remainder of year ending December 31, 2022

$

125,982

Year ending December 31, 2023

298,655

Year ending December 31, 2024

299,473

Year ending December 31, 2025

285,175

Year ending December 31, 2026

271,762

Thereafter

562,414

Total

$

1,843,461

(b)

Water Handling

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. The initial term of the water services agreement runs to 2035. 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 for fresh water deliveries by pipeline directly to the well site, subject to annual CPI-based adjustments. In addition, the Company also provides other fluid handling services. These operations, along with the Company’s fresh water delivery systems, support well completion and production operations for Antero Resources. These services are provided by the Company directly or through third-parties with which the Company contracts. For these other fluid handling services provided by third-parties, Antero Resources reimburses the Company’s third-party out-of-pocket costs plus 3%. For these other fluid handling services provided by the Company, the Company charges Antero Resources a cost of service fee.

The Company satisfies its performance obligations and recognizes revenue when (i) the fresh water volumes have been delivered to the hydration unit of a specified well pad or (ii) other fluid handling 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.

Transaction Price Allocated to Remaining Performance Obligations

The Company’s water service agreement with Antero Resources has a term greater than one year. The Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under the Company’s service contracts, each unit of product delivered to the customer represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

The remainder of the Company’s water service contracts, which relate to contracts with third parties, are short-term in nature with a contract term of one year or less. Accordingly, the Company is exempt from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

Contract Balances

Under the Company’s water service contracts, the Company invoices customers after the performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s water service contracts do not give rise to contract assets or liabilities.

(c)

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.

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2021

2022

2021

2022

    

Reportable Segment

Type of service

Gathering—low pressure

$

91,761

91,660

178,067

181,097

Gathering and Processing (1)

Gathering—low pressure rebate

(12,000)

(24,000)

Gathering and Processing (1)

Compression

49,371

51,486

97,508

103,098

Gathering and Processing (1)

Gathering—high pressure

51,535

52,925

102,253

106,319

Gathering and Processing (1)

Fresh water delivery

37,751

41,120

75,109

73,164

Water Handling

Other fluid handling

20,037

21,384

39,307

43,056

Water Handling

Amortization of customer relationships

(9,271)

(9,272)

(18,542)

(18,543)

Gathering and Processing

Amortization of customer relationships

(8,397)

(8,396)

(16,794)

(16,793)

Water Handling

Total

$

232,787

228,907

456,908

447,398

Type of contract

Per Unit Fixed Fee

$

192,667

196,071

377,828

390,514

Gathering and Processing (1)

Gathering—low pressure rebate

(12,000)

(24,000)

Gathering and Processing (1)

Per Unit Fixed Fee

37,751

41,362

75,109

73,801

Water Handling

Cost plus 3%

16,425

16,400

31,775

32,038

Water Handling

Cost of service fee

3,612

4,742

7,532

10,381

Water Handling

Amortization of customer relationships

(9,271)

(9,272)

(18,542)

(18,543)

Gathering and Processing

Amortization of customer relationships

(8,397)

(8,396)

(16,794)

(16,793)

Water Handling

Total

$

232,787

228,907

456,908

447,398

(1)Revenue related to the gathering and processing segment is classified as lease income related to the gathering system.

The Company’s receivables from its contracts with customers and operating leases as of December 31, 2021 and June 30, 2022, were $81 million and $75 million, respectively.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(6) Property and Equipment

Property and equipment, net consisted of the following items:

(Unaudited)

Estimated

December 31,

June 30,

(in thousands)

    

Useful Lives

    

2021

2022

Land