What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-14 compared with 2023-02-15 · 129 added, 211 removed, 251 unchanged (58% of the section changed)

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Risk Factors.” and the section entitled “Cautionary Statement Regarding Forward-Looking Statements.” We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

In this section, references to “Antero Midstream,” “AM,” the “Company,” “we,” “us,” and “our” refer to Antero Midstream Corporation and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

We are a growth-oriented midstream energy company formed to own, operate and develop midstream energy assets to primarily service Antero Resources’ production and completion activity.

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These services are provided by us directly or through third-parties with which we contract.

Asset Acquisitions

On October 25, 2022, we acquired certain Marcellus gas gathering and compression assets from Crestwood for $205 million in cash, before closing adjustments, which was funded by borrowings under our Credit Facility.

These assets include 72 miles of dry gas gathering pipelines and nine compressor stations with approximately 700 MMcf/d of compression capacity.

Current throughput of the assets is approximately 200 MMcf/d, resulting in significant available capacity for growth.

Additionally, on December 21, 2022, we acquired certain Utica compression assets from EnLink for $10 million in cash, before closing adjustments, which was funded by borrowings under our Credit Facility.

These assets include four compressor stations with approximately 380 MMcf/d of compression capacity.

The acquired compression assets are interconnected with the Company’s existing low pressure and high pressure gathering systems and service Antero Resources’ production.

Current throughput of the assets is approximately 100 MMcf/d.

See Note 6—Property and Equipment to the consolidated financial statements for more information on our asset acquisitions.

Financing Highlights

Issuance of Senior Notes

On January 16, 2024, we issued $600 million of 6.625% senior notes due February 1, 2032 (the “2032 Notes”) at par.

The 2032 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility.

The 2032 Notes rank pari passu to our other outstanding senior notes and are guaranteed on a full and unconditional and joint and several senior unsecured basis by our wholly owned subsidiaries and certain of our future restricted subsidiaries.

The net proceeds from this offering were used to repay outstanding borrowings on the Credit Facility.

See Note 8—Long-Term Debt to the consolidated financial statements for more information.

Share Repurchase Program

On February 13, 2024, our Board of Directors authorized a share repurchase program that allows us to repurchase up to $500 million of shares of our outstanding common stock.

The shares may be repurchased from time to time in open market transactions, through privately negotiated transactions or by other means in accordance with federal securities laws.

The timing, as well as the number and value of shares repurchased under the program, will be determined by us at our discretion and will depend on a variety of factors, including the market price of our common stock, general market and economic conditions and applicable legal requirements.

The exact number of shares to be repurchased by us is not guaranteed and the program may be suspended, modified or discontinued at any time without prior notice.

Market Conditions and Business Trends

Commodity Markets

Prices for natural gas, NGLs and oil increased significantly during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

Prices for natural gas, NGLs and oil decreased significantly during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

While substantially all of our revenues are based on fixed-fee contracts that are not directly impacted by changes in commodity prices, commodity price changes do impact the revenues and cash flows of Antero Resources, and Antero Resources’ drilling and development plan does have a direct impact on our gathering, compression and water handling services, revenues and cash flows.

In the current economic environment, we expect that commodity prices for some or all of the commodities produced by Antero Resources could remain volatile.

However, to the extent Antero Resources maintains a maintenance capital program as it has done in recent years, we do not expect to experience substantial variability in our throughput volumes resulting from volatile commodity prices.

However, due to Antero Resources’ improved liquidity and leverage position as compared to historical levels, we do not expect to experience significant variability in our throughput volumes resulting from volatile commodity prices.

Growth Incentive Fee Program with Antero Resources

Our 2019 gathering and compression agreement with Antero Resources includes a growth incentive fee program whereby we agreed to provide quarterly fee rebates to Antero Resources through December 31, 2023, contingent upon Antero Resources achieving volumetric growth targets on low pressure gathering.

Antero Resources’ throughput on the acquired assets is not considered in the low pressure gathering volume targets.

If actual low pressure volumes are below the lowest threshold for the respective period, Antero Resources will not earn a reduction in low pressure gathering fees.

The growth incentive fee rebate program expires December 31, 2023, and the following table summarizes the remaining low pressure gathering growth incentive targets through 2023:

Low Pressure Gathering

Quarterly Fee

Volume Growth Incentive

Targets (MMcf/d)

(in millions)

Calendar Year 2023

>2,900 and <3,150

>3,150 and <3,400

Antero Resources earned $48 million in fee rebates during the year ended December 31, 2022 by achieving all four quarterly volumetric targets for the year.

Antero Resources earned $12 million in fee rebates during the year ended December 31, 2021 by achieving the quarterly volumetric target during the fourth quarter of 2021.

Our 2019 gathering and compression agreement with Antero Resources included a growth incentive fee program whereby we agreed to provide quarterly fee rebates to Antero Resources through December 31, 2023, contingent upon Antero Resources achieving volumetric growth targets on low pressure gathering.

Antero Resources’ throughput gathered under the gathering and compression agreements acquired with the Crestwood assets was not considered in the low pressure gathering volume targets.

During the year ended December 31, 2022, Antero Resources earned $48 million in fee rebates by achieving the first level volumetric target during each quarter in 2022.

During the year ended December 31, 2023, Antero Resources earned $52 million in fee rebates by achieving the first level volumetric target during the first, second and third quarters of 2023 and the second level volumetric target during the fourth quarter of 2023.

The growth incentive fee rebate program expired on December 31, 2023.

Economic Indicators

The economy is experiencing elevated inflation levels as a result of global supply and demand imbalances, where global demand continues to outpace current supplies.

For example, the CPI for all urban consumers increased 8% from year ended December 31, 2021 to year ended December 31, 2022 as compared to the Federal Reserve’s stated goal of 2%.

See “—Capital Resources and Liquidity—Capital Investment” for more information.

