Antero Midstream Corporation

Greetings and welcome to the Antero Midstream First 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn this conference over to our host, Brendan Kruger, Vice President of Finance. Thank you. You may begin.

Thank you for joining us for Antero Midstream's first quarter 2021 investor conference call. We'll spend a few minutes going through the financial and operational 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, Glenn Warren, President and CFO of Antero Resources and President of Antero Midstream, and Michael Kennedy, CFO of Antero Midstream. With that, I'll turn the call over to Paul.

Thanks, Brendan. I'd like to start on slide number three, highlighting the step change improvement to AR, that's Antero Resources balance sheet. During the first quarter of 2021, AR generated over $400 million of free cash flow. As depicted on the top left portion of the slide, AR used this free cash flow to reduce total debt from $3.0 billion to $2.6 billion during the first quarter. The top right quadrant of the slide illustrates the LTM EBITDA improvement from $1.0 billion to $1.3 billion. This improvement was a direct result of AR's liquids focus and scale, which allowed it to take advantage of the improvement in C3 plus NGO and oil prices. This total debt reduction, combined with an improvement in AR's LTM EBITDA debts, decreased AR's leverage by over a turn to 2.0 times. Lastly, during the spring redetermination period, AR's borrowing base was reaffirmed at $2.85 billion, supported by the deep drilling inventory of liquids-rich locations in AR's portfolio. This reaffirmation, along with the $700 million senior note issuance and debt reduction during the quarter, resulted in AR's liquidity doubling to $1.8 billion. Looking ahead, we expect AR to continue generating free cash flow and reducing total debt, which is expected to result in a completely undrawn credit facility balance over the next few quarters. This significant improvement in the financial strength of AM's primary customer, AR, continues to strengthen the outlook at AM. To put AR's first quarter financial results into perspective, let's turn to slide number four. Since we are early in the reporting cycle, most of these figures are based on consensus estimates. The top of the slide highlights AR's balance sheet positioning compared to its E&P peers in Appalachia. On the top left, you can see AR's $2.6 billion of total debt ranks third amongst its peers. However, the chart on the top right-hand side of the page shows that AR's net debt to EBITDAX of 2.0 times ranks second. The bottom of the page focuses on financial performance and scale. AR's $519 million of EBITDAX in the first quarter ranks second in Appalachia and is substantially above the remaining peers. Looking at free cash flow, AR's $419 million of free cash flow during the first quarter ranks is dramatically above the Appalachian peers and highlights the significant scale and liquids-rich exposure that AR has in a rising commodity price environment. In summary, AR is one of the strongest customers in Appalachia today, and a strong AR results in a strong AM. Now let's turn to slide number five to discuss the recent NGL hedging done at AR. that protects their free cash flow profile and results in further debt and leverage reduction throughout 2021. While the fundamentals remain strong for C3 Plus NGLs, we view this hedging program as an insurance policy to protect AR against any seasonal weakness or risk associated with the change in the COVID-19 pandemic recovery. Before getting into NGL hedging on the slide, I want to remind everyone that AR is also over 90% hedged in natural gas in Cal 21 at $2.76 per mm BTU. During the first quarter, AR hedged 36,000 barrels a day and 35,000 barrels a day of C3 plus NGLs for the second quarter one, respectively. This represents approximately one-third of AR's C3 plus NGL production during the summer months, which can be seasonally the weakest pricing months for NGLs. Importantly, we are hedging at incredibly attractive prices during the summer, around $36 a barrel, which is approximately double the price that AR realized at this same time last year. Hedging has always been a core principle at AR, and we plan to continue prudently layering on additional hedges across all commodity products to support AR's consistent development program. Before turning the call over to Mike, I want to congratulate Glenn on his upcoming retirement and thank him for all of his contributions to the Antero entities over the years. Glenn and I have been partners for over 20 years, dating back to coal bed methane exploration and production in the Powder River Basin. Since then, we became early shale pioneers, adopting horizontal drilling and multi-stage completions in the Barnett Shale, and have built Antero into one of the largest and most integrated NGL and natural gas producers in the U.S. Over this last year, Glenn was... instrumental in successfully executing the series of strategic transactions and capital market activities which allowed us to navigate the challenging environment and put us in the position that we are today. As we look ahead, AR and AM are in the strongest financial positions that we've been in since inception, both generating significant free cash flow with strong balance sheets and leverage profiles. While one will be missed, I'm very excited about internally backfilling his positions with Mike Kennedy and Brendan Kruger, which highlights the deep bench we have here at Antero. With that, I'll turn it over to Mike.