DENVER, Dec. 9, 2019 /PRNewswire/ -- Antero Midstream
Corporation (NYSE: AM) ("Antero Midstream" or the
"Company") today announced that it has agreed to repurchase
$100 million of Antero Midstream
shares from Antero Resources Corporation ("Antero Resources"). In
addition, Antero Midstream and Antero Resources have agreed to a
growth incentive fee program where Antero Midstream will provide a
reduction in low pressure gathering fees for volumes gathered from
January 1, 2020 through December 31, 2023 subject to achieving increasing
volumetric targets. The growth incentive fee program aligns with
Antero Resources' current 8% to 10% compound annual net production
growth plan in 2020 and 2021. The share repurchase and growth
incentive fee reduction transactions have been negotiated and
recommended by the Conflicts Committees of Antero Midstream and
Antero Resources and approved by both Boards of Directors.
Highlights Include:
- Agreed to repurchase $100
million of Antero Midstream shares from Antero Resources,
saving over $20 million in total
dividends in 2020 assuming the targeted $1.23 per share dividend
- Agreed to a growth incentive program with Antero Resources
which involves fee reductions contingent upon low pressure
gathering volume growth
-
- Based on Antero Resources' previously announced 2020
production growth target, Antero Midstream expects this will result
in a $45 to $50 million reduction in low pressure gathering
revenues in 2020
- Reduced 2020 capital budget target by $75 to $100 million
to a range of $300 to $325 million
- Targeting Net Debt to Adjusted EBITDA in the mid-to-high
3-times range in 2020
- Targeting a DCF coverage ratio of approximately 1.1x in 2020
and 1.1x to 1.3x in 2021 and 2022
Paul Rady, Chairman and CEO said,
"The growth incentive fee program supports a stronger Antero
Resources with an enhanced cash flow and liquidity profile, which
facilitates the continued development and increasing gathering,
compression, and processing volumes on Antero Midstream dedicated
acreage."
Mr. Rady further added, "Antero Resources has announced that it
believes that this growth incentive fee program, in conjunction
with midstream fee restructurings agreed to with other third
parties, supports ongoing development and a moderate growth profile
that fills Antero Resources' premium firm transportation capacity
to attractively priced markets. In addition, Antero Resources has
announced that the fee restructurings, planned asset sales and
improvement in NGL prices and outlook during the quarter allow it
to target a 2020 budget that generates positive free cash flow and
results in leverage in the low 2-times range."
Share Repurchase Summary
Antero Midstream agreed to repurchase $100 million of Antero Midstream common stock
from Antero Resources. The number of shares to be purchased will be
based on a formulaic pricing mechanism taking into account both the
historical and future market pricing of Antero Midstream shares.
Including the $25 million of shares
repurchased on the open market in the third quarter of 2019, Antero
Midstream will have repurchased approximately $125 million of shares to-date in 2019. Based on
the targeted $1.23 per share dividend
in 2020, the $125 million of shares
repurchased to-date reduces the Company's total dividend payments
by over $25 million annually.
Antero Midstream will have $175
million of remaining capacity under its share repurchase
program that could be used to repurchase shares in the open market
or additional Antero Midstream shares held by Antero Resources.
2020 Capital Budget Update
Due to additional optimization of the midstream infrastructure
buildout, Antero Midstream is now targeting a 2020 capital program
of approximately $300 to $325 million. This represents a $75 to $100
million, or 22% reduction, compared to the previous target
of $375 to $425 million. Antero Resources' previously
announced preliminary 2020 target of 110 to 120 completions in
2020, with an average lateral length of 12,100 feet is unchanged.
Both Antero Resources and Antero Midstream expect to finalize their
respective capital budgets early in the first quarter of 2020
following Board approval. Formal guidance is expected to be
released following Board approval.
