Greetings and welcome to the Antero Midstream Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mr. Justin Agnew, Director of Finance. Thank you. Please go ahead.

Good morning, and thank you for joining us for Antero Midstream's Second Quarter 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. 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, CEO, and President of Antero Resources and Antero Midstream; Brendan Krueger, CFO of Antero Midstream; and Michael Kennedy, CFO of Antero Resources and Director of Antero Midstream. With that I'll turn the call over to Paul.

Thanks, Justin. Antero Midstream delivered another terrific quarter, building upon the momentum generated in the first quarter of 2023. In my comments I will discuss the operational and capital efficiencies at both AM and AR. Brendan will then walk through the financial results that have put us on track to achieve our 2023 guidance. I'll start my comments on slide number 3 titled Drilling and Completion Efficiencies at AR. After a record-breaking first quarter operationally, AR has continued success during the second quarter. As shown on the top left portion of the page, during the second quarter AR completed over 11 stages per day. This is a 40% improvement compared to 2022, and over a 90% improvement compared to 2019. Drill-outs, which are the process of drilling out the plugs in each stage of the horizontal portion of the well, exhibited the same success. Drill-outs averaged 4,250 feet per day during the second quarter, a 9% increase compared to 2022 and a 50% improvement compared to 2019. These two factors have resulted in 65% shorter cycle times for AR compared to 2019 as shown at the bottom of the page. These cycle times reflect the number of days it takes to drill, complete, and place a pad to sales. Shorter cycle times equate to better capital efficiency and returns at Account Receivables, which drives the ability to consistently develop its acreage position dedicated to AM. Now, let's move to slide number 4 titled Optimizing Compression and Processing Utilization. The top half of the page illustrates our compression capacity, including organically built compression in green and acquired compression capacity in blue. Historically, we have consistently maintained high utilization rates as a result of our just-in-time capital investment philosophy. The recent acquisitions have increased our compression capacity by over one Bcf a day, including underutilized capacity that will support capital efficient future development. Importantly, we valued our acquisitions in 2022 on a PDP-only basis. So any development on the systems or reuse of underutilized assets is upside for AM. The bottom half of the page illustrates our joint venture processing capacity in the Marcellus shale. During the second quarter our JV processing capacity of 1.6 Bcf a day was 100% utilized, as a result of growth in the liquids-rich Marcellus shale. As a reminder, we can generally run approximately 10% above nameplate processing capacity, providing additional runway for growth. One of the under-recognized aspects of Antero Midstream's business model is the coordinated planning effort with Antero Resources. For example, AR will be drilling two pads in the Ohio, Utica shale later this year. This will help manage overall infrastructure and provide attractive Chicago pricing in the winter months for AR. Lastly, I wanted to touch on our compression capacity relocation efforts on slide number 5. These relocation efforts result in capital savings for AM and peer-leading returns on invested capital. During 2022, we successfully relocated four underutilized compressor units to our Castle Peak compressor station to support growth in that area. Given the success of that relocation, we are now in the process of relocating the remaining eight units on the East Mountain station over to our Grays Peak station, colored in blue. This station will be placed online in 2024. As you can see in the picture on the top right-hand portion of the page, we recently poured the foundations for the additional units that will be relocated to this station. Eight of the 12 units at the Grays Peak station will be relocated units from East Mountain, resulting in 120 million cubic feet a day of initial capacity. In summary, both AR and AM are displaying incredible operational and capital efficiencies in 2023. This supports a stable outlook and gives us confidence in achieving our long-term targets. With that, I'll turn the call over to Brendan.

