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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, 2023

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

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

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

40

Item 5

Other Information

40

Item 6.

Exhibits

41

SIGNATURES

42

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 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.

1

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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 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.

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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