Growth Incentive Fee Program Summary
Antero Midstream and Antero Resources have agreed to a growth
incentive fee program where Antero Midstream will provide fee
reductions to Antero Resources from January
1, 2020 through December 31,
2023, contingent upon Antero Resources achieving volumetric
growth targets on low pressure gathering. Antero Midstream's
compression, high pressure gathering, and fresh water delivery fees
remain unchanged. In addition, Antero Midstream and Antero
Resources agreed to extend the gathering and compression contract
term for four additional years. The decision to provide a fee
reduction on low pressure gathering services was driven by the
strong rates of return on low pressure gathering projects. These
returns have improved materially relative to expectations at the
time the gathering and compression agreement was signed in 2014 due
to more wells per pad, longer laterals and higher estimated
ultimate recoveries per foot. In addition, Antero Midstream
believes that the growth incentive fee program will drive continued
throughput growth from Antero Resources supporting Antero
Midstream's gathering, compression, processing, fractionation and
fresh water delivery businesses.
The following table summarizes the low pressure gathering
thresholds and associated reduction in low pressure gathering fees
that will be realized on a quarterly basis. The growth incentive
targets were structured in a manner that aligns with Antero
Resources' plan to grow net production 8% to 10% through 2021 in
order to fill its premium firm transportation portfolio. The
initial threshold approximates Antero Midstream's third quarter
2019 low pressure volumes. If actual low pressure volumes are below
the lowest tier for the respective calendar years, Antero Resources
will not receive a reduction in low pressure gathering fees.
Calendar Year
2020
|
|
Low Pressure
Gathering
Volume Threshold (MMcf/d)
|
|
Quarterly Fee
Reduction ($MM)
|
|
First Quarter
2020
|
|
> 2,700
|
|
$12
|
|
Second Quarter
2020
|
|
> 2,700
|
|
$12
|
|
Third Quarter
2020
|
|
> 2,800
|
|
$12
|
|
Fourth Quarter
2020
|
|
> 2,900
|
|
$12
|
|
Calendar Years
2021 - 2023
|
|
|
|
|
|
Threshold 1
|
|
> 2,900 and
< 3,150
|
|
$12
|
|
Threshold 2
|
|
> 3,150 and
< 3,400
|
|
$15.5
|
|
Threshold 3
|
|
> 3,400
|
|
$19
|
|
Michael Kennedy, CFO of Antero
Midstream said, "The fee reduction, share repurchase and capital
budget update announced today result in a net cash flow positive
impact to Antero Midstream in 2020 of approximately $60 to $65 million.
This allows Antero Midstream to target a 2020 DCF coverage ratio of
approximately 1.1x in 2020 assuming the targeted $1.23 per share annual dividend. Importantly,
Antero Midstream expects to maintain a strong balance sheet with
net debt to Adjusted EBITDA in the mid-to-high 3-times range in
2020 with no need to access the capital markets to deliver on its
organic growth plan."
Financial and Legal Advisors
Goldman Sachs & Co. LLC and Richards, Layton, & Finger
acted as financial and legal advisors, respectively, to the
Conflicts Committee of Antero Midstream. Baird and Potter, Anderson
& Corroon acted as financial and legal advisors, respectively,
to the Conflicts Committee of Antero Resources. Vinson & Elkins
LLP acted as legal advisors to Antero Midstream and Antero
Resources.
Non-GAAP Financial Measures and Definitions
Antero Midstream uses non-GAAP financial measures in this press
release. Antero Midstream uses Adjusted EBITDA as an
important indicator of Antero Midstream's performance. Antero
Midstream defines Adjusted EBITDA as net income before amortization
of customer relationships, impairment expense, interest expense,
provision for income taxes (benefit), depreciation expense,
accretion, equity-based compensation expense, excluding equity in
earnings of unconsolidated affiliates, and including cash
distributions from unconsolidated affiliates.
Antero Midstream uses Adjusted EBITDA to assess:
- the financial performance of Antero Midstream's assets, without
regard to financing methods, capital structure or historical cost
basis;
- its operating performance and return on capital as compared to
other publicly traded companies in the midstream energy
sector, without regard to financing or capital structure; and
- the viability of acquisitions and other capital expenditure
projects.
Antero Midstream's defines Distributable Cash Flow as Adjusted
EBITDA less interest paid, decrease in cash reserved for bond
interest, income tax withholding upon vesting of Antero Midstream
Partners LP equity-based compensation awards, ongoing maintenance
capital expenditures paid, and AMGP general and administrative
expenses. Antero Midstream uses Distributable Cash Flow as a
performance metric to compare the cash generating performance of
Antero Midstream from period to period and to compare the cash
generating performance for specific periods to the cash dividends
(if any) that are expected to be paid to shareholders.
