Antero Midstream Corporation

Welcome to the Ontario Midstream's first quarter 2025 earnings call. This time all participants are in listen only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note that today's conference is being recorded. At this time, I'll now turn the conference over to Justin Agnew, Vice President of Finance and Investor Relations. Justin, you may begin.

Good morning and thank you for joining us for Ontario Midstream's first quarter investor conference call. We'll spend a few minutes going through the financial and operating highlights and then I'll open it up for Q&A. I would also like to direct you to the home page of our website at .anteromidstream.com where we have provided a separate earnings call presentation that will be reviewed during today's call. 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 Reidy, Chairman, CEO and President of Ontario Resources and Ontario Midstream, Brendan Krueger, CFO of Ontario Midstream and Michael Kennedy, CFO of Ontario Resources and Director of Ontario Midstream. With that, I'll turn the call over to Paul.

Thanks, Justin. Good morning, everyone. In my comments, I will discuss our 2025 capital projects and outlook for natural gas demand. Brendan will then walk through our first quarter results, capital efficiency and return of capital to shareholders. But let me begin with slide number three titled, 2025 capital budget on track. The right-hand side of the slide shows our new Tories Peak compressor station. We placed this station online in March ahead of our initial expectation of a second quarter in service date. Importantly, this station was our third compressor station, which was constructed with relocated underutilized units. The reuse savings have totaled approximately $30 million at Tories Peak and over $50 million across all three stations that we've done this with. Looking ahead, we expect over $60 million of additional reuse savings over the next five years. As you can see on the top left portion of the page, we do not have any large diameter, high pressure gathering pipelines in the 2025 capital budget. Additionally, we have already secured materials, pricing and lead times for all our steel and high density polyethylene pipelines through 2026. As a result, we see immaterial impacts on our 2025 and 26 capital budget from tariffs and other macroeconomic headlines.

Now let's

move on to slide number four titled, growth in Appalachia gas demand. The Appalachian region has quickly become a focal point for natural gas-fired power generation, data centers and behind the meter projects. Over a decade ago, we recognized the significant low cost resource base in Appalachia. Fast forward to today and these announcements further validate our positioning. These projects will require a significant amount of gas supply for decades to come. In addition, statewide regulations have been leading to faster approval times and attractive incentives to build in the region. AM is well positioned with an investment grade upstream counterparty, 20 years of dedicated inventory and one of the largest natural gas and water systems in the region that can be supportive of future projects. While these projects generally have a longer lead time in nature, they highlight the long-term opportunity set for natural gas-focused midstream companies such as AM. I'll finish my comments on slide number five titled, natural gas demand estimates continue to increase. This slide illustrates the upward momentum in natural gas demand estimates to power data centers. In just the last six months, the expectations for the power required for data centers by 2030 has doubled as shown on the chart on the left-hand side of the page. The right-hand side illustrates the percentage of data centers expected to be powered by natural gas, which has increased from 50% to 70%. This compounding effect supports significant growth in natural gas demand over the next several years. With that, I'll turn the call over to Brendan Krueger, CFO for Amtero Midstream.