Thanks, Paul. I'll start my comments by briefly highlighting the year-over-year results on slide number 6, titled Operational Success Drives Earnings Growth. During the second quarter, low pressure gathering and compression volumes increased by 11% and 17% respectively, compared to the prior year quarter. Of the 11% growth in low pressure gathering volumes, approximately 5% was organic growth on our legacy assets and 6% was attributable to the Crestwood acquisition that closed in the fourth quarter of last year. This double-digit throughput growth was the primary driver of our year-over-year adjusted EBITDA growth of 10%. Capital expenditures declined by 31% from the prior year quarter to $49 million this quarter. As a result of increasing EBITDA and declining capital, we generated $139 million of free cash flow before dividends and $31 million of free cash flow after dividends. This was the fourth straight quarter of generating positive free cash flow after dividends and the second highest quarterly free cash flow after dividends behind the first quarter of this year. Now let's move on to slide number 7, titled 10% year-over-year EBITDA Growth. To walk through the drivers of the EBITDA growth at AM, our gathering and compression EBITDA is shown in green, our processing fractionation and Stonewall joint ventures are shown in purple, and our water business is illustrated in blue. As depicted on the slide, our gathering and compression business increased by $22 million year-over-year and our water business and joint venture distributions were approximately flat. As a result, our 10% year-over-year increase in EBITDA was driven by our G&P business, which continues to be a larger percentage of our overall business. In the second quarter of 2023, our gathering and processing business made up approximately 86% of our EBITDA, and we see that growing towards 90% over the next several years as the cash flow from this business continues to grow. While making up just 14% of our overall EBITDA, our water business still has some of the highest project economics. This is a function of the short payback period of our pad connect capital investment, particularly as the cycle times at AR continue to improve. I'll finish my comments on slide number 8 titled AM Checking All the Boxes. The first half of 2023 has been incredibly successful both operationally and financially for AM. Over the last year we expanded our business organically and through immediately accretive high-visibility acquisitions. Importantly these acquisitions have only added to our peer-leading return on invested capital in the high teens as we integrate them into our asset base and drive additional synergies. We have significantly derisked the business by transitioning to generate consistent free cash flow after dividends, which has totaled $77 million year-to-date. This has allowed us to reduce absolute debt and drive our leverage down to 3.5 times from 3.7 times at year-end as we progress towards our three times target in 2024. We believe these best-in-class attributes checking all the boxes to be a premier midstream company position AM to increase our return of capital to shareholders in the future. In summary, we have made tremendous strides over the past year to drive growth while simultaneously derisking the business through absolute debt and leverage reduction. We look forward to the next several years as our EBITDA continues to grow, our free cash flow after dividends continues to expand, and our leverage continues to decline. With that operator, we are ready to take questions.

Thank you. The floor is now open for questions. The first question is coming from Brian Reynolds of UBS. Please go ahead.

Hi, good afternoon, everyone. Quick question on just the guidance between the Antero families. It seems like AR raised its production by 100 Mcf per day and that seemed to be related to some noise around ethane and some cracker downtime. But I was curious if you could explain if this is no impact to AM and whether some of that was captured in AM's 1Q quarterly EBITDA guidance update? Thanks.

Good question, Brian. Overall, to your comments, AM did increase guidance in the first quarter. AM was comfortable with the gross wellhead volumes, which drive its EBITDA increasing. But for AR, as you're probably aware, they guide on a net equivalent production basis. And so with the ethane volumes being risked further, they wanted to wait another quarter before providing an update on guidance. So, no change. Overall, I will say it is positive for AM in the sense that AR did guide to higher volumes and also talked about the fact that 2024 would be maintained at those higher volumes. So that is a new piece of information I think that would drive AM's 2024 volumes.

Great, that's very helpful. Following up on opportunities for capital returns in 2024, there's a potential investment upgrade at the AR level that might impact AM as well. I'm curious about how the potential refinancing of the bond maturities from 2026 to 2029 could influence the anticipated capital returns, especially as AM is expected to trend below three times leverage next year. Thank you.

Yes. No, I think as we look at the balance sheet for AM, you've got a couple of attributes there. You have the declining leverage to the three times level, which will be positive for its own balance sheet and investment ratings. And then you have, as you mentioned, the AR credit rating. To the extent AR gets upgraded, AM would automatically get upgraded. And then that combined with the momentum with the leverage reduction should improve the overall credit profile at AM. So, we'll continue to be patient, watch the market on the bonds, and we'll be opportunistic in terms of refinancing those bonds as they come due.

Great. I’ll leave it there and thanks.