Distributable Cash Flow does not reflect changes in working capital
balances. Antero Midstream defines DCF Coverage ratio as
Distributable Cash Flow divided by dividends declared.
Adjusted EBITDA and Distributable Cash Flow are non-GAAP
financial measures. The GAAP measure most directly comparable
to Adjusted EBITDA and Distributable Cash Flow is Net Income.
The non-GAAP financial measures of Adjusted EBITDA and
Distributable Cash Flow should not be considered as alternatives to
the GAAP measure of Net Income. Adjusted EBITDA and
Distributable Cash Flow are not presentations made in accordance
with GAAP and have important limitations as an analytical tool
because they include some, but not all, items that affect Net
Income and Adjusted EBITDA. You should not consider Adjusted
EBITDA and Distributable Cash Flow in isolation or as a substitute
for analyses of results as reported under GAAP. Antero
Midstream's definition of Adjusted EBITDA and Distributable Cash
Flow may not be comparable to similarly titled measures of other
companies.
Antero Midstream defines Net Debt as total debt less cash and
cash equivalents. Antero Midstream views Net Debt as an
important indicator in evaluating Antero Midstream's financial
leverage.
Included in this press release are certain 2020 through 2023
target projections. Antero Midstream has not included a
reconciliation of Adjusted EBITDA, Distributable Cash Flow, and DCF
Coverage to the nearest GAAP financial measure for 2019 because it
cannot do so without unreasonable effort and any attempt to do so
would be inherently imprecise.
Antero Midstream Corporation is a Delaware corporation that owns, operates and
develops midstream gathering, compression, processing and
fractionation assets located in West
Virginia and Ohio, as well
as integrated water assets that primarily service Antero Resources
Corporation's properties. The Company's website is located at
www.anteromidstream.com.
This release includes "forward-looking statements."
Such forward-looking statements are subject to a number of risks
and uncertainties, many of which are not under Antero Midstream's
control. All statements, except for statements of historical
fact, made in this release regarding activities, events or
developments Antero Midstream expects, believes or anticipates will
or may occur in the future, such as Antero Midstream's ability to
execute its business plan and return capital to its shareholders,
the expected benefits of the growth incentive fee program, the
savings resulting from Antero Midstream's repurchase of Antero
Resources' shares, information regarding long-term financial and
operating outlooks for Antero Midstream and Antero Resources and
information regarding Antero Resources' expected future growth and
its ability to meet its drilling and development plan are
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. All forward-looking statements speak only as of
the date of this release. Although Antero Midstream believes
that the plans, intentions and expectations reflected in or
suggested by the forward-looking statements are reasonable, there
is no assurance that these plans, intentions or expectations will
be achieved. Therefore, actual outcomes and results could
materially differ from what is expressed, implied or forecast in
such statements. Except as required by law, Antero Midstream
expressly disclaims any obligation to and does not intend to
publicly update or revise any forward-looking statements.
Antero Midstream cautions you that these forward-looking
statements are subject to all of the risks and uncertainties
incident to the exploration for and development, production,
gathering and sale of natural gas, NGLs and oil, most of which are
difficult to predict and many of which are beyond Antero
Midstream's control. These risks include, but are not limited
to, Antero Resources' expected future growth, Antero Resources'
ability to meet its drilling and development plan, commodity price
volatility, Antero Midstream's ability to execute its business
strategy, competition and governmental regulations, actions taken
by third party producers, operators, processors and transporters,
inflation, lack of availability of drilling and production
equipment and services, environmental risks, drilling and other
operating risks, regulatory changes, the uncertainty inherent in
estimating natural gas and oil reserves and in projecting future
rates of production, cash flow and access to capital, the timing of
development expenditures, and the other risks described under the
heading "Item 1A. Risk Factors" in Antero Midstream's Annual Report
on Form 10-K for the year ended December 31,
2018 and Quarterly Report on Form 10-Q for the quarter ended
September 30, 2019.
For more information, contact Michael
Kennedy – CFO of Antero Midstream at (303) 357-6782 or
mkennedy@anteroresources.com.
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SOURCE Antero Midstream Corporation