In order to manage the inflation risk currently present in the United States’ economy, the Federal Reserve has utilized monetary policy in the form of interest rate increases in an effort to bring the inflation rate in line with its stated goal of 2% on a long-term basis.

The global economy also continues to be impacted by the effects of the COVID-19 pandemic and global events, among other factors.

The economy experienced elevated inflation levels as a result of global supply and demand imbalances, where global demand outpaced supplies beginning in 2021 and continuing through 2023.

For example, CPI for all urban consumers increased 8% from the year ended December 31, 2021 to the year ended December 31, 2022 and an additional 4% from the year ended December 31, 2022 to the year ended December 31, 2023 as compared to the Federal Reserve’s stated goal of 2%.

In order to manage the inflation risk present in the United States’ economy, the Federal Reserve utilized monetary policy in the form of interest rate increases beginning in March 2022 in an effort to bring the inflation rate in line with its stated goal of 2% on a long-term basis.

Between March 2022 and December 2023, the Federal Reserve increased the federal funds interest rate by 5.25%.

While inflationary pressures in the United States’ economy have begun to subside, we continue to be impacted by the increased federal funds interest rate.

See “—Results of Operations” for additional information.

The economy also continues to be impacted by global events.

These events have often caused global supply chain disruptions with additional pressure due to trade sanctions on Russia and other global trade restrictions, among others.

However, neither our nor Antero Resources’ supply chain has experienced any significant interruptions due to the COVID-19 pandemic or global supply and demand imbalances.

However, neither our nor Antero Resources’ supply chain has experienced any significant interruptions due to such events.

Inflationary pressures and supply chain disruptions could result in further increases to our operating and capital costs that are not fixed.

Additionally, these economic variables could lead to a renegotiation of contracts and/or supply agreements, among others.

However, our gathering and compression and water agreements provide for annual CPI-based adjustments that mitigate a portion of such inflationary pressures.

These economic variables are beyond our control and may adversely impact our business, financial condition, results of operations and future cash flows.

COVID-19 Pandemic

We continue to operate throughout the COVID-19 pandemic, in some cases subject to federal, state and local regulations, and we have taken and continue to take steps to protect the health and safety of our workers.

We have implemented protocols to reduce the risk of an outbreak within our field operations and offices, and these protocols have not impacted Antero Resources’ production, our throughput or our business activities.

During 2022, we transitioned from a hybrid working arrangement for non-field level employees , which involved a combination of in-office and remote work-from-home arrangements, to an in-office working arrangement for all non-field level employees.

We have been able to maintain a consistent level of effectiveness through these arrangements, including maintaining our day-to-day operations, our financial reporting systems and our internal control over financial reporting.

We continue to monitor the COVID-19 environment in order to protect the health and safety of our employees.

Sources of Our Revenues

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Our low pressure gathering, compression and high pressure gathering services support production operations for Antero Resources.

Our gathering and processing revenues are driven by the volumes of

natural gas we gather and compress.

Our gathering and processing revenues are driven by the volumes of natural gas we gather and compress.

We receive a low pressure gathering fee per Mcf, a compression fee per Mcf and a high pressure gathering fee per Mcf, as applicable, substantially all of which are subject to annual CPI-based adjustments.

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Our other fluid handling services include wastewater handling, blending and high-rate transfer services.

For other fluid handling services provided by us, we charge Antero Resources a cost of service fee .

For other fluid handling

services provided by us, we charge Antero Resources a cost of service fee .

For other fluid handling services provided by third parties, we charge Antero Resources a fee based on our third-party out-of-pocket costs plus 3%.

We have a long-term water services agreement covering Antero Resources’ 553,000 gross acres in West Virginia and Ohio, with a right of first offer on all future areas of operation.

We have a long-term water services agreement covering Antero Resources’ approximately 570,000 gross acres in West Virginia and Ohio, with a right of first offer on all future areas of operation.

The initial term of the water services agreement runs to 2035.

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As of December 31, 2023, Antero Resources had disclosed estimated net proved reserves of 18.1 Tcfe, of which 59% was natural gas, 40% were NGLs and 1% was oil.

As of December 31, 2022, Antero Resources’ drilling inventory consisted of 1,819 gross identified potential horizontal well locations, substantially all of which were on acreage dedicated to us, providing us with significant opportunity for future capital investments as Antero Resources’ drilling program continues.

As of December 31, 2023, Antero Resources’ drilling inventory consisted of 1,588 gross identified potential horizontal well locations, all of which were on acreage dedicated to us, providing us with significant opportunity for future capital investments as Antero Resources’ drilling program continues.

See Note 5—Revenue to the consolidated financial statements for more information on our water services agreement.

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federal income tax liability is primarily due to the differences in the tax and financial statement treatment of our investment in Antero Midstream Partners.

We have recorded deferred income tax expense to the extent our deferred tax liabilities exceed our deferred tax assets.

Our deferred tax assets result primarily from net operating loss carryforwards.

As of December 31, 2022, we had approximately $415 million of U.S.

federal NOL carryforwards, and approximately $478 million of state NOL carryforwards.

The Company currently considers all of its deferred tax assets, except for those related to charitable contributions, realizable.

The amount of deferred tax assets considered realizable, however, could change as we generate taxable income or as estimates of future taxable income are reduced.

See Note 7 — Income Taxes to our consolidated financial statements for a discussion of our deferred tax position and income tax expense.

How We Evaluate Our Operations

We use a variety of financial and operational metrics to evaluate our performance.

These metrics help us identify factors and trends that impact our operating results, profitability and financial condition.

The following are the key metrics we use to evaluate our business:

● Adjusted EBITDA.

We use Adjusted EBITDA as a corporate-level performance measure to assess the ability of our assets to generate cash sufficient to pay interest costs, support indebtedness and return capital to stockholders.

Adjusted EBITDA is a non-GAAP financial measure.

