Antero Midstream Reports Second Quarter 2016 Financial Results

OREANDA-NEWS. August 03, 2016.  Antero Midstream Partners LP (NYSE: AM) ("Antero Midstream" or the "Partnership") today released its second quarter 2016 financial results.  The relevant condensed combined consolidated financial statements are included in Antero Midstream's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, which has been filed with the Securities and Exchange Commission.

Highlights Include:

• Net income of \\$50 million, or \\$0.27 per unit, representing a per unit increase of 108% compared to the prior year quarter
• Adjusted EBITDA of \\$88 million, a 36% increase compared to the prior year quarter
• Net cash provided by operating activities was \\$86 million and distributable cash flow was \\$78 million, resulting in DCF coverage of 1.7x
• Declared a cash distribution of \\$0.25 per unit for the second quarter of 2016, a 32% increase compared to the prior year quarter and a 6% increase sequentially
• Exercised option to acquire a 15% equity interest in the Stonewall Gathering Pipeline for \\$45 million
• Increased acreage dedication from Antero Resources by approximately 20%, pro forma for Antero Resources' recently announced Marcellus core acreage acquisition which is expected to close in the third quarter of 2016

Recent Developments

Distribution for the Second Quarter of 2016

The Board of Directors of Antero Resources Midstream Management LLC, the general partner of the Partnership, declared a cash distribution of \\$0.25 per unit (\\$1.00 per unit annualized) for the second quarter of 2016. The distribution represents a 32% increase compared to the prior year quarter and a 6% increase sequentially.  The distribution is the Partnership's sixth consecutive quarterly distribution increase since its initial public offering in November 2014 and will be payable on August 24, 2016 to unitholders of record as of August 10, 2016.

Exercise of Option to Acquire Stonewall Gathering Pipeline

On May 26, 2016, Antero Midstream exercised its option to acquire a 15% non-operated equity interest in the Stonewall Gathering Pipeline for \\$45 million. The 1.4 Bcf/d pipeline was placed into service on November 30, 2015 and is currently gathering approximately 1.0 Bcf/d.  Antero Resources is an anchor shipper on the Stonewall Gathering Pipeline, with a minimum volume commitment of 900 MMcf/d.  The pipeline connects Antero Resources' Marcellus production with an interconnect that feeds a firm sales agreement as well as additional firm transportation to current favorably priced markets.  The transaction was financed with borrowings on Antero Midstream's revolving credit facility and had an effective date of May 26, 2016.

Second Quarter 2016 Financial Results

Antero Midstream's acquisition of Antero Resources' integrated water business in 2015 was accounted for as a transfer of entities under common control.  As a result, the Partnership recast its condensed combined consolidated financial statements to retrospectively reflect the integrated water business as if the assets and liabilities were owned for all past periods presented.  Beginning in the third quarter of 2015, and as a result of the acquisition, Antero Midstream began reporting its results through two business segments, Gathering and Compression and Water Handling and Treatment.  To facilitate year over year comparison and discussion, the second quarter 2016 and second quarter 2015 results discussed below include both the Gathering and Compression and Water Handling and Treatment segment operations.

The term "Adjusted EBITDA" discussed below reflects the Gathering and Compression and Water Handling and Treatment segments on a recast combined basis, while the term "Adjusted EBITDA attributable to the Partnership" reflects contribution from the Water Handling and Treatment segments only after the third quarter of 2015 based on the actual timing of the acquired assets.  For a reconciliation of net income to Adjusted EBITDA, please read "Non-GAAP Financial Measures". 

