Greetings and welcome to Antero Midstream, Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Brendan Krueger, Chief Financial Officer at Antero Midstream. Please proceed.

Thank you, Operator. Thank you for joining us for Antero Midstream's Third Quarter 2021 Investor Conference Call. We'll spend a few minutes going through the financial and operating highlights, and then we'll open it up for Q&A. I would also like to direct you to the homepage of our website at www.anteromidstream.com, where we have provided a separate earnings call presentation that will be reviewed during today's call. Before we start our comments, I would first like to remind you that during this call Antero management will make forward-looking statements. Such statements are based on our current judgments regarding factors that will impact the future performance of Antero Resources and Antero Midstream and are subject to a number of risks and uncertainties, many of which are beyond Antero's control. Actual outcomes and results could materially differ from what is expressed, implied, or forecast in such statements. Today's call may also contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures. Joining me on the call today are Paul Rady, Chairman and CEO of Antero Resources and Antero Midstream, and Michael Kennedy, CFO of Antero Resources and Director at Antero Midstream. With that, I will turn the call over to Paul.

Thanks, Brendan. I'll start on slide number 3, which discusses our expansion projects related to the drilling partnership, highlighting the progress of our midstream development supporting the AR and QL partners. First, as noted on the bottom left of the page, we launched the Smithburg one processing plant in early July, adding 200 million cubic feet a day to our joint venture processing capacity. This increases the total processing capacity of the joint venture to 1.6 BCF per day. Following our just-in-time capital investment philosophy, the joint venture's processing capacity was utilized at 96% during the third quarter. On the right side of the page, we are continuing to enhance our compression infrastructure in Tyler and Wetzel counties in West Virginia. These stations, expected to go online in early 2022, will support throughput growth from the drilling partnership in the coming years. As we look forward to 2022, we will keep advancing the Marcellus midstream expansion by constructing a high-pressure pipeline from Tyler and Wetzel Counties to the Sherwood and Smithburg processing complex. Additionally, we will expand our low-pressure gathering infrastructure in the area where AR plans to focus its development over the next several years. We are particularly encouraged by the performance of the wells in the Core Marcellus, where our expansion is concentrated, as this supports stronger economics for Antero Midstream. Slide 4 summarizes AR's premium drilling inventory, which is key to AM's capital investment and throughput growth in the coming years. At AR, we conduct regular technical reviews of our acreage positions, including undrilled acreage and location potential based on BTU regimes and EURs. From these results, we categorize the core of the Southwest Marcellus and Ohio Utica into Premium and Tier 2 sub-areas. We have identified around 5,200 premium undeveloped locations in the Southwest Marcellus, represented within the red outlines on the map. We estimate AR holds 1,865 of these premium sites, or 36% of the total, which includes over 1,000 liquids-rich locations. In the Ohio Utica, we estimate there are roughly 1,100 premium undeveloped locations, with AR holding 210 of them, or 19% of the total. Much of the acreage is overlapped by existing horizontal wellbores in the Marcellus and Utica, marked by red lines on the map. We believe that the notion of inventory fatigue and the limited number of premium drilling locations will significantly differentiate E&P operators in Appalachia. Importantly, for AM, its primary producer AR has over 15 years’ worth of liquids-rich drilling inventory and a highly contiguous acreage position, resulting in efficient midstream expansions and superior returns on invested capital for AM. With that, I will turn the call over to Brendan.

