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, 2023


☐	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

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)

(303) 357-7310

(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

Number of shares of the registrant’s common stock outstanding as of October 20, 2023 (in thousands): 479,713

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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	40
Item 5	Other Information	40
Item 6.	Exhibits	41
SIGNATURES		42

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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 and in our Annual Report on Form 10-K for the year ended December 31, 2022. 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, including the conflicts in Ukraine and in the Middle East, and world health events;

●

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 return of capital 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;

●

expectations regarding the amount and timing of litigation awards;

●

uncertainty regarding our future operating results; and

●

our other plans, objectives, expectations and intentions contained in this Quarterly Report on Form 10-Q.

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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, supply chain or other disruptions, 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, cybersecurity risks, the state of 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, 2022 (the “2022 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, except per share amounts)


			(Unaudited)
	December 31,		September 30,
	2022		2023
Assets
Current assets:
Accounts receivable–Antero Resources	$	86,152		93,019
Accounts receivable–third party		575		764
Income tax receivable		940		940
Other current assets		1,326		811
Total current assets		88,993		95,534

Property and equipment, net		3,751,431		3,782,554
Investments in unconsolidated affiliates		652,767		635,954
Customer relationships		1,286,103		1,233,099
Other assets, net		12,026		11,570
Total assets	$	5,791,320		5,758,711

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable–Antero Resources	$	5,436		3,669
Accounts payable–third party		22,865		24,683
Accrued liabilities		72,715		81,628
Other current liabilities		1,061		669
Total current liabilities		102,077		110,649
Long-term liabilities:
Long-term debt		3,361,282		3,258,537
Deferred income tax liability		131,215		228,636
Other		4,428		9,749
Total liabilities		3,599,002		3,607,571

Stockholders' equity:
Preferred stock, $0.01 par value: 100,000 authorized as of December 31, 2022 and September 30, 2023
Series A non-voting perpetual preferred stock; 12 designated and 10 issued and outstanding as of December 31, 2022 and September 30, 2023		—		—
Common stock, $0.01 par value; 2,000,000 authorized; 478,497 and 479,678 issued and outstanding as of December 31, 2022 and September 30, 2023, respectively		4,785		4,797
Additional paid-in capital		2,104,740		2,048,523
Retained earnings		82,793		97,820
Total stockholders' equity		2,192,318		2,151,140
Total liabilities and stockholders' equity	$	5,791,320		5,758,711

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,
	2022		2023
Revenue:
Gathering and compression–Antero Resources	$	185,640		214,992
Water handling–Antero Resources		61,411		66,132
Water handling–third party		1,651		383
Amortization of customer relationships		(17,668)		(17,668)
Total revenue		231,034		263,839
Operating expenses:
Direct operating		46,648		51,914
General and administrative (including $5,553 and $8,349 of equity-based compensation in 2022 and 2023, respectively)		13,587		17,633
Facility idling		865		722
Depreciation		34,206		30,745
Accretion of asset retirement obligations		50		45
Loss (gain) on asset sale		(2,092)		467
Total operating expenses		93,264		101,526
Operating income		137,770		162,313
Other income (expense):
Interest expense, net		(47,835)		(55,233)
Equity in earnings of unconsolidated affiliates		24,411		27,397
Total other expense		(23,424)		(27,836)
Income before income taxes		114,346		134,477
Income tax expense		(30,332)		(36,657)
Net income and comprehensive income	$	84,014		97,820

Net income per share–basic	$	0.18		0.20
Net income per share–diluted	$	0.17		0.20

Weighted average common shares outstanding:
Basic		478,460		479,676
Diluted		480,318		482,840

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)