Low pressure gathering volumes for the second quarter of 2016 averaged 1,353 MMcf/d, a 40% increase from the second quarter of 2015 and a 4% increase sequentially.  High pressure gathering volumes for the second quarter of 2016 averaged 1,253 MMcf/d, a 5% increase from the second quarter of 2015 and a 3% increase sequentially.  Compression volumes for the second quarter of 2016 averaged 658 MMcf/d, a 45% increase from the second quarter of 2015 and a 9% increase sequentially.  The increase in gathering and compression volumes was due to production growth from Antero Resources in Antero Midstream's area of dedication.  Condensate gathering volumes averaged 1,983 Bbl/d during the quarter, a 34% decrease compared to the prior year quarter and a 33% decrease sequentially. The sequential decrease in condensate gathering volumes was driven by Antero shifting Ohio Utica Shale development from its Highly-Rich Gas/Condensate area to higher rate of return drilling in the Highly-Rich Gas area, as well as the shifting of Antero Resources' development program to the Marcellus Shale from the Utica Shale, due to the firm transportation constraints to favorable markets in the Utica Shale.  Fresh water delivery volumes averaged 105,379 Bbl/d during the quarter, an 11% increase compared to the prior year quarter and an 8% increase sequentially.  The increase in volumes was driven by accelerated Marcellus completions and an increase in the average water used per foot in completions to 41 barrels, a 25% increase as compared to 2015 and 11% increase compared to the first quarter of 2016. 

For the three months ended June 30, 2016, the Partnership reported revenues of \\$137 million, comprised of \\$72 million in revenues from the Gathering and Compression segment and \\$65 million in revenues from the Water Handling and Treatment segment. Revenues increased 55% compared to the prior year quarter, primarily driven by the startup of produced water handling and high rate transfer services in the first quarter of 2016. Water Handling and Treatment segment revenues include \\$30 million from produced water handling and high rate water transfer services provided to Antero Resources billed at cost plus 3%. 

Direct operating expenses for the Gathering and Compression and Water Handling and Treatment segments were \\$8 million and \\$35 million, respectively, for a total of \\$43 million. Water Handling and Treatment direct operating expenses include \\$29 million from produced water handling and high rate water transfer services. Direct operating expenses increased 138% year over year, driven primarily by the inclusion of produced water handling and high rate water transfer services, as well as the expansion of the Partnership's gathering and compression and fresh water delivery assets to support the production growth of Antero Resources.  General and administrative expenses were \\$7 million during the second quarter of 2016, an increase of 17% compared to the second quarter of 2015. Total cash and non-cash operating expenses were \\$84 million, including \\$24 million of depreciation, \\$7 million of equity-based compensation, and \\$3 million of accretion of contingent acquisition consideration.

Net income for the second quarter of 2016 was \\$50 million, a 42% increase compared to the prior year quarter. Adjusted EBITDA was \\$88 million, a 36% increase compared to the prior year quarter. The increase in net income and Adjusted EBITDA is due to increased gathering and compression volumes and fresh water delivery volumes.  Cash interest expense and cash reserved for payment of income tax withholding upon vesting of Antero Midstream equity-based compensation awards were \\$4 million and \\$1 million, respectively. Maintenance capital expenditures during the quarter totaled \\$6 million and distributable cash flow was \\$78 million, resulting in a DCF coverage ratio of 1.7x.

Balance Sheet and Liquidity

As of June 30, 2016, Antero Midstream had \\$9 million of cash on its balance sheet and \\$760 million drawn on its \\$1.5 billion bank credit facility, resulting in \\$749 million in available liquidity. 

Capital Spending

Capital expenditures, excluding acquisitions, were \\$90 million in the second quarter of 2016 as compared to \\$86 million in the second quarter of 2015.  Capital invested in gathering and compression assets was \\$48 million and capital invested in water handling and treatment assets was \\$42 million, including \\$33 million invested in the Antero Clearwater Facility.  Additionally, Antero Midstream's capital investment for acquiring a 15% interest in the Stonewall Gathering Pipeline was \\$45 million during the quarter. 

Conference Call

Antero Midstream will hold a call on Wednesday, August 3, 2016 at 10:00 am MT to discuss the results.  A brief Q&A session for security analysts will immediately follow the discussion of the results.  To participate in the call, dial in at 888-347-8204 (U.S.), 855-669-9657 (Canada), or 412-902-4229 (International) and reference "Antero Midstream".  A telephone replay of the call will be available until Friday, August 12, 2016 at 10:00 am MT at 877-870-5176 (U.S.) or 858-384-5517 (International) using the passcode 10086426.