Thank you, Brian.

Thank you. The next question is coming from Jeremy Tonet of JPMorgan. Please go ahead.

Hey, everyone. This is Elias Jossen on for Jeremy. Just hoping to get a little guidance for well completion cadence for the rest of the year across the water business. How should we be thinking about that in the near term?

Yes. Overall, we provided guidance for the year indicating that we expect to service 75 to 80 wells through the water business. We've serviced around 45 in the first half. There are two to three wells that will significantly contribute to our performance. The impact will be felt mostly in the third quarter as we begin those completions, with the remaining 75 to 80 wells serviced in the second half. Therefore, approximately 55% to 60% of completions will occur in the first half, while 40% to 45% will take place in the second half of the year.

Got it. That's helpful. Thanks. And then maybe moving to kind of CapEx through the rest of the year. I know you guys are guiding to a midpoint of about $190 million. And I know there's probably a little over $100 million less. So maybe just some more color on what's on the docket for the spend there? Any specifics would be helpful. Thanks.

Yes. I believe that historically, you can invest more capital and expand during the summer months due to better weather. Therefore, the second and third quarters typically show higher capital levels, with a decline in the fourth quarter. I expect this trend to be similar this year regarding how we reach the midpoint of our capital guidance.

Great. Thanks. I’ll leave it there.

Thank you.

Thanks.

Thank you. The next question is coming from Ned Baramov of Wells Fargo. Please go ahead.

Hey, good afternoon. Thanks for taking the question. Just building on the previous question, can you talk about the impact to AM from AR's improved well productivity? I presume that will result in some capital efficiencies on the midstream side too, but I appreciate any additional details you can provide on your 2024 and 2025 CapEx program at AM.

Yes, that's a great question. Looking at the capital program for AM, the efficiency gains at AR lead to reduced well connection capital requirements for AM. There continues to be an increase in the average lateral feet per well each year, which is advantageous for AM's capital program. Additionally, we've previously mentioned the benefits of compression reuse, which will be more evident in 2024, resulting in approximately $15 million in incremental savings from this reuse that Paul highlighted in his opening remarks. I'm optimistic about the capital program moving forward; you can expect 2024 capital to be lower than 2023 capital. On the volume side, it's important to remember that fee rebates will be decreasing for AM in 2024. When you take into account that AR is maintaining production at higher levels, this will lead to solid single to high single-digit EBITDA growth for AM as we head into 2024. Overall, AM is in a strong position with consecutive years of robust EBITDA growth and declining capital. It's a positive outlook as we look ahead.

Got it. Is the $15 million in CapEx savings from compression reuse actually the savings from compression relocation compared to the cost of building new compression?

Well, it depends on how many units you're relocating. So, next year, you'll see $15 million. Overall, we've talked about a total number in the $50 million level on ability to reuse. And that's something we're always evaluating in terms of reuse of underutilized compression capacity into areas that need it. So, you'll see us update those numbers moving forward. But the total number is $50 million and $15 million of that you'll see in 2024.

I guess as a rule of thumb, can you provide a number of what's the cost of relocating equipment versus the cost of building new equipment?

So, we're relocating, call it 120 a day of compression capacity and saving $15 million. So I think that's probably a fair ratio to assume moving forward.

Got it. Very helpful. Thank you. That’s all I had.

Our next question is coming from Gregg Brody of Bank of America. Please go ahead.

Good afternoon. I know you've provided information about the Clearwater facility litigation, but I'm curious if you could discuss the estimated time frame for its resolution. I understand there are options for appeals, but I would appreciate it if you could give us some context.

Yes, Gregg, unfortunately, we can't really comment on the pending litigation outside of what we've already disclosed in the 10-Q. So, I'll just direct you to the 10-Q for our disclosures there.

I appreciate the presentation. Thanks, guys.

Thanks.

Thank you. At this time, I'd like to turn the floor over to Mr. Agnew for closing comments.

Thank you for joining today's conference call. Please feel free to reach out with any additional questions.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines and log off from the webcast at this time, and enjoy the rest of your day.