	Nine Months Ended September 30,
	2022		2023
Revenue:
Gathering and compression–Antero Resources	$	552,154		625,636
Water handling–Antero Resources		176,994		208,040
Water handling–third party		2,288		929
Amortization of customer relationships		(53,004)		(53,004)
Total revenue		678,432		781,601
Operating expenses:
Direct operating		131,959		162,382
General and administrative (including $14,026 and $23,175 of equity-based compensation in 2022 and 2023, respectively)		47,597		53,142
Facility idling		3,198		1,933
Depreciation		98,181		101,174
Impairment of property and equipment		3,702		—
Accretion of asset retirement obligations		178		133
Loss on settlement of asset retirement obligations		539		620
Loss (gain) on asset sale		(2,242)		6,036
Total operating expenses		283,112		325,420
Operating income		395,320		456,181
Other income (expense):
Interest expense, net		(137,540)		(165,245)
Equity in earnings of unconsolidated affiliates		70,467		77,825
Total other expense		(67,073)		(87,420)
Income before income taxes		328,247		368,761
Income tax expense		(84,798)		(97,422)
Net income and comprehensive income	$	243,449		271,339

Net income per share–basic	$	0.51		0.57
Net income per share–diluted	$	0.51		0.56

Weighted average common shares outstanding:
Basic		478,144		479,267
Diluted		480,342		481,908

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, 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
Dividends to stockholders		—		—		—		(80,853)		(26,960)		(107,813)
Equity-based compensation		—		—		—		5,553		—		5,553
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes		—		25		—		(18)		—		(18)
Net income and comprehensive income		—		—		—		—		84,014		84,014
Balance at September 30, 2022	$	—		478,462	$	4,784		2,123,057		84,014		2,211,855

Balance at December 31, 2022	$	—		478,497	$	4,785		2,104,740		82,793		2,192,318
Dividends to stockholders		—		—		—		(25,709)		(82,793)		(108,502)
Equity-based compensation		—		—		—		6,327		—		6,327
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes		—		148		1		(1,167)		—		(1,166)
Net income and comprehensive income		—		—		—		—		86,507		86,507
Balance at March 31, 2023		—		478,645		4,786		2,084,191		86,507		2,175,484
Dividends to stockholders		—		—		—		(24,267)		(86,507)		(110,774)
Equity-based compensation		—		—		—		8,499		—		8,499
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes		—		1,011		11		(7,193)		—		(7,182)
Net income and comprehensive income		—		—		—		—		87,012		87,012
Balance at June 30, 2023		—		479,656		4,797		2,061,230		87,012		2,153,039
Dividends to stockholders		—		—		—		(21,053)		(87,012)		(108,065)
Equity-based compensation		—		—		—		8,349		—		8,349
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes		—		22		—		(3)		—		(3)
Net income and comprehensive income		—		—		—		—		97,820		97,820
Balance at September 30, 2023	$	—		479,678	$	4,797		2,048,523		97,820		2,151,140

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,
	2022		2023
Cash flows provided by (used in) operating activities:
Net income	$	243,449		271,339
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		98,181		101,174
Accretion of asset retirement obligations		178		133
Impairment of property and equipment		3,702		—
Deferred income tax expense		84,798		97,422
Equity-based compensation		14,026		23,175
Equity in earnings of unconsolidated affiliates		(70,467)		(77,825)
Distributions from unconsolidated affiliates		90,470		94,900
Amortization of customer relationships		53,004		53,004
Amortization of deferred financing costs		4,268		4,463
Settlement of asset retirement obligations		(1,395)		(869)
Loss on settlement of asset retirement obligations		539		620
Loss (gain) on asset sale		(2,242)		6,036
Changes in assets and liabilities:
Accounts receivable–Antero Resources		5,596		(6,867)
Accounts receivable–third party		(822)		436
Other current assets		242		(1,307)
Accounts payable–Antero Resources		(2,006)		(1,766)
Accounts payable–third party		12,228		1,214
Accrued liabilities		(2,773)		5,460
Net cash provided by operating activities		530,976		570,742
Cash flows provided by (used in) investing activities:
Additions to gathering systems and facilities		(190,407)		(90,175)
Additions to water handling systems		(45,747)		(39,850)
Investments in unconsolidated affiliates		—		(262)
Return of investment in unconsolidated affiliate		17,000		—
Acquisition of gathering systems and facilities		—		(266)
Cash received in asset sales		4,026		1,071
Change in other assets		(24)		(26)
Change in other liabilities		(804)		—
Net cash used in investing activities		(215,956)		(129,508)
Cash flows provided by (used in) financing activities:
Dividends to common stockholders		(325,120)		(326,871)
Dividends to preferred stockholders		(413)		(413)
Payments of deferred financing costs		(302)		—
Borrowings (repayments) on bank credit facilities, net		17,600		(105,600)
Employee tax withholding for settlement of equity compensation awards		(6,785)		(8,350)
Net cash used in financing activities		(315,020)		(441,234)
Net increase in cash and cash equivalents		—		—
Cash and cash equivalents, beginning of period		—		—
Cash and cash equivalents, end of period	$	—		—