Thanks Paul, I will begin my comments on slide number six titled first quarter highlights. During the first quarter, we generated 274 million of EVDA, which was a 3% increase year over year. This was driven primarily by an increase in gathering and processing volumes, the latter of which set a company record at 1.65 BCF a day. Looking forward to the remainder of 2025, we expect further increases in gathering volumes to drive low to mid single digit year over year growth in gathering volumes in 2025 versus 2024. During the first quarter, free cashflow after dividends was 79 million, a 7% increase year over year. This was the 11th consecutive quarter generating free cashflow after dividends and the second straight quarter above that $75 million mark. We utilize this free cashflow to reduce absolute debt and repurchase over 29 million of shares during the quarter. Importantly, our leverage declined towards 2.9 times as of March 31st. Next, let's move on to slide seven, titled low debt and capital efficient business model. This slide compares AM's leverage and capital efficiency to other companies in the midstream industry. In addition to lowering our overall risk profile, our debt reduction efforts have reduced our leverage below three times, well below the C corp peer average. Looking at capital expenditures as a percent of EVDA, which highlights overall capital efficiency, AM is best in class with a 17% reinvestment rate. This is a result of our just in time capital investment philosophy and visibility into our primary customer's development plan. With low debt and leverage and an attractive reinvestment rate, AM has the capacity to return a significant amount of capital to shareholders. As highlighted on the bottom chart, based on consensus estimates, AM has the ability to allocate approximately 65% of its EVDA for dividends, additional debt reduction and share repurchases. This is nearly double the C corp average in the midstream space. I'll finish my comments on slide eight, titled well positioned to enhance shareholder returns, to elaborate on those return of capital opportunities. The last several years have been focused on debt reduction in accretive full-time acquisitions. Looking ahead, our low debt and capital efficiency have positioned us well to pay an attractive dividend, repurchase shares and be opportunistic on M&A opportunities should they arise. We believe this flexible approach directs capital to the highest rate of return opportunities that will accrue directly to our shareholders. As capital allocation flexibility is beneficial during times where we see opportunities in the equity, relative to our current and future cashflow profile, which have been largely unaffected by the recent macro volatility. In fact, we believe the medium to longer term outlook is only getting brighter. With that operator, we are ready to take questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, please press star one from your telephone keypad and a confirmation tone indicate your line is in the question queue. You may press star two if you'd like to withdraw your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, we'll poll for questions. Thank you. Thank you. Our first question is from the line of Jeremy Tone with JP Morgan. Please receive your question.

Hi, good morning. Morning. Just wanted to touch on a bit more, I guess, for the potential for in-basin demand growth, which could help with AR's outlook as far as looking for more growth there. How do you see this opportunity shaping up over time given the rich resource and the favorable attributes of the region?

Yeah, I think there's quite a few projects that have already been announced, and I think we see quite a few discussions continuing to take place around local power demand, particularly the power data centers, but other industrial uses as well in the region. You're seeing it in Ohio and Pennsylvania, and I think there's been a lot of momentum lately in West Virginia as well, in terms of getting some bills passed in West Virginia. So a lot of momentum. Where that ultimately plays out, I think it's still a bit early, but we're well positioned given the significant infrastructure we have in place, both on the gathering and water side with the Ontario Midstream, and AR is of course well positioned to participate in that as well. So we like where we're at, a lot of conversations happening, but still early in some of those conversations.

Got it, thank you for that. And then I know on the AR call, you talked a bit about the LPG market, but just wondering if you could talk a bit here, I guess, the outlook for propane in I guess AR strategy to mitigate that risk and how that impacts AF.

Yeah, this is Dave Cano Longo. Just to touch on the propane strategy, I think we will reiterate our focus on the energy, our confidence in the long-term outlook for that product. I mean, there's really no true substitute for it in the RezCom markets. Folks can go back to solid fuels, but that's obviously a huge reduction in the quality of living standards that they've moved to. So you'll continue to see that market grow. There's really nothing else that's gonna reach those markets and the billions of people that are prime candidates for switching to LPG. So the RezCom market growth is very steady and sticky. And on the petrochemical side, we've talked a lot about PDHs in the past. And there's a question out there around whether or not with the tariff landscape of China, reduce propane imports, but and NAPA cracking will increase. And I just wanna kind of make the point that, cracking NAPA, the steam cracker, is not a replacement for propane and a PDH. A PDH is gonna produce around 85% of propylene when you put it into the unit. And when you crack NAPA, you're gonna get about 15% of propylene out of it. So they're really not substitute type of products for what people are looking for. And I think the reason why I've seen the global market go to PDH is that propylene is a product they need and want for the types of ultimate products that are being manufactured around the world. And so cracking NAPA is not really gonna accomplish that for you in the long run. And we think this will continue to see growing petrochemical demand for propane because it's such a unique product and what it can deliver to those petrochemical companies and the ultimate consumers.

Got it, that makes sense. And this might be a bit premature, but on the other side of the cycle, just wondering what's the outlook for the JV here continues to run above nameplate. And if there, as the propane market grows over time, could there be more liquid trace production in the basin and could that lead to, would you wanna participate in any expansions there in the JV on the frac side?

Yeah, I mean, I think today where we're at, I think we're comfortable, we're running about 4% over nameplate. I think historically you've seen those run as high as 10% over nameplate. So there's still some room in those facilities. And I think just depending on where prices move and long-term outlook for gas and liquids, we'll reevaluate down the road. But I think as we sit here today, we're gonna make comfortable with the position we're in in a maintenance capital mode on the AR side.

