PartnersCapitalAbstract
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (IRS Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
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(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 | ||
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. ☒
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). ☒
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.
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)
Number of shares of the registrant’s common stock outstanding as of October 25, 2024 (in thousands):
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 | |||
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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, 2023. 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; |
● | our ability to execute our share repurchase program; |
● | 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 |
1
● | our other plans, objectives, expectations and intentions contained in this Quarterly Report on Form 10-Q. |
We caution investors that these forward-looking statements are subject to all of the risks and uncertainties incidental to our business, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, commodity price volatility, inflation, 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, 2023 (the “2023 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
PART I—FINANCIAL INFORMATION
ANTERO MIDSTREAM CORPORATION
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited) | |||||||
December 31, |
| September 30, | |||||
| 2023 |
| 2024 |
| |||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | | — | ||||
Accounts receivable–Antero Resources | | | |||||
Accounts receivable–third party | | | |||||
Other current assets | | | |||||
Total current assets | | | |||||
Property and equipment, net | | | |||||
Investments in unconsolidated affiliates | | | |||||
Customer relationships | | | |||||
Other assets, net | | | |||||
Total assets | $ | | | ||||
Liabilities and Stockholders' Equity | |||||||
Current liabilities: | |||||||
Accounts payable–Antero Resources | $ | | | ||||
Accounts payable–third party | | | |||||
Accrued liabilities | | | |||||
Other current liabilities | | | |||||
Total current liabilities | | | |||||
Long-term liabilities: | |||||||
Long-term debt | | | |||||
Deferred income tax liability, net | | | |||||
Other | | | |||||
Total liabilities | | | |||||
Stockholders' equity: | |||||||
Preferred stock, $ | |||||||
Series A non-voting perpetual preferred stock; | |||||||
Common stock, $ | | | |||||
Additional paid-in capital | | | |||||
Retained earnings | | | |||||
Total stockholders' equity | | | |||||
Total liabilities and stockholders' equity | $ | | |
See accompanying notes to unaudited condensed consolidated financial statements.
3
ANTERO MIDSTREAM CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)
(In thousands, except per share amounts)
Three Months Ended September 30, | |||||||
| 2023 |
| 2024 | ||||
Revenue: |
|
| |||||
Gathering and compression–Antero Resources | $ | | | ||||
Water handling–Antero Resources | | | |||||
Water handling–third party | | | |||||
Amortization of customer relationships | ( | ( | |||||
Total revenue | | | |||||
Operating expenses: | |||||||
Direct operating | | | |||||
General and administrative (including $ | | | |||||
Facility idling | | | |||||
Depreciation | | | |||||
Impairment of property and equipment | — | | |||||
Accretion of asset retirement obligations | | | |||||
Loss (gain) on asset sale | | ( | |||||
Total operating expenses | | | |||||
Operating income | | | |||||
Other income (expense): | |||||||
Interest expense, net | ( | ( | |||||
Equity in earnings of unconsolidated affiliates | | | |||||
Loss on early extinguishment of debt | — | ( | |||||
Total other expense | ( | ( | |||||
Income before income taxes | | | |||||
Income tax expense | ( | ( | |||||
Net income and comprehensive income | $ | | | ||||
Net income per common share–basic | $ | | | ||||
Net income per common share–diluted | $ | | | ||||
Weighted average common shares outstanding: | |||||||
Basic | | | |||||
Diluted | | |
See accompanying notes to unaudited condensed consolidated financial statements.
4
ANTERO MIDSTREAM CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)
(In thousands, except per share amounts)
Nine Months Ended September 30, | |||||||
| 2023 |
| 2024 |
| |||
Revenue: |
|
| |||||
Gathering and compression–Antero Resources | $ | | | ||||
Water handling–Antero Resources | | | |||||
Water handling–third party | | | |||||
Amortization of customer relationships | ( | ( | |||||
Total revenue | | | |||||
Operating expenses: | |||||||
Direct operating | | | |||||
General and administrative (including $ | | | |||||
Facility idling | | | |||||
Depreciation | | | |||||
Impairment of property and equipment | — | | |||||
Accretion of asset retirement obligations | | | |||||
Loss on settlement of asset retirement obligations | | — | |||||
Loss on asset sale | | | |||||
Total operating expenses | | | |||||
Operating income | | | |||||
Other income (expense): | |||||||
Interest expense, net | ( | ( | |||||
Equity in earnings of unconsolidated affiliates | | | |||||
Loss on early extinguishment of debt | — | ( | |||||
Total other expense | ( | ( | |||||
Income before income taxes | | | |||||
Income tax expense | ( | ( | |||||
Net income and comprehensive income | $ | | | ||||
Net income per common share–basic | $ | | | ||||
Net income per common share–diluted | $ | | | ||||
Weighted average common shares outstanding: | |||||||
Basic | | | |||||
Diluted | | |
See accompanying notes to unaudited condensed consolidated financial statements.