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	130,236		159,019
Increase (decrease) in accrued capital expenditures and accounts payable for property and equipment	$	(17,130)		9,171

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 (the “Company” or “Antero Midstream”) is a growth-oriented midstream company formed to own, operate and develop midstream energy infrastructure primarily to service 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, 2022 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, 2022 consolidated financial statements were included in the Company’s 2022 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, 2022 and September 30, 2023, the results of the Company’s operations for the three and nine months ended September 30, 2022 and 2023, and the Company’s cash flows for the nine months ended September 30, 2022 and 2023. 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.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(3) Intangibles

All customer relationships are subject to amortization and are amortized over a weighted average period of 18 years, which reflects the remaining economic life of the relationships as of September 30, 2023. The changes in the carrying amount of customer relationships were as follows (in thousands):


Customer relationships as of December 31, 2022	$	1,286,103
Amortization of customer relationships		(53,004)
Customer relationships as of September 30, 2023	$	1,233,099

Future amortization expense is as follows (in thousands):


Remainder of year ending December 31, 2023	$	17,668
Year ending December 31, 2024		70,672
Year ending December 31, 2025		70,672
Year ending December 31, 2026		70,672
Year ending December 31, 2027		70,672
Thereafter		932,743
Total	$	1,233,099

(4) Transactions with Affiliates

(a)

Revenues

Substantially all revenues earned in the three and nine months ended September 30, 2022 and 2023 were earned from Antero Resources, under various agreements for gathering and compression and water handling services. Revenues earned from gathering and compression services consist 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 $3 million and $5 million during the three months ended September 30, 2022 and 2023, respectively and $10 million and $13 million during the nine months ended September 30, 2022 and 2023, 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 $7 million during the three months ended September 30, 2022 and 2023, respectively, and $22 million during each of the nine months ended September 30, 2022 and 2023. 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 operating lease agreements, 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

The Company’s gathering and compression service agreements with Antero Resources include: (i) the second amended and restated gathering and compression agreement dated December 8, 2019 (the “2019 gathering and compression agreement”), (ii) the gathering and compression agreements acquired with the Crestwood Equity Partners LP (NYSE: CEQP) (“Crestwood”) assets (the “Marcellus gathering and compression agreements”) and (iii) a compression agreement acquired with the EnLink Midstream LLC (NYSE: ENLC) (“EnLink”) assets (the “Utica compression agreement,” and together with the 2019 gathering and compression agreement and the Marcellus gathering and compression agreements, the “gathering and compression agreements”). See Note 6—Property and Equipment for additional information. The 2019 gathering and compression agreement has an initial term through 2038, the Marcellus gathering and compression agreements expire between 2023 and 2031, and the Utica compression agreement has two dedicated areas that expire in 2024 and 2030. Upon expiration of each of the Marcellus gathering and compression service agreements and the Utica compression agreement, the Company will continue to provide gathering and compression services under the 2019 gathering and compression agreement. Pursuant to the gathering and compression agreements, 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. 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 2019 gathering and compression agreement outside of West Virginia, Ohio and Pennsylvania on the same terms and conditions as the 2019 gathering and compression agreement.