See “—Non-GAAP Financial Measures” below for more information regarding this financial measure, including a reconciliation to its most directly comparable GAAP measure.

● Gathering and Compression Throughput.

We must continually obtain additional supplies of natural gas to maintain or increase throughput on our systems.

Our ability to maintain existing supplies of natural gas and obtain additional supplies is primarily impacted by (i) our acreage dedication and the level of successful drilling activity by Antero Resources and (ii) the potential for acreage dedications with and successful drilling by third-party producers.

Any increase in our throughput volumes over the near term will likely be driven by Antero Resources continuing its drilling and development activities on its Appalachian Basin acreage.

● Water Handling Volumes.

Our fresh water volumes are primarily driven by hydraulic fracturing activities conducted as part of well completions.

Our other fluid handling volumes are driven by hydraulic fracturing activities and produced water volumes, which are primarily a function of Antero Resources’ completion activities and production.

Antero Resources’ consolidated acreage position allows us to provide fresh water and other fluid handling services for Antero Resources’ completion activities in a more efficient manner.

However, to the extent that Antero Resources’ drilling and completion schedule is not met, or Antero Resources uses less fresh water and other fluid handling services in its well completion operations than expected (for example, due to a reduction in completions), and production declines, our water volumes may decline.

We have recorded deferred income tax expense to the extent our deferred income tax liabilities exceed our deferred income tax assets.

Our deferred income tax assets result primarily from net operating loss carryforwards.

As of December 31, 2023, we had U.S.

federal NOL carryforwards of $428 million and state NOL carryforwards of $496 million.

The Company currently considers all of its deferred income tax assets, except for those related to charitable contributions, realizable.

The amount of deferred income tax assets considered realizable, however, could change as we generate taxable income or as estimates of future taxable income are reduced.

See Note 7—Income Taxes to our consolidated financial statements for a discussion of our deferred income tax position and income tax expense.

Results of Operations

We have two operating segments:

We have two reportable segments:

(i) gathering and processing and (ii) water handling.

The gathering and processing segment includes a network of gathering pipelines and compressor stations that collect and process production from Antero Resources’ wells in the Appalachian Basin, as well as equity in earnings from our investments in the Joint Venture and Stonewall.

The Joint Venture and Stonewall provide processing, fractionation and high-pressure gas gathering services in the Appalachian Basin.

The Joint Venture and Stonewall provide processing and fractionation services and high pressure gas gathering services, respectively, in the Appalachian Basin.

The water handling segment includes (i) two independent systems that deliver water from sources including the Ohio River, local reservoirs and several regional waterways, and (ii) other fluid handling services, which include high rate transfer, wastewater transportation, disposal and blending.

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Accretion of asset retirement obligations

Loss on asset sale

Loss on settlement of asset retirement obligations

Gain on asset sale

Total operating expenses

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Equity in earnings of unconsolidated affiliates

Loss on early extinguishment of debt

Total other income (expense)

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Net income and comprehensive income

Adjusted EBITDA (2)

(1) Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments.

(2) Adjusted EBITDA is a non-GAAP financial measure.

For a discussion of this measure, including a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, see “— Non-GAAP Financial Measures ”.

Year Ended December 31, 2023

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Loss on settlement of asset retirement obligations

Gain on asset sale

Loss (gain) on asset sale

Total operating expenses

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Net income and comprehensive income

Adjusted EBITDA (2)

(1) Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments.

(2) Adjusted EBITDA is a non-GAAP financial measure.

The operating data for Antero Midstream is as follows:

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Fractionation—Joint Venture (MBbl/d)

(1) The year ended December 31, 2021 average realized fee does not include $2.4 million of low pressure gathering fee revenues which volumes relate to prior periods.

* Not meaningful or applicable.

Total revenues increased by $122 million, from $920 million for the year ended December 31, 2022, to $1,042 million for the year ended December 31, 2023.

Amortization of customer relationships was $71 million during the years ended December 31, 2021 and 2022.

Gathering and processing revenues decreased by 1%, from $713 million for the year ended December 31, 2021 to $706 million for the year ended December 31, 2022.

Total revenues included amortization of customer relationships of $71 million during each of the years ended December 31, 2022 and 2023.

Gathering and processing revenues increased by 14%, from $706 million for the year ended December 31, 2022 to $805 million for the year ended December 31, 2023.

Water handling revenues increased by 11%, from $214 million for the year ended December 31, 2022 to $237 million for the year ended December 31, 2023.

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Gathering and Processing

● Low pressure gathering revenue decreased $22 million period over period primarily due to $36 million in higher fee rebates to Antero Resources during the year ended December 31, 2022, partially offset by a 3% increase in the low pressure gathering rate as a result of the annual CPI-based adjustment and by increased throughput volumes of 28 Bcf, or 76 MMcf/d.

Low pressure gathering volumes increased between periods primarily due to 327 additional wells being connected to our system since December 31, 2021 , of which 253 wells are from our asset acquisitions that closed during the fourth quarter of 2022.

● Compression revenue increased $11 million period over period due to a 3% increase in the compression rate as a result of the annual CPI-based adjustment, as well as increased throughput volumes of 28 Bcf, or 76 MMcf/d and our asset acquisitions during the fourth quarter of 2022.

Compression volumes increased primarily due to additional wells connected to our system since December 31, 2021 and 12 compressor stations that were acquired during the fourth quarter of 2022.

● High pressure gathering revenue increased $4 million period over period due to a 3% increase to the high pressure gathering rate as a result of the annual CPI-based adjustment partially offset by decreased throughput volumes of 10 Bcf, or 26 MMcf /d.

The high pressure gathering volumes decreased period over period primarily as a result of higher production from Antero Resources that was subject to a third-party high pressure gathering acreage dedication, partially offset by 74 new wells connected to our high pressure system since December 31, 2021.

