Antero Midstream Corporation

Greetings and welcome to the Antero Midstream Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Michael Kennedy, Chief Financial Officer. Thank you, sir. You may begin.

Thank you for joining us for Ontario Midstream's second quarter 2020 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.ontaromidstream.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 for the most comparable GAAP financial measures. Joining me on the call today are Paul Rady, Chairman and CEO of Entero Resources and Entero Midstream, Glenn Warren, President and CFO of Entero Resources and President of Entero Midstream, and Dave Conalongo, Vice President of Liquids Marketing and Transportation. With that, I'll turn the call over to Paul.

Thanks, Mike. I'd like to start by discussing AR's asset sale program, which continues to improve AR's liquidity position and will allow it to repurchase debt at attractive discounts to par. Slide 3 titled AR Asset Sale Program Update, details the progress that AR has made to date on its $750 to $1 billion asset sale program. During the fourth quarter of 2019, AR commenced its asset sale program with a sale of AM shares to AM for $100 million. Despite the ongoing COVID-19 pandemic, AR was able to execute a $402 million overriding royalty interest sale in the second quarter of 2020, including $300 million of upfront proceeds and $102 million of contingent payments. In July, AR monetized excess 2021 natural gas hedges for proceeds of $29 million. This brings AR's total completed asset sales to $531 million. These asset sales have allowed AR to reduce total debt by approximately $365 million since commencing the asset sale program in the fourth quarter of 2019. In addition, AR is in active discussions for further asset sales And we remain confident that we can achieve the $750 million to $1 billion asset sale target in 2020. We believe this positions AR to repay its 2021 and 2022 maturities and significantly de-risks the Antero Complex. Before moving on to AR's liquidity position, I want to briefly touch on AR's hedge position pro forma for the recent monetization on slide number four, titled Enhanced Natural Gas Hedge Position. In the second half of 2020, AR is 94% hedged on natural gas production at a price of $2.87 per MMBTU. Due to the overriding royalty interest sale, AR was previously over hedged on its 2021 natural gas production. As a result, AR monetized 100 BBTUs per day of excess quote unquote hedges above its 2021 natural gas production for a gain of $29 million. These proceeds were used to continue repurchasing debt at attractive discounts to PAR. Pro forma for the monetization, AR is approximately 100% hedged on its 2021 natural gas production at $2.77 per MMBTU. AR was also active in the second quarter and added $620 BBTUs a day to its 2022 natural gas hedge position, which now stands at 1,300 BBTUs a day. This is consistent hedging and allows AR to maintain a stable development program that benefits AM as well. Slide number five titled Substantial liquidity enhancements at AR shows the liquidity impact of the asset sale program and significant drilling and completion capital savings achieved to date. First, as a reminder, AR's borrowing base under its credit facility was confirmed at $2.85 billion in April, well in excess of lender commitments of $2.64 billion in As of June 30, 2020, AR had approximately $1 billion of liquidity, which is depicted on the dark green bar on the left-hand side of the page. Based on today's strip prices, AR's development plan is expected to generate $200 million of free cash flow in the second half of 2020, further improving its liquidity position. This ability to generate free cash flow is driven by the significant capital savings and improvement in NGL prices in the second half of 2020, which Dave Cantalongo will discuss in his comments. Assuming execution of the remaining sales at the high end of AR's targeted asset sale program of $469 million, AR would have $1.7 billion of liquidity at year-end 2020 prior to any further bond repurchases. This is more than sufficient to repay both the 2021 and 2022 maturities, which have a total par value of $1.26 billion and market value of $1.04 billion. With that, let me turn it over to Dave Canalongo, our Vice President of liquids marketing and transportation.