5
ANTERO MIDSTREAM CORPORATION
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands)
Additional | |||||||||||||||||||
Preferred | Common Stock | Paid-In | Retained | Total | |||||||||||||||
Stock | Shares | Amount | Capital | Earnings | Equity | ||||||||||||||
Balance at December 31, 2022 |
| $ | — | | $ | | | |
| | |||||||||
Dividends to stockholders | — | — | — | ( | ( | ( | |||||||||||||
Equity-based compensation | — | — | — | | — | | |||||||||||||
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | — | | | ( | — | ( | |||||||||||||
Net income and comprehensive income | — | — | — | — | | | |||||||||||||
Balance at March 31, 2023 | — | | | | | | |||||||||||||
Dividends to stockholders | — | — | — | ( | ( | ( | |||||||||||||
Equity-based compensation | — | — | — | | — | | |||||||||||||
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | — | | | ( | — | ( | |||||||||||||
Net income and comprehensive income | — | — | — | — | | | |||||||||||||
Balance at June 30, 2023 | — | | | | | | |||||||||||||
Dividends to stockholders | — | — | — | ( | ( | ( | |||||||||||||
Equity-based compensation | — | — | — | | — | | |||||||||||||
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | — | | — | ( | — | ( | |||||||||||||
Net income and comprehensive income | — | — | — | — | | | |||||||||||||
Balance at September 30, 2023 | $ | — | | $ | | | | | |||||||||||
Balance at December 31, 2023 |
| $ | — | | $ | | | | | ||||||||||
Dividends to stockholders | — | — | — | ( | ( | ( | |||||||||||||
Equity-based compensation | — | — | — | | — | | |||||||||||||
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | — | | | ( | — | ( | |||||||||||||
Net income and comprehensive income | — | — | — | — | | | |||||||||||||
Balance at March 31, 2024 | — | | | | | | |||||||||||||
Dividends to stockholders | — | — | — | ( | ( | ( | |||||||||||||
Equity-based compensation | — | — | — | | — | | |||||||||||||
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | — | | | ( | — | ( | |||||||||||||
Net income and comprehensive income | — | — | — | — | | | |||||||||||||
Balance at June 30, 2024 | — | | | | | | |||||||||||||
Dividends to stockholders | — | — | — | ( | ( | ( | |||||||||||||
Equity-based compensation | — | — | — | | — | | |||||||||||||
Issuance of common stock upon vesting of equity-based compensation awards, net of common stock withheld for income taxes | — | | | ( | — | ( | |||||||||||||
Net income and comprehensive income | — | — | — | — | | | |||||||||||||
Balance at September 30, 2024 | $ | — | | $ | | | | |
See accompanying notes to unaudited condensed consolidated financial statements.
6
ANTERO MIDSTREAM CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended September 30, | |||||||
| 2023 |
| 2024 |
| |||
Cash flows provided by (used in) operating activities: |
|
|
| ||||
Net income | $ | | | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation | | | |||||
Accretion of asset retirement obligations | | | |||||
Impairment of property and equipment | — | | |||||
Deferred income tax expense | | | |||||
Equity-based compensation | | | |||||
Equity in earnings of unconsolidated affiliates | ( | ( | |||||
Distributions from unconsolidated affiliates | | | |||||
Amortization of customer relationships | | | |||||
Amortization of deferred financing costs | | | |||||
Settlement of asset retirement obligations | ( | ( | |||||
Loss on settlement of asset retirement obligations | | — | |||||
Loss on asset sale | | | |||||
Loss on early extinguishment of debt | — | | |||||
Changes in assets and liabilities: | |||||||
Accounts receivable–Antero Resources | ( | ( | |||||
Accounts receivable–third party | | | |||||
Other current assets | ( | | |||||
Accounts payable–Antero Resources | ( | | |||||
Accounts payable–third party | | ( | |||||
Accrued liabilities | | ( | |||||
Net cash provided by operating activities | | | |||||
Cash flows provided by (used in) investing activities: | |||||||
Additions to gathering systems, facilities and other | ( | ( | |||||
Additions to water handling systems | ( | ( | |||||
Investments in unconsolidated affiliates | ( | ( | |||||
Acquisition of gathering systems and facilities | ( | ( | |||||
Cash received in asset sales | | | |||||
Change in other assets | ( | ( | |||||
Change in other liabilities | — | | |||||
Net cash used in investing activities | ( | ( | |||||
Cash flows provided by (used in) financing activities: | |||||||
Dividends to common stockholders | ( | ( | |||||
Dividends to preferred stockholders | ( | ( | |||||
Issuance of Senior Notes | — | | |||||
Redemption of Senior Notes | — | ( | |||||
Payments of deferred financing costs | — | ( | |||||
Borrowings on Credit Facility | | | |||||
Repayments on Credit Facility | ( | ( | |||||
Employee tax withholding for settlement of equity-based compensation awards | ( | ( | |||||
Net cash used in financing activities | ( | ( | |||||
Net decrease 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 | $ | | | ||||
Cash received during the period for income taxes | $ | — | | ||||
Increase in accrued capital expenditures and accounts payable for property and equipment | $ | | |
See accompanying notes to unaudited condensed consolidated financial statements.