Got it, I'll leave it there, thank you.

Thanks. Thanks, Jeremy.

The next questions are from the line of Naomi Marffetta with UBS, please just use your questions.

Hi, thanks for taking my questions. Just to follow up on your commentary on data centers, you all gave a good rundown on your prepared remarks, but just curious if you could provide any additional details on how conversations are heading about commercialization and how AM can benefit from the trend.

Yeah, I don't think today as we sit here, anything more to say on that. We're continuing to have this conversations, as I mentioned, you know, AM with the infrastructure it has could certainly participate through additional infrastructure build out to the necessary demand areas. But, you know, again, too early to give any more specifics on that as we sit here today.

Got it. And then my second question is related to capital allocation. You all have done buyback since the last two quarters and the leverage is below three times target. How should we think about your strategy on M&A or bolt-ons now that you're on most of the gathering and compression in West Virginia?

Yeah, so on the overall allocation there, we are below three times. I think we continue to see that portfolio approach, both paying down debt and buying back shares, you know, accrue to the equity. At what level does that stop accruing on the debt side? I don't think we've reached that yet. So, you know, it'll likely be a continued approach going forward. And then on the M&A side, always looking at opportunities. You know, over the past few years, we've added some very strategic bolt-on acquisitions that support, you know, AR. And so we'll continue to look at opportunities like that. And, you know, we're well positioned, given our balance sheet profile, to capitalize on some of those opportunities, should they present. But always looking out there and well positioned.

Great. I'll leave it there. Thank you.

Thanks.

Thank you.

The next questions are from the line of John McKay with Goldman Sachs. Please receive your question. Hey,

team. I appreciate the comments on the LPG side of things. I guess I'd just be curious to ask it in maybe a more direct way. I mean, from an AM perspective, we obviously care about the volume side. Like, how much softer would pricing need to get to see a kind of production response from AR that would hit AM's volumes?

Yeah, you really can't get there, John. This is Mike Kennedy. We actually sensitized it to COVID prices, and it still wasn't there. If you have natural gas prices where they're at, we still have substantial free cash flows. So and even if we don't, we wouldn't have, we don't have any debt really. So we would continue to run our two rig, one plus completion crew program, really absent any sort of commodity price dislocation. We'd continue to run it regardless.

That's clear. That's helpful. Thank you. You guys have done a lot on, I guess you can kind of say the self-help side of things, the compressor stations, etc. Understand there aren't a ton more assets kind of inside the fence to buy, but is there anything else you can do on kind of optimizing the cost side? We've seen some of your peers kind of more in the Hermian talk about maybe some self-powering projects. Anything like that on the radar for you guys?

Yeah, I mean, I think we've talked about some of these in the past just around AR and being the largest consumer of power in the state. Certainly there's opportunities to potentially look at behind the meter on those things, but those are, again, in probably the early parts of conversation, whether they move forward still early at this point. So but there are opportunities, but they're bolt on kind of in and around where we look today. That's all I'd say at this point.

That's interesting. Thanks for the time, guys. Appreciate it. John.

The next question is from the line of Zach from Neverin with TPH. Please receive your questions.

Hey, guys. Thanks for taking my question. Just a quick one on water. You guys serviced 28 wells this quarter. I know you mentioned a lot of those or eight of those were kind of to the back of the quarter. You still expecting to service the 70 to 75 you guys had in your guidance, which would kind of point towards a step down for maybe Q2?

Yeah, we're still looking at that similar number. I think those eight, most of that volume, we tried to highlight it, will fall into that second quarter. So if you look at one Q to two Q, I'd expect a pretty similar level of volume. You had the second completion crew running for a month in the first quarter and you'll have it running for a month in the second quarter. So should expect similar volumes there.

OK, that's helpful. And then on the lateral length, so expecting the 13,200. I know the AR length of completed came in a little bit higher, but is that still a good average to look at?

Yeah, that's a good number to think about.

All right. Appreciate it. Thanks, guys.

Thanks, Zach. Thanks.

As a reminder, if you'd like to ask a question at this time, you may press star one. Thank you. At this time, I'll hand the floor back to Justin Agnew for closing remarks.

Thank you, operator, and thank you, everyone, for joining today's conference call. Please feel free to reach out with any follow-up questions.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.