Quarterly report pursuant to Section 13 or 15(d)

Revenue

v3.20.2
Revenue
9 Months Ended
Sep. 30, 2020
Revenue  
Revenue

(7) Revenue

(a)

Revenue from Contracts with Customers

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

Gathering and Compression Agreement

Pursuant to the gathering and compression agreement with Antero Resources, Antero Resources has dedicated substantially all of its current and future acreage in West Virginia, Ohio and Pennsylvania to the Company for gathering and compression services except for acreage subject to third-party commitments or pre-existing dedications. The Company also has an option to gather and compress natural gas produced by Antero Resources on any additional acreage it acquires during the term of the agreement outside of West Virginia, Ohio and Pennsylvania on the same terms and conditions. In December 2019, the Company and Antero Resources agreed to extend the initial term of the gathering and compression agreement to 2038 and established a growth incentive fee program whereby low pressure gathering fees will be reduced from 2020 through 2023 to the extent Antero Resources achieves certain volumetric targets at certain points during such time. Antero Resources achieved the volumetric targets for the first three quarters of 2020. For the three and nine months ended September 30, 2020, the Company provided Antero Resources $12 million and $36 million in rebates, respectively. Upon completion of the initial contract term, the gathering and compression agreement will continue

in effect from year to year until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the Company or Antero Resources on or before the 180th day prior to the anniversary of such effective date.

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

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

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

Water Services Agreement

The Company is party to a water services agreement with Antero Resources, whereby the Company provides certain water handling services to Antero Resources within an area of dedication in defined service areas in West Virginia and Ohio. Upon completion of the initial term in 2035, the water services agreement will continue in effect from year to year until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the Company or Antero Resources on or before the 180th day prior to the anniversary of such effective date. Under the agreement, the Company receives a fixed fee per barrel for fresh water deliveries by pipeline directly to the well site. Additionally, the Company receives a fixed fee per barrel for fresh water delivered by truck to high-rate transfer facilities. For flowback and produced water blending services, the Company receives a cost of service fee based on the costs incurred by the Company. Antero Resources also agreed to pay the Company a fixed fee per barrel for wastewater treatment at the Clearwater Facility, which was idled in the third quarter of 2019 and which the Company expects will remain idled for the foreseeable future. All such fees under the agreement are subject to annual CPI-based adjustments and additional fees based on certain costs.

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

The Company satisfies its performance obligations and recognizes revenue when the fresh water volumes have been delivered to the hydration unit of a specified well pad, flowback and produced water blending services have been completed, or prior to the idling of the Clearwater Facility in September 2019, when the wastewater volumes were delivered to the Clearwater Facility. The Company invoices the customer the month after water services are performed, and payment is due in the same month. For services contracted through third-party providers, the Company’s performance obligation is satisfied when the service to be performed by the third-party provider has been completed. The Company invoices the customer after the third-party provider billing is received, and payment is due in the same month.

Minimum Volume Commitments

The gathering and compression agreement includes certain minimum volume commitment provisions. If and to the extent Antero Resources requests that the Company construct new high pressure lines and compressor stations, the gathering and compression agreement contains minimum volume commitments that require Antero Resources to utilize or pay for 75% of the

gathering capacity and 70% of the compression capacity of such new construction for 10 years. The Company recognizes lease income from its minimum volume commitments under its gathering and compression agreement on a straight-line basis and additional operating lease income is earned when excess volumes are delivered under the contract. The Company is not party to any leases that have not commenced. Minimum volume commitments for fresh water deliveries under the water services agreement concluded at December 31, 2019.

Minimum revenue amounts under the gathering and compression minimum volume commitments as of September 30, 2020 are as follows (in thousands):

Remainder of 2020

    

$

27,543

Year ending December 31, 2021

248,147

Year ending December 31, 2022

248,147

Year ending December 31, 2023

248,147

Year ending December 31, 2024

248,827

Year ending December 31, 2025

235,105

Thereafter

556,311

Total

$

1,812,227

(b)

Disaggregation of Revenue

In the following table, revenue is disaggregated by type of service and type of fee and is identified by the reportable segment to which such revenues relate. For more information on reportable segments, see Note 16—Reporting Segments.

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2019

2020

2019

2020

    

Reportable segment

Revenue from contracts with customers

    

    

    

    

Type of service

Gathering—low pressure

$

80,741

92,673

175,375

259,612

Gathering and Processing(1)

Gathering—low pressure rebate

(12,000)

(36,000)

Gathering and Processing(1)

Gathering—high pressure

51,434

57,665

108,466

158,155

Gathering and Processing(1)

Compression

43,544

51,876

94,337

145,567

Gathering and Processing(1)

Fresh water delivery

50,434

40,398

104,638

143,116

Water Handling

Wastewater treatment

10,617

25,059

Water Handling

Other fluid handling

35,888

20,603

84,824

79,420

Water Handling

Amortization of customer relationships(2)

(16,363)

(9,342)

(19,266)

(27,819)

Gathering and Processing

Amortization of customer relationships(2)

(12,500)

(8,458)

(19,912)

(25,192)

Water Handling

Total

$

243,795

233,415

553,521

696,859

Type of contract

Per Unit Fixed Fee

$

175,719

202,214

378,178

563,334

Gathering and Processing(1)

Gathering—low pressure rebate

(12,000)

(36,000)

Gathering and Processing(1)

Per Unit Fixed Fee

61,051

40,398

129,697

143,116

Water Handling

Cost plus 3%

35,888

17,743

84,824

72,430

Water Handling

Cost of service fee

2,860

6,990

Water Handling

Amortization of customer relationships(2)

(16,363)

(9,342)

(19,266)

(27,819)

Gathering and Processing

Amortization of customer relationships(2)

(12,500)

(8,458)

(19,912)

(25,192)

Water Handling

Total

$

243,795

233,415

553,521

696,859

(1) Revenue related to the gathering and processing segment is classified as lease income related to the gathering system.
(2) Fair value of customer contracts acquired as part of the Transactions discussed in Note 3—Business Combination.

(c)

Transaction Price Allocated to Remaining Performance Obligations

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

The remainder of the Company’s service contracts, which relate to contracts with third parties, are short-term in nature with a contract term of one year or less. Accordingly, the Company is not required to disclose 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.

(d)

Contract Balances

Under the Company’s service contracts, the Company invoices customers after its performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s service contracts do not give rise to contract assets or liabilities. At December 31, 2019 and September 30, 2020, the Company’s receivables with customers were $101 million and $84 million, respectively.