The 2019 gathering and compression agreement includes 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’ throughput gathered under the Marcellus gathering and compression agreements is not considered in low pressure gathering volume targets. Antero Resources achieved the first level volumetric target during each of the first three quarters of 2022 and 2023. Accordingly, Antero Resources earned rebates of $12 million for each of the three months ended September 30, 2022 and 2023 and $36 million for each of the nine months ended September 30, 2022 and 2023. Upon completion of the initial contract term in 2038, the 2019 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 agreements, the Company receives, where applicable, a low pressure gathering fee, a high pressure gathering fee and a compression fee, substantially all of which are subject to annual Consumer Price Index (“CPI”)-based adjustments (or, in the case of the 2019 gathering and compression agreement, the option in certain cases to elect a cost of service fee when such assets are placed in-service). In addition, under the 2019 gathering and compression agreement, the Company receives a reimbursement for certain variable costs, such as electricity and operating expenses.

The Company determined that its gathering and compression agreements are operating leases as Antero Resources obtains substantially all of the economic benefit of the assets and has the right to direct the use of the assets. Each gathering and compression system is an identifiable asset, and consists of a network of assets that may include underground low pressure pipelines that 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 processing plant or a Joint Venture processing plant. Each compression system is an identifiable asset, and consists of a network of assets that include compressor stations that connect to underground high pressure pipelines that transport the gas to a third-party pipeline, third-party processing plant or a Joint Venture processing plant. Each set of assets in an agreement is considered to be a single lease due to the interrelated network of the assets required to provide services under each respective agreement. When a modification to an agreement occurs, the Company reassesses the classification of the 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 systems, which are performed on time-elapsed measures.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

The 2019 gathering and compression agreement and certain of the Marcellus gathering and compression agreements include 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 2019 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. In addition, certain of the Marcellus gathering and compression agreements provide for a minimum volume commitment that requires Antero Resources to utilize or pay for 25% of the capacity of new compressor station construction for 10 years. 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 agreements.

The Company recognizes lease income from its minimum volume commitments and cost of service fees under its gathering and compression agreements 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 are delivered to a processing plant or transmission pipeline, as applicable. Minimum volume commitments are aggregated such that there is a single minimum volume commitment for the respective service each year for each agreement. 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 agreements as of September 30, 2023 are as follows (in thousands):


Remainder of year ending December 31, 2023	$	54,905
Year ending December 31, 2024		316,492
Year ending December 31, 2025		298,143
Year ending December 31, 2026		284,327
Year ending December 31, 2027		224,150
Thereafter		382,435
Total	$	1,560,452

(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 180^th 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.

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ANTERO MIDSTREAM CORPORATION

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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 this contract, 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 Company also performs water services for third-party customers and such contracts 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.

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 additional information on reportable segments, see Note 15—Reportable Segments.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2022		2023		2022		2023		Reportable Segment
Type of service
Gathering—low pressure	$	92,091		106,731		273,188		311,410	Gathering and Processing ⁽¹⁾
Gathering—low pressure fee rebate		(12,000)		(12,000)		(36,000)		(36,000)	Gathering and Processing ⁽¹⁾
Compression		52,364		62,903		155,462		182,858	Gathering and Processing ⁽¹⁾
Gathering—high pressure		53,185		57,358		159,504		167,368	Gathering and Processing ⁽¹⁾
Fresh water delivery		38,445		40,989		111,609		128,214	Water Handling
Other fluid handling		24,617		25,526		67,673		80,755	Water Handling
Amortization of customer relationships		(9,271)		(9,271)		(27,814)		(27,814)	Gathering and Processing
Amortization of customer relationships		(8,397)		(8,397)		(25,190)		(25,190)	Water Handling
Total	$	231,034		263,839		678,432		781,601

Type of contract