The assets we acquired during the year ended

December 31, 2022 were connected to our high pressure system prior to such acquisitions, and therefore, the 253 wells connected to such assets were already gathered by our existing high-pressure gathering system.

● Low pressure gathering revenue increased $47 million period over period primarily due to increased throughput volumes of 114 Bcf, or 314 MMcf/d, and higher low pressure gathering rates as a result of annual CPI-based adjustments, partially offset by higher fee rebates of $4 million between periods.

Low pressure gathering volumes increased between periods primarily due to 86 additional wells being connected to our system since December 31, 2022 and 253 wells that were connected to the assets we acquired during the fourth quarter of 2022.

● Compression revenue increased $37 million period over period due to increased throughput volumes of 153 Bcf, or 418 MMcf/d, and higher compression rates as a result of the annual CPI-based adjustments.

Compression volumes increased between periods primarily due to the 86 additional wells connected to our system since December 31, 2022 and 12 compressor stations and 253 wells that were connected to the assets we acquired during the fourth quarter of 2022.

● High pressure gathering revenue increased $15 million period over period primarily due to increased throughput volumes of 41 Bcf, or 112 MMcf /d, and an increased high pressure gathering rate as a result of an annual CPI-based adjustment.

The high pressure gathering volumes increased period over period primarily due to 86 additional wells being connected to our high pressure system since December 31, 2022.

The assets acquired during 2022 were already connected to high pressure systems operated by us or third parties prior to such acquisitions, and therefore, the 253 wells connected to the acquired assets did not increase the throughput on our high pressure gathering system.

Water Handling

● Fresh water delivery revenue increased $16 million period over period primarily due to increased fresh water delivery volumes of 3 MMBbl , or 8 MBbl/d and a 3% increase to the fresh water delivery rate as a result of the annual CPI-based adjustment.

● Other fluid handling services revenue increased $13 million period over period primarily due to increased costs, partially due to inflationary pressures that impact our cost plus 3% and cost of service rates, and increased other fluid handling volumes of 2 MMBbl, or 6 MBbl/d.

● Fresh water delivery revenue increased $11 million period over period primarily due to a 3% increase to the fresh water delivery rate for our long-term contract with Antero Resources as a result of the annual CPI-based adjustment and higher fresh water delivery volumes of 1 MMBbl , or 4 MBbl/d.

Fresh water delivery volumes increased between periods due to higher well completions by Antero Resources.

● Other fluid handling services revenue increased $12 million period over period primarily due to increased costs, partially due to inflationary pressures that impact our cost plus 3% and cost of service rates during the year ended December 31, 2023, and higher other fluid handling volumes of 1 MMBbl, or 3 MBbl/d, between periods.

Direct operating expenses.

Total direct operating expenses increased by 15% , from $ 157 million for the year ended December 31, 2021 to $180 million for the year ended December 31, 2022.

Gathering and processing direct operating expenses increased 15% from $ 66 million for the year ended December 31, 2021 to $76 million for the year ended December 31, 2022 primarily due to (i) higher throughput volumes between periods, (ii) 12 acquired compressors that came online during the fourth quarter of 2022 and (iii) higher chemical, fuel, labor and heavy maintenance expense.

Water handling direct operating expenses increased by 15% , from $ 91 million for the year ended December 31, 2021 to $104 million for the year ended December 31, 2022 primarily due to increased water blending locations, trucking rates, labor costs and Utica fresh water deliveries between periods.

Direct operating expenses increased by 18% , from $ 180 million for the year ended December 31, 2022 to $213 million for the year ended December 31, 2023.

Gathering and processing direct operating expenses increased 26% from $ 76 million for the year ended December 31, 2022 to $96 million for the year ended December 31, 2023 primarily due to 12 compressor stations that were acquired during the fourth quarter of 2022 and increased heavy maintenance expense between periods.

Water handling direct operating expenses increased by 13% , from $ 104 million for the year ended December 31, 2022 to $117 million for the year ended December 31, 2023 primarily due to higher wastewater trucking expenses, an increased number of locations connected to our water blending system and higher fresh water volumes between periods.

General and administrative (excluding equity-based compensation) expenses.

General and administrative expenses (excluding equity-based compensation expense) decreased 16% , from $ 50 million for the year ended December 31, 2021 to $42 million for the year ended December 31, 2022 primarily due to (i) lower legal costs associated with the Veolia legal matter between periods and (ii) lower costs allocated to us from Antero Resources.

General and administrative expenses (excluding equity-based compensation expense) decreased 7% , from $ 42 million for the year ended December 31, 2022 to $39 million for the year ended December 31, 2023 primarily due to lower legal costs associated with the Veolia legal matter between periods and lower costs allocated to us from Antero Resources.

See Note 15—Contingencies to our consolidated financial statements for additional information.

Equity-based compensation expenses.

Equity-based compensation expenses increased by 45% from $14 million to $20 million for the years ended December 31, 2021 and 2022, respectively, primarily due to an increase in the annual equity awards granted during the year ended December 31, 2022 compared to prior years.

Facility idling expenses.

Facility idling expenses remained consistent at $4 million for each of the years ended December 31, 2021 and 2022.

Equity-based compensation expenses increased by 61% from $20 million for the year ended December 31, 2022 to $32 million for the year ended December 31, 2023 primarily due to an increase in the annual equity awards granted during the years ended December 31, 2022 and 2023 as compared to prior years, which were temporarily and significantly reduced during 2020 and supplemented by our cash awards program.

Our equity awards vest over three or four year service periods, and our equity incentive program began returning to normal levels in 2021.

See Note 10—Equity-Based Compensation to our consolidated financial statements for additional information.

Depreciation expense.

Total depreciation expense increased by 21% from $109 million for the year ended December 31, 2021 to $132 million for the year ended December 31, 2022.

This increase is primarily due to (i) $16 million for a phased early retirement of an underutilized compressor station, (ii) $6 million related to gathering and processing system assets placed in service during 2022 and (iii) $1 million for our asset acquisitions during the fourth quarter of 2022.