Thanks Paul. I'll begin my comments highlighting our recently published 2020 ESG Report. As a leading midstream company and one of the lowest cost basins, Antero Midstream plays a vital role in transporting and processing low-emission hydrocarbons needed to power our economy and heat our communities. Our infrastructure links reliable energy supply in Appalachia with global demand and allows us to aid in the effort to eliminate energy poverty across the world. As depicted on Slide number 5 titled AM's Role in Supporting Global Energy Access, AM's integrated midstream services allow AR to transport its LPG, both domestically and internationally, including to developing nations. Specifically, approximately 1/3 of AR's LPG exports went to developing nations in 2020, which included Nigeria, Peru, and India to name a few. This trend continued through 2021. Importantly, we expect this trend to continue into the future. This delivery of LPG to these communities directly improves people's health, safety, and livelihood through the displacement of more expensive and carbon-intensive energy sources used for heating and cooking. We are very proud of our role in responsibly delivering the energy needed to drive a recovering global economy and a lower carbon future. Slide Number 6 highlights our ongoing commitment to the communities in which we operate: safe operations, environmental excellence, and strong governance. Even through the COVID-19 pandemic, we remained active in our communities, supporting hunger relief efforts through the United Way and other community organizations. With a company-wide focus on safety, we had 0 employee lost-time incidents for the sixth consecutive year. We are also environmental leaders in the Midstream industry. In 2020, we reduced our methane leak loss rate to 0.15%, significantly below the future industry goal of 1% and more than 50% lower than the Midstream industry peer average of 0.033%. Our integrated water system allowed us to recycle and reuse 84% of AR's total wastewater gathered. In addition, 100% of freshwater used in completions was transported by pipeline, eliminating 32 million truck traffic miles and avoiding 14,000 metric tons of CO2 equivalent. Lastly, we took our ESG focus further by aligning our executive compensation with ESG performance and establishing an ESG committee. We believe this core ESG focus and culture of continuous improvement ultimately benefits all of our stakeholders. Now let's move on to the third quarter operational results at AM, beginning on Slide 7 titled Continued High Asset Utilization Rates. During the quarter, we maintained our high asset utilization rates with compression capacity averaging 86% utilization, and processing and fractionation capacity averaging 96% and 93% respectively. These impressive utilization rates include the 200 million cubic feet a day of incremental JV processing capacity at Smithburg 1, which was placed in service at the early part of the quarter. As detailed in the earnings release, throughput volumes were negatively impacted by approximately 100 million a day due to downtime at the Sherwood and Hopedale Processing and fractionation facilities resulting in AM not paying out the third quarter earn-out of 12 million to AR. Looking ahead to the fourth quarter, we have brought all volumes back online and expect to pay the fourth quarter earn-out to AR. Adjusted EBITDA for the quarter was 219 million, and capital expenditures during the quarter were 80 million. Capital expenditures were slightly lower than what we discussed on last quarter's call due to the deferral of capital into the fourth quarter as a result of weather impacts. For the full year, we still expect to be within our capital guidance range of 240 to 260 million. During the third quarter, we generated $94 million of free cash flow before dividends. Year-to-date, free cash flow after dividends has totaled $32 million, which has allowed us to reduce our leverage to 3.6 times. As we look to the fourth quarter, we expect a modest outspend after dividends driven by increased capital expenditures as just discussed, which will result in a full-year 2021 profile that is approximately free cash flow neutral after dividends in line with the guidance we put out there. Moving onto the Balance Sheet on Slide Number 8, as of September 30th, we had $521 million drawn on our bank credit facility. As you recall, in the second quarter, we refinanced a 2024 senior note, extending the maturity to 2029 at the same coupon of 538. In October, we extended our bank maturity by 5 years to 2026, resulting in no senior note or debt maturities until 2026. In addition, we elected to reduce our bank credit facility commitments from 2.13 billion to 1.25 billion. The reduction reduces our unutilized commitment fees as viewed favorably by the credit rating agencies and reflects our long-term plan focused on absolute debt and leverage reduction. As a reminder, we previously announced that we are targeting approximately 500 million of free cash flow after dividends from 2021 through 2025, which would result in the completely undrawn credit facility at the end of that time period assuming the free cash flows utilized to repay credit facility borrowings. Importantly, our integrated long-term planning with AR provides us with significant visibility into the next 5 years and beyond, which gives us confidence in delivering on that outlook. Lastly, I want to highlight AM's momentum on the credit front, on the bottom half of the page. So far in 2021, AM has received multiple upgrades from both S&P and Moody's, bringing us to BB and Ba2 ratings respectively. The upgrades reflect AM's peer-leading leverage profile, strong liquidity position, significant improvement in AR's financial strength, and de-risked internally financed capital budgets and dividends. This has resulted in a much lower cost of capital for AM, which in turn helps drive value for the AM shareholders. With that Operator, we're ready to take questions.

At this time, we will be conducting a question-and-answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. One moment, please, while we poll for questions. Your first question comes from the line of Jeremy Tonet with JPMorgan, please proceed with your question.

Hi, good morning.

Hi, Jeremy.

Good morning, Jeremy.

Hi. Just want to touch base on completions if you could. Just want to see what expectations or what color you can share for 4Q that you might expect to be serviced. It seems like AR still has 65 to 70 in the guidance. AM has serviced about 59, I think, so that 6 to 11 range is a wide range for the quarter. So just wondering if you could provide any more color there.

Yes. I think what we said on last quarter's call still holds. So, we said mid to high teens. During the third quarter, we came out with 18, and we said that low to mid double-digits for the fourth quarter on completions for well-serviced, and that still holds for the fourth quarter. So, at low to mid double digits for completions in the fourth quarter.

Got it. That's helpful. Thanks. And just want to refresh tax, I guess at this point, as far as cash tax paying expectations, and if there's a corporate minimum tax, how that might impact AM's outlook for cash flow.

Yeah. Based on what we know thus far in terms of what's being proposed out there, no change to our impact right now as we look out to the later part of the decade. I think we said last time, we do not expect to be a cash taxpayer through the end of the 2020s. And then at that time, depending on what the situation looks like, we may begin to start paying taxes in the 2030s.

