Antero Midstream Corporation

Greetings, and welcome to Intero Midstream's Q1 2022 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Justin Agnew, Director of Finance.

Good morning, and thank you for joining us for AnteroMidstream's first 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. 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, 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. In my comments today, I will discuss AM's unique position in the LNG value chain, also our de-risk business model, and our efforts to minimize the impacts of inflation and tight supply chains. Brendan will then discuss the highlights from our first quarter earnings and our long-term outlook. I'll start my comments on slide number three, titled The Critical First Link to LNG Supply. This slide illustrates AM's unique position in the increasingly important LNG value chain. Given the recent geopolitical events, it is clear that there will be a significant call on safe and reliable natural gas and LNG from the US. AM's custom-built, irreplaceable, and integrated gathering and processing infrastructure is the critical first step in transporting natural gas to LNG facilities. As depicted on the left-hand side of the page, AM's infrastructure directly connects AR's production to one of the largest firm transportation hubs in Appalachia, at the Sherwood and Smithburg processing complex. As a reminder, Sherwood and Smithburg is the largest processing complex in North America with 2.8 BCF a day of processing capacity. AR currently has 2.3 BCF of firm transportation that delivers gas to various LNG facilities or approximately 75% of its gross gas residue production. This 2.3 BCF a day includes 2.0 to the Gulf Coast LNG facilities and 330 million a day to Cove Point. With this connectivity, AM is uniquely positioned to benefit from the increasing global LNG demand despite not operating along the Gulf Coast. In fact, operating in Appalachia has significant competitive advantages. First, Appalachia is the lowest cost natural gas basin in the U.S. Finding and development, or F&D costs, for AR are approximately 30 cents per MCFE. This compares favorably to other natural gas plays such as the Haynesville, where F&D costs are often two to three times higher. This translates to fewer rigs, completion crews, sand, and water needed to grow production in Appalachia. To put it into perspective, AR is able to grow gross production volumes dedicated to AM utilizing only two to three rigs and two completion crews. This is particularly important during times like today where there's tight labor and supply markets in many parts of the U.S. We continue to believe that Antero's business model with lower capital intensity, repeatable results, and a prolific resource base is well positioned for the years ahead and decades to come. Now let's move to slide number four, titled Inflation and Supply Chain Risks Minimized. This slide highlights the benefit of AM's business model and the measures we have taken to alleviate the broader impacts of inflation and tight supply chains across the industry. First, as depicted on the left-hand side of the page, our EBITDA margins are over 85%. With a low cost structure, even a 10% increase in cost due to inflation only impacts our margins by less than 1.5%. In addition, Our gathering and watering water agreements that run through the mid-2030s have annual CPI adjustments. Given the higher EBITDA margins, these CPI adjustments tend to more than offset any increasing costs we see in our operations. Lastly, since we have maintained consistent operations through the previous commodity cycle, we are benefiting from consistent labor supply. Unlike other parts of the U.S., the labor market in Appalachia is well-balanced. This is driven by several large pipeline or infrastructure projects that have recently been completed, thereby freeing up additional labor supply. Moving to the right-hand side of the page, we've also managed our capital budget to limit the impacts of inflation. Prior to 2022, we pre-bought over 85% of our raw materials. This includes all of the steel for our 20-mile high-pressure trunk line from Wetzel County that makes up a substantial portion of our 2022 capital budget. We've also received firm bids for over 85% of our capital budget. The remaining 15% that is still out to bid has already been risked in our capital budget. This results in minimal overall risk to our 2022 capital budget. Looking ahead, even in a scenario of persistent inflationary and supply chain pressures, our capital budgets will continue to decline for the next several years. As a result, the overall exposure to these pressures will continue to decline. AM's business model as the critical first link to supplying LNG is well positioned in today's environment. With AR's 20-plus years of drilling inventory plus global demand for US LNG, the runway for AM's throughput volumes has become clearer for much longer. Entero Midstream's connectivity to growing demand, along with our high visibility into AR's development plan, de-risks our growth outlook for the next several years and beyond. With that, I will turn the call over to Brendan.