To access the live webcast and view the related earnings conference call presentation, visit Antero Midstream's website at www.anteromidstream.com.  The webcast will be archived for replay on the Partnership's website until Friday, August 12, 2016 at 10:00 am MT.

Presentation

An updated presentation will be posted to the Partnership's website before the August 3, 2016 conference call. The presentation can be found at www.anteromidstream.com on the homepage.  Information on the Partnership's website does not constitute a portion of this press release.

Non-GAAP Financial Measures

Antero Midstream views Adjusted EBITDA as an important indicator of the Partnership's performance.  Antero Midstream defines Adjusted EBITDA as net income before equity-based compensation expense, interest expense, depreciation expense, accretion of contingent acquisition consideration, excluding pre-acquisition income and expenses attributable to the parent and equity in earnings of unconsolidated affiliate.

Antero Midstream uses Adjusted EBITDA to assess:

• the financial performance of the Partnership's assets, without regard to financing methods in the case of Adjusted EBITDA, capital structure or historical cost basis;
• its operating performance and return on capital as compared to other publicly traded partnerships in the midstream energy sector, without regard to financing or capital structure; and
• the viability of acquisitions and other capital expenditure projects.

The Partnership defines Distributable Cash Flow as Adjusted EBITDA less cash interest paid, income tax withholding payments and cash reserved for payments upon vesting of equity-based compensation awards and ongoing maintenance capital expenditures paid, excluding pre-acquisition amounts attributable to the parent plus cash distribution to be received from unconsolidated affiliate.  Antero Midstream uses Distributable Cash Flow as a performance metric to compare the cash generating performance of the Partnership from period to period and to compare the cash generating performance for specific periods to the cash distributions (if any) that are expected to be paid to unitholders.  Distributable Cash Flow does not reflect changes in working capital balances.

Adjusted EBITDA and Distributable Cash Flow are non-GAAP financial measures. The GAAP measure most directly comparable to Adjusted EBITDA and Distributable Cash Flow is net income. The non-GAAP financial measures of Adjusted EBITDA and Distributable Cash Flow should not be considered as alternatives to the GAAP measure of net income. Adjusted EBITDA and Distributable Cash Flow are not presentations made in accordance with GAAP and have important limitations as an analytical tool because they include some, but not all, items that affect net income and Adjusted EBITDA. You should not consider Adjusted EBITDA and Distributable Cash Flow in isolation or as a substitute for analyses of results as reported under GAAP. Antero Midstream's definition of Adjusted EBITDA and Distributable Cash Flow may not be comparable to similarly titled measures of other partnerships.

Antero Midstream Partners LP is a limited partnership that owns, operates and develops midstream gathering and compression assets located in West Virginia, Ohio and Pennsylvania, as well as integrated water assets that primarily service Antero Resources' properties located in West Virginia and Ohio.

This release includes "forward-looking statements" within the meaning of federal securities laws.  Such forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Partnership's control.  All statements, other than historical facts included in this release, are forward-looking statements.  All forward-looking statements speak only as of the date of this release.  Although the Partnership believes that the plans, intentions and expectations reflected in or suggested by the forward-looking statements are reasonable, there is no assurance that these plans, intentions or expectations will be achieved.  Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements.  Nothing in this release is intended to constitute guidance with respect to Antero Resources.

Antero Midstream cautions you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond the Partnership's control, incident to the gathering and compression and water handling and treatment business. These risks include, but are not limited to, Antero Resources' expected future growth, Antero Resources' ability to meet its drilling and development plan, commodity price volatility, ability to execute the Partnership's business strategy, competition and government regulations, actions taken by third-party producers, operators, processors and transporters, inflation, environmental risks, drilling and completion and other operating risks, regulatory changes, the uncertainty inherent in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, and the other risks described under "Risk Factors" in Antero Midstream's Annual Report on Form 10-K for the quarter ended December 31, 2015.

For more information, contact

Michael Kennedy – CFO of Antero Midstream at (303) 357-6782 or mkennedy@anteroresources.com.