The phased early retirement of an underutilized compressor station began in the second quarter of 2022 and will be completed by the first half of 2023, and allows us to relocate and reuse the compressor units and equipment to (i) expand an existing compressor station and/or (ii) contribute to a new compressor station.

There are certain costs associated with the underutilized compressor station that cannot be relocated or reused, and such costs will be fully depreciated during the first half of 2023.

Depreciation expense increased by 3% from $132 million for the year ended December 31, 2022 to $136 million for the year ended December 31, 2023.

This increase was primarily due to $4 million for our assets acquired during the fourth quarter of 2022 and $3 million related to assets placed in service between periods, partially offset by $3 million of lower expense related to our program to repurpose underutilized compressor units to expand existing or construct new compressor stations between periods.

Impairment of property and equipment expense.

Impairment of property and equipment expense of $5 million for the year ended December 31, 2021 was primarily a lower of cost or net realizable value adjustment for pipe inventory.

Impairment of property and equipment expense of $4 million for the year ended December 31, 2022 was primarily due to (i) a write-down of the Clearwater Facility related to the retirement obligation for the facility and (ii) cancelled projects.

Impairment of property and equipment expense during the year ended December 31, 2023 related to cancelled projects.

Loss (gain) on asset sale.

Loss on asset sale of $4 million for the year ended December 31, 2021 primarily relates to the sale of excess pipe inventory.

Gain on asset sale of $2 million for the year ended December 31, 2022 primarily relates to (i) the sale of four compressor engines, (ii) reimbursement of certain cancelled projects and (iii) sale of miscellaneous equipment and excess pipe inventory.

Gain on asset sale of $2 million for the year ended December 31, 2022 was primarily due to (i) the sale of four compressor engines, (ii) reimbursement of certain cancelled project costs and (iii) sales of miscellaneous equipment and excess pipe inventory.

Loss on asset sale of $6 million for the year ended December 31, 2023 was primarily due to sales of miscellaneous equipment.

Interest expense.

Interest expense increased by 8%, from $175 million for the year ended December 31, 2021 to $190 million for the year ended December 31, 2022 primarily due to (i) the issuance of $750 million of 5.375% senior notes due June 15, 2029 (the “2029 Notes”) on June 8, 2021, (ii) increased interest rates on our Credit Facility due to higher benchmark rates during the year ended December 31, 2022, and (iii) increased borrowings on our Credit Facility due to our asset acquisitions, partially offset by the redemption of all $650 million of the 2024 Notes on June 8, 2021.

Interest expense increased by 14%, from $190 million for the year ended December 31, 2022 to $217 million for the year ended December 31, 2023 primarily due to increased interest rates on our Credit Facility due to higher benchmark rates during the year ended December 31, 2023 and higher average borrowings on our Credit Facility between periods as a result of our asset acquisitions during the fourth quarter of 2022.

Equity in earnings of unconsolidated affiliates.

Equity in earnings in unconsolidated affiliates increased by 4%, from $90 million for the year ended December 31, 2021 to $94 million for the year ended December 31, 2022 primarily due to higher Joint Venture earnings as a result of annual CPI-based adjustments for processing and fractionation fees, partially offset by lower processed volumes at the Joint Venture between periods.

Loss on early extinguishment of debt.

Loss on early extinguishment of debt for the year ended December 31, 2021 of $22 million primarily relates to the redemption of all $650 million of the 2024 Notes at a premium to par of $17 million as well as the write-off of $6 million of unamortized deferred financing costs, partially offset by $2 million of unamortized premium.

There was no loss on early extinguishment of debt for the year ended December 31, 2022.

Equity in earnings in unconsolidated affiliates increased by 12%, from $94 million for the year ended December 31, 2022 to $105 million for the year ended December 31, 2023 primarily due to increased processing and fractionation volumes and higher processing and fractionation fees as a result of annual CPI-based adjustments.

Income tax expense.

Income tax expense remained consistent for the years ended December 31, 2021 and 2022 at $117 million, which reflects effective tax rates of 26.1% and 26.5%, respectively.

Net income decreased by 2% from $332 million for the year ended December 31, 2021 to $326 million for the year ended December 31, 2022.

The decrease between periods was primarily related to higher direct operating costs, depreciation expense and interest expense and lower gathering and processing revenues, partially offset by higher water handling revenues, higher equity in earnings from unconsolidated affiliates and lower general and administrative costs.

Adjusted EBITDA.

Adjusted EBITDA increased by 1%, from $876 million for the year ended December 31, 2021 to $884 million for the year ended December 31, 2022.

The increase between periods was primarily due to higher water handling revenues and lower general and administrative costs, excluding equity-based compensation, partially offset by higher direct operating costs and lower gathering and processing revenues.

For a discussion of the non-GAAP financial measure Adjusted EBITDA, including a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, read “—Non-GAAP Financial Measures” below.

Income tax expense increased by 9% from $117 million for the year ended December 31, 2022 to $128 million for the year ended December 31, 2023, which reflects effective tax rates of 26.5% and 25.7%, respectively.

This income tax expense increase was primarily due to higher pre-tax income between periods.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2022

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See Note 8—Long-Term Debt to our consolidated financial statements.

We expect that the combination of these capital resources will be adequate to meet our working capital requirements, capital expenditures program, expected quarterly cash dividends and share repurchases under our share repurchases program for at least the next 12 months.

During the year ended December 31, 2022, we paid dividends of $0.90 per share, or a total of $433 million, to holders of our common stock, as applicable, and we paid $550 thousand of dividends on our Series A Preferred Stock.

On January 11, 2023, the Board declared a cash dividend on the shares of our common stock of $0.2250 per share for the quarter ended December 31, 2022 paid on February 8, 2023 to stockholders of record as of January 25, 2023.

