Quarterly report pursuant to Section 13 or 15(d)

Long-Term Incentive Plans

v3.7.0.1
Long-Term Incentive Plans
6 Months Ended
Jun. 30, 2017
Long-Term Incentive Plans  
Long-Term Incentive Plans

(3)   Long-Term Incentive Plans

 

IDR LLC has 99,500 Series B Units authorized and outstanding that entitle the holders to receive up to 6% of the amount of the distributions that Antero Midstream makes on its IDRs in excess of $7.5 million per quarter, subject to certain vesting conditions.  Series B Units issued to common law employees of AMGP, including officers of AMGP and Antero Resources employees who provide services directly to AMGP, are classified as equity awards. Series B Units issued to Antero Resources employees who are not common law employees of AMGP are classified as liability awards. IDR LLC granted 92,000 Series B Units that are equity classified awards and 8,000 Series B Units that are liability classified awards. During the second quarter of 2017, 500 Series B Units that were equity classified awards were forfeited. The Series B Units vest ratably over a three year period. The holders of vested Series B Units have the right to convert the units to common shares with a value equal to their pro rata share of up to 6% of any increase in our equity value in excess of $2.0 billion. In no event will the aggregate number of newly issued common shares exceed 6% of the total number of our issued and outstanding common shares.

 

For equity classified awards, we recognize expense for the grant date fair value of the awards over the vesting period of the awards. Forfeitures are accounted for as they occur by reversing expense previously recognized for awards that were forfeited during the period.  The grant date fair value of the Series B Unit awards was estimated using a Monte Carlo simulation using various assumptions including a floor equity value of $2.0 billion, expected volatility of 43% based on historical volatility of a peer group of publicly traded partnerships, a risk free rate of 2.45%, and expected IDR distributions based on internal estimates discounted based on a weighted average cost of capital assumption of 7.25%. Based on these assumptions, the estimated value of each Series B Unit was $999 when they were issued.

 

For liability classified awards, we recognize expense for the fair value of the awards over the vesting period of the awards. Forfeitures are accounted for as they occur by reversing expense previously recognized for awards that were forfeited during the period. We update our assumptions each reporting period based on new developments and adjust such amounts to fair value based on revised assumptions, if applicable, over the vesting period. At June 30, 2017, the fair value of the Series B Unit awards was estimated using a Monte Carlo simulation using various assumptions including an equity value of $4.1 billion, expected volatility of 42% based on historical volatility of a peer group of publicly traded partnerships, a risk free rate of 2.28%, and expected IDR distributions based on internal estimates discounted based on a weighted average cost of capital assumption of 7.25%. Based on these assumptions, the estimated value of each Series B Unit at June 30, 2017 is $2,042.  The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy.

 

We recognized expense, of $9.6 million, of which $7.5 million is classified as equity awards and $2.1 million is classified as liability awards, during the three months ended June 30, 2017. We recognized expense of $18.0 million, of which $15.3 million is classified as equity awards and $2.7 million is classified as liability awards, during the six months ended June 30, 2017. As of June 30, 2017, there was $89.8 million of unamortized compensation expense related to nonvested Series B Units that is expected to be recognized over the next 2.5 years.

 

On April 17, 2017, we also adopted the Antero Midstream GP LP Long-Term Incentive Plan (“2017 LTIP”), pursuant to which certain non-employee directors of our general partner and certain officers, employees and consultants of Antero Resources are eligible to receive awards representing equity interests in AMGP. An aggregate of 930,851 common shares may be delivered pursuant to awards under the 2017 LTIP, subject to customary adjustments. As of June 30, 2017, no awards had been made under the 2017 LTIP.