7
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 SEC applicable to interim financial information and should be read in the context of the Company’s December 31, 2023 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, 2023 consolidated financial statements were included in the Company’s 2023 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, 2023 and September 30, 2024, results of operations for the three and nine months ended September 30, 2023 and 2024 and cash flows for the nine months ended September 30, 2023 and 2024. The Company has no items of other comprehensive income or loss; 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. |
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 wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the Company’s unaudited condensed consolidated financial statements.
(c) | Recently Issued Accounting Standards |
Reportable Segments
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 is intended to improve reportable segment disclosures primarily through enhanced disclosure of reportable segment expenses. This ASU is effective for annual reporting periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 is required to be applied retrospectively to all prior
8
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
periods presented in the financial statements. The Company is evaluating the impact that ASU 2023-07 will have on the financial statements. The Company plans to adopt ASU 2023-07 in the Annual Report on Form 10-K for the year ending December 31, 2024.
Income Taxes
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 is intended to improve income tax disclosures primarily through enhanced disclosure of income tax rate reconciliation items, and disaggregation of income (loss) from continuing operations, income tax expense (benefit) and income taxes paid, net disclosures by federal, state and foreign jurisdictions, among others. This ASU is effective for annual reporting periods beginning after December 15, 2024, although early adoption is permitted. ASU 2023-09 should be applied on a prospective basis, although retrospective application is permitted. The Company is evaluating the impact that ASU 2023-09 will have on the financial statements and the transition method it plans to use for adoption. The Company plans to adopt ASU 2023-09 in the Annual Report on Form 10-K for the year ending December 31, 2025.
(3) Intangibles
All customer relationships are subject to amortization and are amortized over a weighted average period of
(Unaudited) | |||||||
December 31, | September 30, | ||||||
(in thousands) | 2023 |
| 2024 | ||||
Gross carrying value of customer relationships | $ | |
| | |||
Accumulated amortization of customer relationships | ( | ( | |||||
Customer relationships | $ | | |
Future amortization expense as of September 30, 2024 is as follows (in thousands):
Remainder of year ending December 31, 2024 | $ | | |||||
Year ending December 31, 2025 | | ||||||
Year ending December 31, 2026 | | ||||||
Year ending December 31, 2027 | | ||||||
Year ending December 31, 2028 | | ||||||
Thereafter | | ||||||
Total | $ | |
(4) Transactions with Affiliates
(a) | Revenues |
Substantially all revenues earned in the three and nine months ended September 30, 2023 and 2024 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 $
9
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
2024, 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 $
(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) a gathering and compression agreement acquired with the Crestwood Equity Partners LP (“Crestwood”) assets (the “Marcellus gathering and compression agreement”), (iii) a compression agreement acquired with the EnLink Midstream LLC (NYSE: ENLC) (“EnLink”) assets (the “Utica compression agreement”) and (iv) a gathering and compression agreement acquired with the Summit Midstream Partners, LP (NYSE: SMLP) (“Summit”) assets (the “Mountaineer gathering and compression agreement,” and together with the 2019 gathering and compression agreement, the Marcellus gathering and compression agreement and the Utica compression agreement, the “gathering and compression agreements”). See Note 6—Property and Equipment for additional information. The 2019 gathering and compression agreement, Marcellus gathering and compression agreement and Mountaineer gathering and compression agreement have initial terms through 2038, 2031 and 2026, respectively, and the Utica compression agreement has
The 2019 gathering and compression agreement included a growth incentive fee program whereby low pressure gathering fees were reduced from 2020 through 2023 to the extent Antero Resources achieved certain quarterly volumetric targets during such time. Antero Resources’ throughput gathered under the Marcellus gathering and compression agreement was not considered in low pressure gathering volume targets. For the three and nine months ended September 30, 2023, Antero Resources earned rebates of $
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.
10
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
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.
The 2019 gathering and compression agreement, the Marcellus gathering and compression agreement and the Mountaineer gathering and compression agreement include 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 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
The Company recognizes lease income from its minimum lease payments 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 or fees 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 for each of the 2019 gathering and compression agreement and Marcellus gathering and compression agreement are aggregated such that each agreement has a single minimum volume commitment for the respective service each year. The Mountaineer gathering and compression agreement minimum compression and gathering fees are not subject to aggregation and are determined on a monthly basis for each compressor station and gathering line, respectively, subject to such 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, 2024 are as follows (in thousands):
Remainder of year ending December 31, 2024 | $ | | ||
Year ending December 31, 2025 | | |||
Year ending December 31, 2026 | | |||
Year ending December 31, 2027 | | |||
Year ending December 31, 2028 | | |||
Thereafter | | |||
Total | $ | |
11
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(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 notice from either the Company or Antero Resources to the other party on or before the
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 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
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.
12
ANTERO MIDSTREAM CORPORATION
Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)
(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 September 30, | Nine Months Ended September 30, | ||||||||||||||
(in thousands) | 2023 |
| 2024 |
| 2023 |
| 2024 |
| Reportable Segment |
| |||||
Type of service | |||||||||||||||
Gathering—low pressure | $ | | | $ | | | Gathering and Processing (1) | ||||||||
Gathering—low pressure fee rebate | ( | — | ( | — | Gathering and Processing (1) | ||||||||||
Compression | |