The Board also declared an aggregate cash dividend of $138 thousand on our Series A Preferred Stock that was paid on February 14, 2023.

As of December 31, 2022, there were dividends in the amount of $69 thousand accumulated in arrears on our Series A Preferred Stock.

We expect that the combination of these capital resources will be adequate to meet our working capital requirements, capital expenditures program and expected quarterly cash dividends for at least the next 12 months.

During the year ended December 31, 2023, we paid dividends of $0.90 per share, or a total of $435 million, to holders of our common stock, as applicable, and we paid $550,000 of dividends on our Series A Preferred Stock.

On January 10, 2024, the Board declared a cash dividend on the shares of our common stock of $0.2250 per share for the quarter ended December 31, 2023.

The dividend was paid on February 7, 2024 to stockholders of record as of January 24, 2024.

Our Board also declared a cash dividend of $137,500 on our Series A Preferred Stock that was paid on February 14, 2024 in accordance with their terms.

As of December 31, 2023, there were dividends in the amount of $68,750 accumulated in arrears on our Series A Preferred Stock.

See Note 11—Cash Dividends and Note 12—Equity and Net Income Per Common Share to our consolidated financial statements for additional information.

As of December 31, 2023, we did not have any off-balance sheet arrangements.

The following table and discussion presents a summary of our net cash provided by (used in) operating activities, investing activities and financing activities for the periods indicated:

The following table summarizes our cash flows for the years ended December 31, 2022 and 2023:

Year Ended December 31,

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Net cash used in financing activities

Net decrease in cash and cash equivalents

Net increase in cash and cash equivalents

Year Ended December 31, 2022 Compared to Year Ended December 31, 2023

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Net cash provided by operating activities was $700 million and $779 million for the years ended December 31, 2022 and 2023, respectively.

The decrease in net cash provided by operating activities between periods was primarily the due to (i) $16 million in income tax refunds received during the year ended December 31, 2021 from certain net operating loss carryback provisions included in the Coronavirus Aid, Relief, and Economic Security Act that was enacted in March 2020, (ii) higher direct operating costs, (iii) lower gathering and processing revenues, (iv) higher asset retirement obligation settlement costs and (v) higher interest expense payments, partially offset by higher water handling revenues and lower general and administrative costs, excluding equity-based compensation.

The increase in cash flows provided by operations between periods was primarily due to (i) higher revenues in the gathering and processing and water handling segments, (ii) higher distributions from unconsolidated affiliates and (iii) a $10 million tax refund received during the year ended December 31, 2023, partially offset by higher direct operating and interest expenses and changes in working capital between periods.

Investing Activities.

Net cash flows used in investing activities was $233 million and $494 million for the years ended December 31, 2021 and 2022, respectively.

The increase in cash flows used in investing activities between periods was primarily due to (i) gathering systems and facilities asset acquisitions of $217 million during the year ended December 31, 2022, (ii) an increase in capital spending for expansion of our gathering systems of $41 million and (iii) an increase in capital spending for expansion of our water handling systems of $25 million, partially offset by a $17 million return of capital distribution from the Joint Venture for a processing plant held in inventory that was sold by the Joint Venture during 2022 and an increase in asset sale proceeds of $4 million between periods.

Net cash flows used in investing activities decreased by $311 million from $494 million for the year ended December 31, 2022 to $183 million for the year ended December 31, 2023 primarily due to decreased asset acquisitions of $217 million and capital spending for our gathering systems and facilities, water handling systems and other assets of $115 million, partially offset by decreased return of investment in the Joint Venture of $17 million and asset sale proceeds of $5 million during the year ended December 31, 2022.

The capital spending for our gathering systems, facilities and other and water handling systems decreased between periods primarily as a result of fewer capital projects during the year ended December 31, 2023.

Financing Activities.

Net cash used in financing activities was $206 million and $596 million for the years ended December 31, 2022 and 2023, respectively.

The decrease in net cash used in financing activities between periods is primarily related to lower debt repurchases, higher net borrowings on our Credit Facility and lower total dividends paid to our common stockholders and preferred stockholders, partially offset by lower debt issuances.

Net cash used in financing activities for the year ended December 31, 2021 included:

(i) issuance of the 2029 Notes of $750 million;

(ii) repayment of the 2024 Notes of $667 million, which includes the redemption premium at 102.688% of par, (iii) total dividends to our common stockholders and preferred stockholders of $472 million;

(iv) $66 million in net payments on the Credit Facility;

and (v) $17 million in deferred financing costs payments associated with the issuance of the 2029 Notes and the senior secured revolving credit facility amendment.

Net cash used in financing activities for the year ended December 31, 2022 included net borrowings of $235 million on our Credit Facility and total dividends to our common stockholders and preferred stockholders of $433 million

The increase in cash flows used in financing activities between periods was primarily due to net repayments on our Credit Facility of $152 million during the year ended December 31, 2023, as compared to net borrowings on our Credit Facility of $235 million during the year ended December 31, 2022.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2022

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Capital Investments

Our capital expenditures for the year ended December 31, 2022 were $265 million, including $209 million for gathering and compression infrastructure and $73 million for water infrastructure, partially offset by a $17 million return of capital distribution from the Joint Venture for a processing plant held in inventory that was sold by the Joint Venture during year ended December 31, 2022 .

Our 2023 capital budget is $195 million to $215 million, which includes growth capital supporting the increased volumes expected from Antero Resources’ drilling partnership in addition to its maintenance capital program for 2023.

Our capital expenditures were as follows:

Year Ended December 31,

(in thousands)

Gathering systems and facilities

Water handling systems

Investments in (return of investment in) unconsolidated affiliates

Total capital expenditures

Our 2024 capital budget is $150 million to $170 million.

Our capital budgets may be adjusted as business conditions warrant.

If natural gas, NGLs and oil prices decline to levels below acceptable levels or costs increase to levels above acceptable levels, Antero Resources could choose to defer a significant portion of its budgeted capital expenditures until later periods.

