Antero Midstream and AMGP Report Second Quarter 2017 Financial and Operational Results

On May 9, 2017, AMGP announced the closing of its initial public offering of 37,250,000 common shares representing limited partner interests in AMGP previously held by Antero Resources Investment LLC ("ARI").  Total gross proceeds to ARI, before underwriters' fees and estimated expenses, were approximately $875 million.  No proceeds were retained by AMGP.

AMGP 2017 Distribution Guidance and Long-term Outlook

The Board of Directors of AMGP GP LLC, the general partner of AMGP, declared a cash distribution of $0.027 per share for the second quarter of 2017.  The distribution reflects a pro-rated distribution from the closing of the AMGP initial public offering on May 9, 2017 through June 30, 2017. The distribution will be payable on August 23, 2017 to shareholders of record as of August 3, 2017. 

On June 15, 2017, AMGP announced distribution guidance of $0.15 to $0.17 for the year ended December 31, 2017, which includes the previously announced pro-rated distribution of $0.027 for the second quarter of 2017.  AMGP is targeting distributions per share of $0.43 to $0.46 for 2018, $0.70 to $0.76 for 2019, and $1.06 to $1.16 for 2020, driven by Antero Midstream's compound annual distribution growth target per unit of 28% to 30% through 2020.  AMGP's guidance and long-term targets assume 1.0x DCF coverage and exclude the impact of any future debt or equity offerings, acquisitions, or divestitures at either Antero Midstream or AMGP.

Antero Midstream Second Quarter 2017 Financial Results

Low pressure gathering volumes for the second quarter of 2017 averaged 1,683 MMcf/d, a 24% increase from the second quarter of 2016 and a 1% increase sequentially.  Compression volumes for the second quarter of 2017 averaged 1,192 MMcf/d, an 81% increase from the second quarter of 2016 and a 16% increase sequentially.  High pressure gathering volumes for the second quarter of 2017 averaged 1,734 MMcf/d, a 38% increase from the second quarter of 2016 and a 10% increase sequentially.  The increase in gathering and compression volumes was driven by production growth from Antero Resources in Antero Midstream's area of dedication.  In the second quarter of 2017, which was the first full quarter of operations for the Antero Midstream / MPLX joint venture (the "Joint Venture"), processing volumes averaged 216 MMcf/d and fractionation volumes averaged 4,039 Bbl/d.  Fresh water delivery volumes averaged 173 MBbl/d during the quarter, a 64% increase compared to the prior year quarter and a 17% increase sequentially.

For the three months ended June 30, 2017, the Partnership reported revenues of $194 million, comprised of $99 million from the Gathering and Processing segment and $95 million from the Water Handling and Treatment segment. Revenues increased 42% compared to the prior year quarter, driven by growth in throughput volumes and fresh water delivery volumes. Water Handling and Treatment segment revenues include $36 million from wastewater handling and high rate water transfer services provided to Antero Resources, which is billed at cost plus 3%. 

Direct operating expenses for the Gathering and Processing and Water Handling and Treatment segments were $10 million and $42 million, respectively, for a total of $52 million compared to $43 million in direct operating expenses in the prior year quarter. Water Handling and Treatment direct operating expenses include $35 million from produced water handling and high rate water transfer services.  General and administrative expenses including equity-based compensation were $15 million, a $2 million increase compared to the second quarter of 2016.  General and administrative expenses excluding equity-based compensation were $8 million during the second quarter of 2017, a $1 million increase compared to the second quarter of 2016.  Total operating expenses were $101 million, including $30 million of depreciation and $4 million of accretion of contingent acquisition consideration.

Net income for the second quarter of 2017 was $87 million, a 75% increase compared to the prior year quarter. Net income per limited partner unit was $0.39 per unit, a 44% increase compared to the prior year quarter. Adjusted EBITDA was $139 million, a 59% increase compared to the prior year quarter. The increase in net income and Adjusted EBITDA is primarily driven by increased throughput volumes and fresh water delivery volumes. Adjusted EBITDA for the quarter included $6 million in distributions from Stonewall Gathering LLC ("Stonewall") and did not include distributions from the processing and fractionation joint venture.  Antero Midstream expects distributions from Stonewall to be approximately $10 to $15 million and distributions from the processing and fractionation joint venture to be approximately $10 million in 2017, both in line with previously provided guidance.  Cash interest paid was $2 million. Cash reserved for bond interest during the quarter was $9 million and cash reserved for payment of income tax withholding upon vesting of Antero Midstream equity-based compensation awards was $2 million. Maintenance capital expenditures during the quarter totaled $16 million and distributable cash flow was $110 million, resulting in a DCF coverage ratio of 1.5x.

Commenting on the outlook for Antero Midstream, Paul Rady, Chairman and CEO said, "The second quarter highlights the benefits of Antero Midstream's integrated full value chain strategy, as Antero's advanced completions drove record gathering, compression and fresh water delivery volumes for Antero Midstream. Additionally, Antero Midstream's processing and fractionation investment is beginning to build significant momentum, as the Joint Venture's first processing plant, Sherwood 7, was fully utilized during the second quarter and we recently placed on line the Joint Venture's second processing plant, Sherwood 8, which is already fully utilized.  The Joint Venture's next plant, Sherwood 9 (200 MMcf/d), is expected to be in service in January of 2018."

The following table reconciles net income to adjusted EBITDA and distributable cash flow as used in this release (in thousands):

	Three months ended
	June 30,
	2016			2017
Net income	$	49,912		$	87,175
Interest expense		3,879			9,015
Depreciation expense		24,140			30,512
Accretion of contingent acquisition consideration		3,461			3,590
Equity-based compensation		6,793			6,951
Equity in earnings of unconsolidated affiliates		(484)			(3,623)
Distributions from unconsolidated affiliates		—			5,820
Adjusted EBITDA	$	87,701		$	139,440
Interest paid		(4,264)			(2,308)
Cash reserved/paid for bond interest (1)		—			(8,734)
Cash reserved for payment of income tax withholding upon vesting of Antero Midstream Partners LP equity-based compensation awards(2)		(1,000)			(2,431)
Cash distribution to be received from unconsolidated affiliate		778			—
Maintenance capital expenditures(3)		(5,710)			(16,422)
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