Got it. I'll leave it there. Thank you.

Bye, thank you.

Your next question comes from the line of Brian Reynolds with UBS, please proceed with your question.

Thanks for taking my question. To start off on capital allocation and given Antero's pivot to free cash flow in 2022 and moderating capex. I know you guys talked about reducing the credit facility of 500 million, which is in line with your long-term free cash flow forecasts. But is there a leverage target where buybacks could become part of the conversation just given the spread between equity and debt over time? Thanks.

Yes, I think we've been pretty public on the three times target out there on leverage, which we expect to hit in that 2024 or 2025 time period and after we hit that leverage, we will evaluate what a further return of capital could look like at that time.

Fair enough. As a quick follow-up, just given the current gas and NGL macro stands right now within the Northeast and the rate relief programs falling off at 4Q 23, I believe. Is there any opportunity to extend that rate relief program in exchange for more drilling activity from AR, or is that something that you would consider at a later time? Thanks.

Yeah, I think it's important to keep in mind that rate relief program was put in place in late 2019, both entities did not really have access to capital markets, so it helped to address some of the challenges on the balance sheet side of things. Just to clarify that it does run through the fourth quarter of '23, not the fourth quarter of '22. And currently there are no plans to extend that. I think AM would be happy to take the incremental free cash flow in 2024 plus as a result of that. And no plans right now to consider a further extension there.

Great. Thanks for the color. Appreciate it.

Thank you.

Your next question comes from the line of Colton Bean with Tudor, Pickering, Holt and Company. Please proceed with your question.

Morning. So just one on my end, I think on the AR call, the team noted that about 150,000 barrels a day of ethane with the South pipeline reaching commissioning this month and cracker start-up expected next year. Should we see a step-up in extraction and a commensurate increase in JV frac volumes?

Just as a reminder, on the ethane side, AM through the JV does not participate in the de-ethanization. It's only on the fractionation side on the C3 plus, so no impact from the ethane recovery. AR will recover more volumes as a result of its commitment to the Shell Cracker, but that will not have an impact on the processing JV.

Got it.

Your next question comes from the line of John MacKay with Goldman Sachs, please proceed with your question.

Hey, good morning. Thanks for the time. Just one quick one from me. I don't think we talked about yet just on '22 capex, you guys have kind of guided a couple of times in the past on that $275 to $300 million level. Just curious given where we've seen steel prices go and kind of inflation more generally, if you're looking at that range, still holding right now. Thanks.

Thanks for the question, John. I appreciate it. Good question. I think overall, the $275 to $300 is still the range we have out there. You certainly have seen some inflation on steel. But I think it's important to note for Antero, given the visibility that AM has and the development program with AR, we do have the luxury of being able to pre-order some of that steel. So, we're not going to see necessarily the impact that others may see out there that don't have the visibility. And in the second point I just mentioned is labor does make up about 75% of that capital costs, and so you're not seeing an impact commensurate with what you're seeing on the steel side with labor. So overall, still expected to be within that $275 to $300 million for 2022.

Thank you.

Thank you.

Your next question comes from the line of Michael Cusimano with Pickering Energy Partners. Please proceed with your question.

Hi, thanks for taking my question. Could you talk about the capital required for AM if AR would elect to drill? I understand that AR is expected to remain flat, but is the capital required at AM part of that decision process when I think of the whole enterprise?

Yeah. I mean, I think certainly as AR looks at its development plans, and given it is a 30% owner of AM, I think AR certainly looks at the full picture when it makes its decisions. Overall, I think it's difficult to say whether incremental growth would require incremental capital. It depends on where the growth is relative to where the infrastructure is built out. Tough to give you any sort of direct answer today, but again, I'd just reiterate, I think right now, AR is planning for maintenance capital and no change on that front. And so, as we look at the AM capital backlog, we're still at that $1.1 billion at the midpoint for the 5-year period from 2021 through 2025.

Okay. Could you, if possible, help me understand where capacity might be available today?

Overall, there is definitely availability in different areas of AR's operations. While I won't specify certain areas, it is spread across AR's acreage position, both in the liquids-rich segments and the dry gas segments. AM is focusing its upcoming investments in the more liquids-rich regions, which AR is currently developing. A significant portion of the growth through the drilling partnership is intended for those liquids-rich areas, where AM is putting its capital now. Overall, if there is any excess capacity, it is distributed across the portfolio outside of where AR is currently developing.

Got it. All right. That's helpful. I'll leave it there. Appreciate it.

Thanks, Michael.

Thank you, Michael.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Mr. Brendan Krueger for closing remarks.

Yes. Thanks, Operator. Thank you for joining us for the call today. Please reach out if there are any further questions. We are available. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.