As a result, we may also defer a significant portion of our budgeted capital expenditures to achieve the desired balance between sources and uses of liquidity and prioritize capital projects that we believe have the highest expected

returns and potential to generate consistent cash flows.

We routinely monitor and adjust our capital expenditures in response to changes in Antero Resources’ development plans, changes in prices, availability of financing, acquisition costs, industry conditions, the timing of regulatory approvals, success or lack of success in Antero Resources’ drilling activities, contractual obligations, internally generated cash flows and other factors both within and outside our control.

Additionally, we monitor our existing assets and look for opportunities to reuse or otherwise repurpose assets in an effort to optimize our capital efficiency.

Debt Agreements

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Antero Midstream Partners, as borrower (the “Borrower”), an indirect, wholly owned subsidiary of Antero Midstream Corporation, has a senior secured revolving credit facility with a consortium of banks.

On October 26, 2021, we entered into an amended and restated senior secured revolving credit facility, the Credit Facility.

The Credit Facility provides for borrowing under either Adjusted Term Secured Overnight Financing Rate (“SOFR”) or the Base Rate (as each term is defined in the Credit Facility).

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provided that if any Interest Period for a SOFR Loan exceeds three months, interest will be payable on the respective dates that fall every three months after the beginning of such Interest Period.

SORF Loans bear interest at a rate per annum equal to the rate for SOFR rate loans for three or six months (the “Interest Period”) plus an applicable margin ranging from 150 to 250 basis points (subject to certain exceptions), depending on the leverage ratio then in effect.

SOFR Loans bear interest at a rate per annum equal to the rate for SOFR rate loans for three or six months (the “Interest Period”) plus an applicable margin ranging from 150 to 250 basis points (subject to certain exceptions), depending on the leverage ratio then in effect.

Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month SOFR Rate loans plus 100 basis points, plus an applicable margin ranging from 50 to 150 basis points (subject to certain exceptions) depending on the leverage ratio then in effect.

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We were in compliance with the applicable covenants and ratios as of December 31, 2023.

See Note 8—Long-Term Debt to the consolidated financial statements for more information on our Credit Facility.

See Note 8—Long-Term Debt to the consolidated financial statements for more information.

The following table summarizes the material terms of our senior unsecured notes as of December 31, 2023:

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See Note 8—Long-Term Debt to the consolidated financial statements for more information.

Non-GAAP Financial Measures

We use Adjusted EBITDA as an important indicator of our performance.

We define Adjusted EBITDA as net income before net interest expense, income tax expense, depreciation, impairments, accretion of asset retirement obligations, equity-based compensation, excluding equity in earnings of unconsolidated affiliates, amortization of customer relationships, loss on early extinguishment of debt, loss on settlement of asset retirement obligations, loss (gain) on asset sale and including distributions from unconsolidated affiliates.

We use Adjusted EBITDA to assess:

the financial performance of our assets, without regard to financing methods, capital structure or historical cost basis;

our 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;

the viability of acquisitions and other capital expenditure projects.

Adjusted EBITDA is a non-GAAP financial measure.

The GAAP measure most directly comparable to Adjusted EBITDA is net income.

The non-GAAP financial measure of Adjusted EBITDA should not be considered as an alternative to the GAAP measure of net income.

Adjusted EBITDA presentations are not 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.

You should not consider Adjusted EBITDA in isolation or as a substitute for analyses of results as reported under GAAP.

Our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other corporations.

The following table represents a reconciliation of our Adjusted EBITDA to the most directly comparable GAAP financial measure for the periods presented:

Year Ended December 31,

(in thousands)

Interest expense, net

Income tax expense

Depreciation expense

Amortization of customer relationships

Equity-based compensation

Impairment of property and equipment

Accretion of asset retirement obligations

Equity in earnings of unconsolidated affiliates

Distributions from unconsolidated affiliates

Loss on early extinguishment of debt

Loss on settlement of asset retirement obligations

Loss (gain) on asset sale

Adjusted EBITDA

Critical Accounting Policies and Estimates

We may, from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, open market purchases, privately negotiated transactions or otherwise.

Any such repurchases will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

The amounts involved could be material.

See Note 8—Long-Term Debt to the consolidated financial statements for more information.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP.

Any new accounting policies or updates to existing accounting policies as a result of recently adopted accounting standards have been included in Note 2—Summary of Significant Accounting Policies to our consolidated financial statements.

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities.

Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used.

Accounting estimates and assumptions are considered to be critical if there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used.

We evaluate our estimates and assumptions on a regular basis.

We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported amounts in our consolidated financial statements that are not readily apparent from other sources.

Actual results may differ from these estimates and assumptions used in preparation of our financial statements.

We provide expanded discussion of our more significant accounting policies, estimates and judgments below.

We believe these accounting policies reflect our more significant estimates and assumptions used in preparation of our financial statements.

See Note 2—Summary of Significant Accounting Policies to our consolidated financial statements for a discussion of additional accounting policies and estimates made by management.

Fair Value Measurement

The FASB ASC Topic 820, Fair Value Measurements and Disclosures , clarifies the definition of fair value, establishes a framework for measuring fair value, and sets forth disclosure requirements about fair value measurements.

This guidance also relates to all nonfinancial assets and liabilities that are not recognized or disclosed on a recurring basis (e.g., the initial recognition of asset retirement obligations and impairments of long- lived assets).

The fair value is the price that we estimate would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

A fair value hierarchy is used to prioritize inputs to valuation techniques used to estimate fair value.

An asset or liability subject to the fair value requirements is categorized within the hierarchy based on the lowest level of input that is significant to the fair value measurement.

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The highest priority (Level 1) is given to unadjusted quoted market prices in active markets for identical assets or liabilities, and the lowest priority (Level 3) is given to unobservable inputs.

