Antero Midstream Corporation

Greetings and welcome to the Ontario Midstream 4th 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. Senior Vice President, Finance, and Chief Financial Officer. Thank you, sir. You may begin.

Thank you for joining us for Intero Midstream's fourth 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'd also like to direct you to the homepage of our website at www.interomidstream.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, Intero management will make forward-looking statements. Such statements are based on our current judgments regarding factors that will impact the future performance of Intero resources and Intero Midstream and are subject to a number of risks and uncertainties, many of which are beyond Intero's control. Actual outcomes and results can 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 reconciliation to the most comparable GAAP financial measures. Joining me on the call today are Paul Rady, Chairman and CEO of Intero Resources and Intero Midstream. and Glenn Warren, President and CFO of Intero Resources and President of Intero Midstream. With that, I'll turn the call over to Paul.

Thanks, Mike. I'd like to start by discussing the significant steps AR has taken to improve the balance sheet and senior note term structure on slide number three. Since embarking on the asset sale program just over a year ago, AR has successfully executed on $751 million of asset sales, which allowed it to access the senior unsecured market several times in 2020 and 2021, raising $1.5 billion in proceeds. Antero has also raised $1.1 billion of committed capital through the creative financings, which included a volumetric production payment, an overriding royalty transaction, and now a drilling partnership. This level of counterparty support is a strong endorsement of Antero's assets and operations. These proactive steps allowed AR to eliminate approximately $2.3 billion of near-term maturities. As depicted on the slide, AR has completely eliminated its 2021 and 2022 maturities through a combination of open market purchases and early redemptions. Looking forward, AR expects to generate over $1.5 billion of cumulative free cash flow through 2025 to repay long-term maturities in addition to the ability to access the senior unsecured markets to refinance. In summary, We've made tremendous strides to improve the financial strength of AR and to right-size the balance sheet and maturity schedule. Now let's turn to slide number four to discuss AR's formation of a drilling partnership. Under the agreement, QL Capital, an affiliate of Quantum Energy Partners, will fund 20% of drilling and completion capital in 2021. and between 15% and 20% of total drilling and completion capital in 2022 through 2024 in exchange for a proportionate working interest percentage in each well spud. QWell will participate in every well that Antero drills in the Appalachian Basin over the next four years, starting with wells that spud as of this last January 1st this year. As you can see on the lower right-hand side of the slide, we will drill and complete over 300 wells over the next four years together. The result is an incremental 60 wells being drilled through 2024 as compared to our initial base development plan. On a net basis, AR's net capital spending and production will remain unchanged from our prior maintenance capital program. However, the incremental drilling partnership completions are expected to drive incremental gross production growth, benefiting both AMs, gathering and processing, and water businesses. Slide number five illustrates how Antero is in a unique position to benefit from a drilling partnership. First, AR has over 2,000 premium undeveloped core drilling locations in the Marcellus and Ohio Utica, and a contiguous acreage footprint that delivers efficient development. Second, since over 1,400 of AR's 2,000 plus premium undeveloped core locations are liquids rich, AR is well positioned to take advantage of the strong NGL prices. Based on our recent basin-wide study of the remaining undeveloped locations in Appalachia, we estimate that these 1,400 AR locations represent approximately 38% of the remaining liquids-rich core locations in Appalachia. Third, AR has unutilized firm transportation to premium markets that supports the incremental gross gas production from the drilling partnership. This allows AR and its partner to deliver gas to NYMEX base indices, unlike many Northeast producers that experience frequent basis blowouts and often have to shut in supply. Lastly, AR and its partner are able to quickly develop the resource given the integrated nature and flexibility of Antero Midstream. These factors, all of which are unique to AR, drive the substantial increase in AR's free cash flow profile over the next several years, as detailed on slide number six, titled AR Free Cash Flow Enhancement. As depicted by the red box on the left-hand side of the page, the drilling partnership allows AR to fill unutilized premium firm transportation and reduce net marketing expense by approximately $260 million over the next five years or approximately $65 million per year beginning in 2022. Driven by the throughput growth on AM dedicated acreage, we now expect AR to achieve additional low pressure gathering earnouts totaling approximately $75 million through 2023 when the earn-out program expires. It is important to note that the incremental AM freshwater EBITDA from the additional completions more than offsets the additional earn-outs paid by AM, in addition to the benefit AM receives through the increase in gathering, compression, processing, and fractionation throughput. Lastly, we assume that AR will receive a delayed carry on the drilling partnership in the form of one-time payments per tranche that total approximately $50 million by achieving certain IRR thresholds. In total, as depicted by the green bar, the drilling partnership increases AR's free cash flow by approximately $400 million through 2025. Importantly, the drilling partnership also enhances AM's free cash flow profile as detailed on slide 7. As depicted in the blue box, the incremental completions over the next five years serviced by AM's freshwater delivery assets results in approximately $150 million of incremental freshwater EBITDA compared to the AR maintenance capital plan. In the gray bar, you can see we expect a low single-digit annual throughput to drive approximately $225 million of incremental gathering and processing EBITDA net of the $75 million of additional low-pressure earnouts under the gross incentive fee program. After netting out the $175 million of additional capital, most of which is an acceleration of capital, we are forecasting $200 million of incremental cumulative free cash flow after dividends through 2025 compared to the AR maintenance capital base plan. With that, I will turn it over to Mike.