Level 2 inputs are data, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly.

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the acquisition of a business.

We test goodwill for impairment annually in the fourth quarter and when events or changes in circumstances indicate that the fair value of a reporting unit with goodwill has been reduced below its carrying value.

The impairment test requires allocating goodwill and other assets and liabilities to reporting units.

The fair value of each reporting unit is determined and compared to the carrying value of the reporting unit.

The fair value is calculated using the expected present value of future cash flows method.

Significant assumptions used in the cash flow forecasts include future net operating margins, future volumes, discount rates and future capital requirements.

If the fair value of the reporting unit is less than the carrying value, including goodwill, the excess of the book value over the fair value of goodwill is charged to net income as an impairment expense.

We utilized a combination of approaches to estimate the fair value of our assets including the discounted cash flow approach, comparable company method and the cost approach, whereby certain property and equipment was adjusted for recent purchases of similar items, economic and functional obsolescence, location, normal useful lives and capacity (if applicable).

We performed our first quarter of 2020 quantitative analysis using a weighted-average cost of capital of 18.0%, which was based on significant inputs not observable in the market, and thus represents a Level 3 measurement within the fair value hierarchy.

Property and Equipment

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Significant assumptions used in the cash flow forecasts include future net operating margins, future volumes, discount rates and future capital requirements.

We utilized a discounted cash flow approach to estimate the fair value of our assets.

We performed our first quarter of 2020 quantitative analysis using a weighted-average cost of capital of 19.0%, which was based on significant inputs not observable in the market, and thus represents a Level 3 measurement within the fair value hierarchy.

Contingent Acquisition Consideration

In connection with our September 2015 acquisition of certain water handling assets, we agreed to pay Antero Resources (a) $125 million in cash if we delivered 176 million barrels or more of fresh water during the period between January 1, 2017 and December 31, 2019 and (b) an additional $125 million in cash if we delivered 219 million barrels or more of fresh water during the period between January 1, 2018 and December 31, 2020.

This contingent consideration liability was valued based on Level 3 inputs related to the expected average volumes and weighted average cost of capital and was recorded at the time of such acquisition in accordance with accounting guidance for business combinations.

In January 2020, Antero Midstream Partners paid Antero Resources $125 million and, as of December 31, 2020, no additional contingent acquisition consideration was earned.

General and Administrative and Equity-Based Compensation Costs

General and administrative costs are charged or allocated to us based on the nature of the expenses and are allocated based on our proportionate share of Antero Resources’ gross property and equipment, capital expenditures and labor costs, as applicable.

These allocations are based on estimates and assumptions that management believes are reasonable.

Equity-based compensation grants are measured at their grant date fair value and related compensation cost is recognized over the vesting period of the grant.

Compensation cost for awards with graded vesting provisions is recognized on a straight-line basis over the requisite service period of each separately vesting portion of the award.

Estimating the fair value of each award requires management to apply judgment.

Equity-based compensation expenses that are subject to allocation as described in “—Principal Components of our Cost Structure,” are allocated to us based on our proportionate share of Antero Resources’ labor costs.

These allocations are based on estimates and assumptions that management believes are reasonable.

New Accounting Pronouncements

See Note 2—Summary of Significant Accounting Policies to our consolidated financial statements for information on new accounting pronouncements.

Determination of depreciation expense requires judgment regarding the estimated useful lives and salvage values of property and equipment.

Uncertainties that may impact these estimates of useful lives include, among others, changes in laws and regulations relating to environmental matters, including air and water quality, restoration and abandonment requirements, economic conditions and supply and demand for the Company’s services in the areas in which it operate.

Historically, we have not experienced material changes in our results of operations from revisions to the estimated useful lives or salvage values of our property and equipment.

However, these estimates are reviewed periodically and can be subject to revision as circumstances warrant.

We believe that the estimates and assumptions related to depreciation expense are critical because the assumptions used to estimate useful lives and salvage values of property and equipment are susceptible to change as circumstances warrant.

These assumptions affect depreciation expense and, if changed, could have a material effect on the Company's results of operations and financial position.

Income taxes are accounted for using the asset and liability approach.

Under this approach, deferred income tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis.

We record deferred income tax expense to the extent our deferred income tax liabilities exceed our deferred income tax assets.

We record a deferred income tax benefit to the extent our deferred income tax assets exceed our deferred income tax liabilities.

We are subject to state and federal income taxes, but are currently not in a cash tax paying position with respect to federal income taxes.

We record a valuation allowance when we believe all or a portion of our deferred income tax assets will not be realized.

In assessing the realizability of our deferred income tax assets, management considers whether some portion or all of the deferred income tax assets will be realized based on a more-likely-than-not standard of judgment.

The ultimate realization of deferred income tax assets is dependent upon our ability to generate future taxable income during the periods in which our deferred income tax assets are deductible.

Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income and tax planning strategies in making this assessment, estimates of which may be imprecise due to unforeseen future events or conditions outside of our control, including changes in Antero Resources’ production or development plans or changes to tax laws and regulations.

The amount of deferred income tax assets considered realizable could change based upon the amounts of taxable income actually generated, or as estimates of future taxable income change.

As of December 31, 2023, we have recognized a valuation allowance of $3 million related to charitable contributions.

The calculation of deferred income tax assets and liabilities involves uncertainties in the application of complex tax laws and regulations.

We recognize in our financial statements those tax positions which we believe are more-likely-than-not to be sustained upon examination by the IRS or state revenue authorities.

We believe that the estimates and assumptions related to income taxes are critical because the assumptions and estimates required to assess the likelihood that our deferred income tax assets will be recovered from future taxable income, as well as the amount and timing of a valuation allowance on our deferred income tax assets is an exercise in judgement and susceptible to change as circumstances warrant.

These assumptions affect deferred income tax liability and income tax expense and, if changed, could have a material effect on the Company's financial position and results of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis