# Antero Midstream Corp (AM) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Antero Midstream Corp's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1623925/000155837024001161/am-20231231x10k.htm
Accession: 0001558370-24-001161
Filing date: 2024-02-14
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/AM/
All MD&A years: /company/AM/mda/
Previous year: /company/AM/mda/fy2022/ (FY 2022)
Next year: /company/AM/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. The information provided below supplements, but does not form part of, our consolidated financial statements. This discussion contains forward-looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on items that could impact our future operating performance or financial condition, see “Item 1A. Risk Factors.” and the section entitled “Cautionary Statement Regarding Forward-Looking Statements.” We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

​

Overview

We are a growth-oriented midstream energy company formed to own, operate and develop midstream energy assets to primarily service Antero Resources’ production and completion activity. We believe that our strategically located assets and our relationship with Antero Resources have allowed us to become a leading midstream energy company serving the Appalachian Basin and present opportunities to expand our midstream services to other operators in the Appalachian Basin. Our assets consist of gathering pipelines, compressor stations and interests in processing and fractionation plants that collect and process production from Antero Resources’ wells in the Appalachian Basin in West Virginia and Ohio. Our assets also include two independent water handling systems that deliver water from the Ohio River and several regional waterways. These water handling systems consist of permanent buried pipelines, surface pipelines and water storage facilities, as well as pumping stations, blending facilities and impoundments. Portions of these water handling systems are also utilized to transport flowback and produced water. These services are provided by us directly or through third-parties with which we contract.

Financing Highlights

Issuance of Senior Notes

On January 16, 2024, we issued $600 million of 6.625% senior notes due February 1, 2032 (the “2032 Notes”) at par. The 2032 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2032 Notes rank pari passu to our other outstanding senior notes and are guaranteed on a full and unconditional and joint and several senior unsecured basis by our wholly owned subsidiaries and certain of our future restricted subsidiaries. The net proceeds from this offering were used to repay outstanding borrowings on the Credit Facility. See Note 8—Long-Term Debt to the consolidated financial statements for more information.

Share Repurchase Program

On February 13, 2024, our Board of Directors authorized a share repurchase program that allows us to repurchase up to $500 million of shares of our outstanding common stock. The shares may be repurchased from time to time in open market transactions, through privately negotiated transactions or by other means in accordance with federal securities laws. The timing, as well as the number and value of shares repurchased under the program, will be determined by us at our discretion and will depend on a variety of factors, including the market price of our common stock, general market and economic conditions and applicable legal requirements. The exact number of shares to be repurchased by us is not guaranteed and the program may be suspended, modified or discontinued at any time without prior notice.

Market Conditions and Business Trends

Commodity Markets

Prices for natural gas, NGLs and oil decreased significantly during the year ended December 31, 2023 as compared to the year ended December 31, 2022. While substantially all of our revenues are based on fixed-fee contracts that are not directly impacted by changes in commodity prices, commodity price changes do impact the revenues and cash flows of Antero Resources, and Antero Resources’ drilling and development plan does have a direct impact on our gathering, compression and water handling services, revenues and cash flows. In the current economic environment, we expect that commodity prices for some or all of the commodities produced by Antero Resources could remain volatile. However, due to Antero Resources’ improved liquidity and leverage position as compared to historical levels, we do not expect to experience significant variability in our throughput volumes resulting from volatile commodity prices.

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Growth Incentive Fee Program with Antero Resources

Our 2019 gathering and compression agreement with Antero Resources included a growth incentive fee program whereby we agreed to provide quarterly fee rebates to Antero Resources through December 31, 2023, contingent upon Antero Resources achieving volumetric growth targets on low pressure gathering. Antero Resources’ throughput gathered under the gathering and compression agreements acquired with the Crestwood assets was not considered in the low pressure gathering volume targets. During the year ended December 31, 2022, Antero Resources earned $48 million in fee rebates by achieving the first level volumetric target during each quarter in 2022. During the year ended December 31, 2023, Antero Resources earned $52 million in fee rebates by achieving the first level volumetric target during the first, second and third quarters of 2023 and the second level volumetric target during the fourth quarter of 2023. The growth incentive fee rebate program expired on December 31, 2023.

Economic Indicators

The economy experienced elevated inflation levels as a result of global supply and demand imbalances, where global demand outpaced supplies beginning in 2021 and continuing through 2023. For example, CPI for all urban consumers increased 8% from the year ended December 31, 2021 to the year ended December 31, 2022 and an additional 4% from the year ended December 31, 2022 to the year ended December 31, 2023 as compared to the Federal Reserve’s stated goal of 2%. In order to manage the inflation risk present in the United States’ economy, the Federal Reserve utilized monetary policy in the form of interest rate increases beginning in March 2022 in an effort to bring the inflation rate in line with its stated goal of 2% on a long-term basis. Between March 2022 and December 2023, the Federal Reserve increased the federal funds interest rate by 5.25%. While inflationary pressures in the United States’ economy have begun to subside, we continue to be impacted by the increased federal funds interest rate. See “—Results of Operations” for additional information.

The economy also continues to be impacted by global events. These events have often caused global supply chain disruptions with additional pressure due to trade sanctions on Russia and other global trade restrictions, among others. However, neither our nor Antero Resources’ supply chain has experienced any significant interruptions due to such events.

Inflationary pressures and supply chain disruptions could result in further increases to our operating and capital costs that are not fixed. However, our gathering and compression and water agreements provide for annual CPI-based adjustments that mitigate a portion of such inflationary pressures.

These economic variables are beyond our control and may adversely impact our business, financial condition, results of operations and future cash flows.

Sources of Our Revenues

The following items are the primary components of our revenues:

[[GREPCENT_TABLE]]
[["","\u25cf","Gathering and Processing. Our low pressure gathering, compression and high pressure gathering services support production operations for Antero Resources. Our gathering and processing revenues are driven by the volumes of natural gas we gather and compress. We receive a low pressure gathering fee per Mcf, a compression fee per Mcf and a high pressure gathering fee per Mcf, as applicable, substantially all of which are subject to annual CPI-based adjustments. Additionally, our gathering and compression agreements provide for certain minimum volume commitments for gathering and compression services that run to 2032. Pursuant to our long-term contracts with Antero Resources, we have secured long-term dedications covering substantially all of Antero Resources\u2019 current and future acreage for gathering and compression services. Our gathering and compression operations are substantially dependent upon natural gas production from Antero Resources\u2019 upstream activity in its areas of operation. In addition, there is a natural decline in production from existing wells that are connected to our gathering systems. Although we expect that Antero Resources will continue to devote substantial resources to the development of oil and gas reserves, we have no control over this activity and Antero Resources has the ability to reduce or curtail such development at its discretion. See Note 5\u2014Revenue to the consolidated financial statements for more information on our gathering and compression agreements."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Water Handling. Our fresh water delivery systems and other fluid handling services support well completion and production operations for Antero Resources. These services are provided by us directly or through third-parties with which we contract. Our water handling revenues are driven by quantities of fresh water delivered to our customers to support their well completion operations and produced water transported, blended and/or disposed. We receive a fixed fee for all fresh water deliveries by pipeline directly to the well site, subject to annual CPI-based adjustments. Our other fluid handling services include wastewater handling, blending and high-rate transfer services. For other fluid handling"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","","services provided by us, we charge Antero Resources a cost of service fee. For other fluid handling services provided by third parties, we charge Antero Resources a fee based on our third-party out-of-pocket costs plus 3%. We have a long-term water services agreement covering Antero Resources\u2019 approximately 570,000 gross acres in West Virginia and Ohio, with a right of first offer on all future areas of operation. The initial term of the water services agreement runs to 2035. Our water handling operations are substantially dependent upon the number of wells drilled and completed by Antero Resources, as well as Antero Resources\u2019 production. As of December 31, 2023, Antero Resources had disclosed estimated net proved reserves of 18.1 Tcfe, of which 59% was natural gas, 40% were NGLs and 1% was oil. As of December 31, 2023, Antero Resources\u2019 drilling inventory consisted of 1,588 gross identified potential horizontal well locations, all of which were on acreage dedicated to us, providing us with significant opportunity for future capital investments as Antero Resources\u2019 drilling program continues. See Note 5\u2014Revenue to the consolidated financial statements for more information on our water services agreement."]]
[[/GREPCENT_TABLE]]

Principal Components of Our Cost Structure

The following items are the primary components of our operating expenses:

[[GREPCENT_TABLE]]
[["","\u25cf","Direct Operating. We seek to maximize the profitability of our operations in part by minimizing, to the extent appropriate, expenses directly tied to operating and maintaining our assets. We schedule and conduct preventative maintenance over time to avoid significant variability in our direct operating expense and minimize the impact on our cash flow. Gathering and compression operating costs consist primarily of labor, water disposal, pigging, fuel, monitoring, repair and maintenance, utilities and contract services. Gathering and compression operating costs vary with the miles of pipeline and number of compressor stations in our gathering and compression system. Fresh water operating expenses consist primarily of labor, pigging, monitoring, repair and maintenance and contract services. Fresh water operating costs vary with the miles of pipeline, number of pumping stations and to a lesser extent the number of well completions in the Appalachian Basin for which we deliver fresh water and number of impoundments in our water system. Other fluid handling costs, relate to contract services performed by us and third parties. Our other fluid handling costs consist of labor, monitoring and repair and maintenance costs. The other primary drivers of our direct operating expense include maintenance and contract services, regulatory and compliance expense and ad valorem taxes."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","General and Administrative. Our general and administrative expenses include direct charges incurred by us and costs charged by Antero Resources. These costs relate to: (i) various business services, including payroll processing, accounts payable processing and facilities management, (ii) various corporate services, including legal, accounting, treasury, information technology and human resources and (iii) compensation, including certain equity-based compensation. These expenses are charged to the Company based on the nature of the expenses and are apportioned based on a combination of the Company\u2019s proportionate share of gross property and equipment, capital expenditures and labor costs, as applicable. Management believes these allocation methodologies are reasonable. Equity-based compensation includes (i) costs allocated to Antero Midstream by Antero Resources for grants made prior to March 12, 2019 pursuant to the Antero Resources Corporation Long-Term Incentive Plan and (ii) costs related to the Antero Midstream Corporation Long-Term Incentive Plan."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Depreciation. Depreciation consists of our estimate of the decrease in value of the assets capitalized in property and equipment as a result of using the assets throughout the applicable year. Depreciation is computed over the asset\u2019s estimated useful life using the straight-line basis. See Note 6\u2014Property and Equipment to our consolidated financial statements for additional information on our asset classes and estimated lives of our assets."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Impairment. We evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying values of the assets may not be recoverable. If the carrying values of the assets are deemed not recoverable, the carrying values are reduced to their estimated fair value."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Interest. We have typically financed a portion of our cash requirements with borrowings under our revolving credit facility and with senior unsecured notes. Our interest expense also includes amortization of deferred financing costs incurred in connection with our revolving credit facility and senior notes and amortization of senior notes premiums. See Note 8\u2014Long-Term Debt to our consolidated financial statements and \u201c\u2014Capital Resources and Liquidity\u2014Debt Agreements\u201d for additional information on our debt agreements."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","\u25cf","Income tax expense. We are subject to state and federal income taxes but are currently not in a cash tax paying position with respect to state and federal income taxes. The difference between our financial statement income tax expense and our current U.S. federal income tax liability is primarily due to the differences in the tax and financial statement treatment of our investment in Antero Midstream Partners. We have recorded deferred income tax expense to the extent our deferred income tax liabilities exceed our deferred income tax assets. Our deferred income tax assets result primarily from net operating loss carryforwards. As of December 31, 2023, we had U.S. federal NOL carryforwards of $428 million and state NOL carryforwards of $496 million. The Company currently considers all of its deferred income tax assets, except for those related to charitable contributions, realizable. The amount of deferred income tax assets considered realizable, however, could change as we generate taxable income or as estimates of future taxable income are reduced. See Note 7\u2014Income Taxes to our consolidated financial statements for a discussion of our deferred income tax position and income tax expense."]]
[[/GREPCENT_TABLE]]

Results of Operations

We have two reportable segments: (i) gathering and processing and (ii) water handling. The gathering and processing segment includes a network of gathering pipelines and compressor stations that collect and process production from Antero Resources’ wells in the Appalachian Basin, as well as equity in earnings from our investments in the Joint Venture and Stonewall. The Joint Venture and Stonewall provide processing and fractionation services and high pressure gas gathering services, respectively, in the Appalachian Basin. The water handling segment includes (i) two independent systems that deliver water from sources including the Ohio River, local reservoirs and several regional waterways, and (ii) other fluid handling services, which include high rate transfer, wastewater transportation, disposal and blending.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2023

The operating results of our reportable segments were as follows:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31, 2022","\u200b"],["\u200b","\u200b","Gathering and","\u200b","Water","\u200b","\u200b","\u200b","Consolidated","\u200b"],["(in thousands)","","Processing","","Handling","","Unallocated (1)","","Total","\u200b"],["Revenues:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Revenue\u2013Antero Resources","\u200b","$","791,265","\u200b","\u200b","244,770","\u200b","\u200b","\u2014","\u200b","\u200b","1,036,035","\u200b"],["Revenue\u2013third-party","\u200b","\u200b","\u2014","\u200b","\u200b","2,622","\u200b","\u200b","\u2014","\u200b","\u200b","2,622","\u200b"],["Gathering\u2014low pressure fee rebate","\u200b","\u200b","(48,000)","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","(48,000)","\u200b"],["Amortization of customer relationships","\u200b","\u200b","(37,086)","\u200b","\u200b","(33,586)","\u200b","\u200b","\u2014","\u200b","\u200b","(70,672)","\u200b"],["Total revenues","\u200b","\u200b","706,179","\u200b","\u200b","213,806","\u200b","\u200b","\u2014","\u200b","\u200b","919,985","\u200b"],["Operating expenses:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Direct operating","\u200b","\u200b","75,889","\u200b","\u200b","104,365","\u200b","\u200b","\u2014","\u200b","\u200b","180,254","\u200b"],["General and administrative (excluding equity-based compensation)","\u200b","\u200b","24,578","\u200b","\u200b","13,080","\u200b","\u200b","4,813","\u200b","\u200b","42,471","\u200b"],["Equity-based compensation","\u200b","\u200b","14,394","\u200b","\u200b","4,415","\u200b","\u200b","845","\u200b","\u200b","19,654","\u200b"],["Facility idling","\u200b","\u200b","\u2014","\u200b","\u200b","4,166","\u200b","\u200b","\u2014","\u200b","\u200b","4,166","\u200b"],["Depreciation","\u200b","\u200b","81,390","\u200b","\u200b","50,372","\u200b","\u200b","\u2014","\u200b","\u200b","131,762","\u200b"],["Impairment of property and equipment","\u200b","\u200b","1,130","\u200b","\u200b","2,572","\u200b","\u200b","\u2014","\u200b","\u200b","3,702","\u200b"],["Accretion of asset retirement obligations","\u200b","\u200b","\u2014","\u200b","\u200b","222","\u200b","\u200b","\u2014","\u200b","\u200b","222","\u200b"],["Loss on settlement of asset retirement obligations","\u200b","\u200b","\u2014","\u200b","\u200b","539","\u200b","\u200b","\u2014","\u200b","\u200b","539","\u200b"],["Gain on asset sale","\u200b","\u200b","(2,120)","\u200b","\u200b","(131)","\u200b","\u200b","\u2014","\u200b","\u200b","(2,251)","\u200b"],["Total operating expenses","\u200b","\u200b","195,261","\u200b","\u200b","179,600","\u200b","\u200b","5,658","\u200b","\u200b","380,519","\u200b"],["Operating income","\u200b","\u200b","510,918","\u200b","\u200b","34,206","\u200b","\u200b","(5,658)","\u200b","\u200b","539,466","\u200b"],["Other income (expense):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest expense, net","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","(189,948)","\u200b","\u200b","(189,948)","\u200b"],["Equity in earnings of unconsolidated affiliates","\u200b","\u200b","94,218","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","94,218","\u200b"],["Total other income (expense)","\u200b","\u200b","94,218","\u200b","\u200b","\u2014","\u200b","\u200b","(189,948)","\u200b","\u200b","(95,730)","\u200b"],["Income before income taxes","\u200b","\u200b","605,136","\u200b","\u200b","34,206","\u200b","\u200b","(195,606)","\u200b","\u200b","443,736","\u200b"],["Income tax expense","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","(117,494)","\u200b","\u200b","(117,494)","\u200b"],["Net income and comprehensive income","\u200b","$","605,136","\u200b","\u200b","34,206","\u200b","\u200b","(313,100)","\u200b","\u200b","326,242","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31, 2023","\u200b"],["\u200b","\u200b","Gathering and","\u200b","Water","\u200b","\u200b","\u200b","Consolidated","\u200b"],["(in thousands)","","Processing","","Handling","","Unallocated (1)","","Total","\u200b"],["Revenues:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Revenue\u2013Antero Resources","\u200b","$","893,862","\u200b","\u200b","268,667","\u200b","\u200b","\u2014","\u200b","\u200b","1,162,529","\u200b"],["Revenue\u2013third-party","\u200b","\u200b","\u2014","\u200b","\u200b","1,414","\u200b","\u200b","\u2014","\u200b","\u200b","1,414","\u200b"],["Gathering\u2014low pressure fee rebate","\u200b","\u200b","(51,500)","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","(51,500)","\u200b"],["Amortization of customer relationships","\u200b","\u200b","(37,086)","\u200b","\u200b","(33,586)","\u200b","\u200b","\u2014","\u200b","\u200b","(70,672)","\u200b"],["Total revenues","\u200b","\u200b","805,276","\u200b","\u200b","236,495","\u200b","\u200b","\u2014","\u200b","\u200b","1,041,771","\u200b"],["Operating expenses:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Direct operating","\u200b","\u200b","95,507","\u200b","\u200b","117,658","\u200b","\u200b","\u2014","\u200b","\u200b","213,165","\u200b"],["General and administrative (excluding equity-based compensation)","\u200b","\u200b","22,532","\u200b","\u200b","12,497","\u200b","\u200b","4,433","\u200b","\u200b","39,462","\u200b"],["Equity-based compensation","\u200b","\u200b","23,313","\u200b","\u200b","7,362","\u200b","\u200b","931","\u200b","\u200b","31,606","\u200b"],["Facility idling","\u200b","\u200b","\u2014","\u200b","\u200b","2,459","\u200b","\u200b","\u2014","\u200b","\u200b","2,459","\u200b"],["Depreciation","\u200b","\u200b","83,409","\u200b","\u200b","52,650","\u200b","\u200b","\u2014","\u200b","\u200b","136,059","\u200b"],["Impairment of property and equipment","\u200b","\u200b","133","\u200b","\u200b","13","\u200b","\u200b","\u2014","\u200b","\u200b","146","\u200b"],["Accretion of asset retirement obligations","\u200b","\u200b","\u2014","\u200b","\u200b","177","\u200b","\u200b","\u2014","\u200b","\u200b","177","\u200b"],["Loss on settlement of asset retirement obligations","\u200b","\u200b","\u2014","\u200b","\u200b","805","\u200b","\u200b","\u2014","\u200b","\u200b","805","\u200b"],["Loss (gain) on asset sale","\u200b","\u200b","6,039","\u200b","\u200b","(9)","\u200b","\u200b","\u2014","\u200b","\u200b","6,030","\u200b"],["Total operating expenses","\u200b","\u200b","230,933","\u200b","\u200b","193,612","\u200b","\u200b","5,364","\u200b","\u200b","429,909","\u200b"],["Operating income","\u200b","\u200b","574,343","\u200b","\u200b","42,883","\u200b","\u200b","(5,364)","\u200b","\u200b","611,862","\u200b"],["Other income (expense):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest expense, net","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","(217,245)","\u200b","\u200b","(217,245)","\u200b"],["Equity in earnings of unconsolidated affiliates","\u200b","\u200b","105,456","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","105,456","\u200b"],["Total other income (expense)","\u200b","\u200b","105,456","\u200b","\u200b","\u2014","\u200b","\u200b","(217,245)","\u200b","\u200b","(111,789)","\u200b"],["Income before income taxes","\u200b","\u200b","679,799","\u200b","\u200b","42,883","\u200b","\u200b","(222,609)","\u200b","\u200b","500,073","\u200b"],["Income tax expense","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","(128,287)","\u200b","\u200b","(128,287)","\u200b"],["Net income and comprehensive income","\u200b","$","679,799","\u200b","\u200b","42,883","\u200b","\u200b","(350,896)","\u200b","\u200b","371,786","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments."]]
[[/GREPCENT_TABLE]]

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The operating data for Antero Midstream is as follows:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended","\u200b","Amount of","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","Increase","\u200b","Percentage","\u200b"],["\u200b","","2022","","2023","","or Decrease","","Change","\u200b"],["Operating Data:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Gathering\u2014low pressure (MMcf)","\u200b","\u200b","1,088,036","\u200b","\u200b","1,202,510","\u200b","\u200b","114,474","\u200b","\u200b","11","%","\u200b"],["Compression (MMcf)","\u200b","\u200b","1,034,052","\u200b","\u200b","1,186,641","\u200b","\u200b","152,589","\u200b","\u200b","15","%","\u200b"],["Gathering\u2014high pressure (MMcf)","\u200b","\u200b","1,027,459","\u200b","\u200b","1,068,292","\u200b","\u200b","40,833","\u200b","\u200b","4","%","\u200b"],["Fresh water delivery (MBbl)","\u200b","\u200b","37,685","\u200b","\u200b","39,072","\u200b","\u200b","1,387","\u200b","\u200b","4","%","\u200b"],["Other fluid handling (MBbl)","\u200b","\u200b","19,059","\u200b","\u200b","20,084","\u200b","\u200b","1,025","\u200b","\u200b","5","%","\u200b"],["Wells serviced by fresh water delivery","\u200b","\u200b","76","\u200b","\u200b","76","\u200b","\u200b","\u2014","\u200b","\u200b","*","\u200b","\u200b"],["Gathering\u2014low pressure (MMcf/d)","\u200b","\u200b","2,981","\u200b","\u200b","3,295","\u200b","\u200b","314","\u200b","\u200b","11","%","\u200b"],["Compression (MMcf/d)","\u200b","\u200b","2,833","\u200b","\u200b","3,251","\u200b","\u200b","418","\u200b","\u200b","15","%","\u200b"],["Gathering\u2014high pressure (MMcf/d)","\u200b","\u200b","2,815","\u200b","\u200b","2,927","\u200b","\u200b","112","\u200b","\u200b","4","%","\u200b"],["Fresh water delivery (MBbl/d)","\u200b","\u200b","103","\u200b","\u200b","107","\u200b","\u200b","4","\u200b","\u200b","4","%","\u200b"],["Other fluid handling (MBbl/d)","\u200b","\u200b","52","\u200b","\u200b","55","\u200b","\u200b","3","\u200b","\u200b","6","%","\u200b"],["Average Realized Fees:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average gathering\u2014low pressure fee ($/Mcf)","\u200b","$","0.34","\u200b","\u200b","0.35","\u200b","\u200b","0.01","\u200b","\u200b","3","%","\u200b"],["Average compression fee ($/Mcf)","\u200b","$","0.21","\u200b","\u200b","0.21","\u200b","\u200b","\u2014","\u200b","\u200b","*","\u200b","\u200b"],["Average gathering\u2014high pressure fee ($/Mcf)","\u200b","$","0.21","\u200b","\u200b","0.21","\u200b","\u200b","\u2014","\u200b","\u200b","*","\u200b","\u200b"],["Average fresh water delivery fee ($/Bbl)","\u200b","$","4.07","\u200b","\u200b","4.21","\u200b","\u200b","0.14","\u200b","\u200b","3","%","\u200b"],["Joint Venture Operating Data:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Processing\u2014Joint Venture (MMcf)","\u200b","\u200b","540,052","\u200b","\u200b","581,785","\u200b","\u200b","41,733","\u200b","\u200b","8","%","\u200b"],["Fractionation\u2014Joint Venture (MBbl)","\u200b","\u200b","13,022","\u200b","\u200b","14,135","\u200b","\u200b","1,113","\u200b","\u200b","9","%","\u200b"],["Processing\u2014Joint Venture (MMcf/d)","\u200b","\u200b","1,480","\u200b","\u200b","1,594","\u200b","\u200b","114","\u200b","\u200b","8","%","\u200b"],["Fractionation\u2014Joint Venture (MBbl/d)","\u200b","\u200b","36","\u200b","\u200b","39","\u200b","\u200b","3","\u200b","\u200b","8","%","\u200b"]]
[[/GREPCENT_TABLE]]

*Not meaningful or applicable.

​

Revenues. Total revenues increased by $122 million, from $920 million for the year ended December 31, 2022, to $1,042 million for the year ended December 31, 2023. Total revenues included amortization of customer relationships of $71 million during each of the years ended December 31, 2022 and 2023. Gathering and processing revenues increased by 14%, from $706 million for the year ended December 31, 2022 to $805 million for the year ended December 31, 2023. Water handling revenues increased by 11%, from $214 million for the year ended December 31, 2022 to $237 million for the year ended December 31, 2023. These fluctuations primarily resulted from the following:

Gathering and Processing

[[GREPCENT_TABLE]]
[["","\u25cf","Low pressure gathering revenue increased $47 million period over period primarily due to increased throughput volumes of 114 Bcf, or 314 MMcf/d, and higher low pressure gathering rates as a result of annual CPI-based adjustments, partially offset by higher fee rebates of $4 million between periods. Low pressure gathering volumes increased between periods primarily due to 86 additional wells being connected to our system since December 31, 2022 and 253 wells that were connected to the assets we acquired during the fourth quarter of 2022."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Compression revenue increased $37 million period over period due to increased throughput volumes of 153 Bcf, or 418 MMcf/d, and higher compression rates as a result of the annual CPI-based adjustments. Compression volumes increased between periods primarily due to the 86 additional wells connected to our system since December 31, 2022 and 12 compressor stations and 253 wells that were connected to the assets we acquired during the fourth quarter of 2022."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","High pressure gathering revenue increased $15 million period over period primarily due to increased throughput volumes of 41 Bcf, or 112 MMcf/d, and an increased high pressure gathering rate as a result of an annual CPI-based adjustment. The high pressure gathering volumes increased period over period primarily due to 86 additional wells being connected to our high pressure system since December 31, 2022. The assets acquired during 2022 were already connected to high pressure systems operated by us or third parties prior to such acquisitions, and therefore, the 253 wells connected to the acquired assets did not increase the throughput on our high pressure gathering system."]]
[[/GREPCENT_TABLE]]

50

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Water Handling

[[GREPCENT_TABLE]]
[["","\u25cf","Fresh water delivery revenue increased $11 million period over period primarily due to a 3% increase to the fresh water delivery rate for our long-term contract with Antero Resources as a result of the annual CPI-based adjustment and higher fresh water delivery volumes of 1 MMBbl, or 4 MBbl/d. Fresh water delivery volumes increased between periods due to higher well completions by Antero Resources."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Other fluid handling services revenue increased $12 million period over period primarily due to increased costs, partially due to inflationary pressures that impact our cost plus 3% and cost of service rates during the year ended December 31, 2023, and higher other fluid handling volumes of 1 MMBbl, or 3 MBbl/d, between periods."]]
[[/GREPCENT_TABLE]]

Direct operating expenses. Direct operating expenses increased by 18%, from $180 million for the year ended December 31, 2022 to $213 million for the year ended December 31, 2023. Gathering and processing direct operating expenses increased 26% from $76 million for the year ended December 31, 2022 to $96 million for the year ended December 31, 2023 primarily due to 12 compressor stations that were acquired during the fourth quarter of 2022 and increased heavy maintenance expense between periods. Water handling direct operating expenses increased by 13%, from $104 million for the year ended December 31, 2022 to $117 million for the year ended December 31, 2023 primarily due to higher wastewater trucking expenses, an increased number of locations connected to our water blending system and higher fresh water volumes between periods.

General and administrative (excluding equity-based compensation) expenses. General and administrative expenses (excluding equity-based compensation expense) decreased 7%, from $42 million for the year ended December 31, 2022 to $39 million for the year ended December 31, 2023 primarily due to lower legal costs associated with the Veolia legal matter between periods and lower costs allocated to us from Antero Resources. See Note 15—Contingencies to our consolidated financial statements for additional information.

Equity-based compensation expenses. Equity-based compensation expenses increased by 61% from $20 million for the year ended December 31, 2022 to $32 million for the year ended December 31, 2023 primarily due to an increase in the annual equity awards granted during the years ended December 31, 2022 and 2023 as compared to prior years, which were temporarily and significantly reduced during 2020 and supplemented by our cash awards program. Our equity awards vest over three or four year service periods, and our equity incentive program began returning to normal levels in 2021. See Note 10—Equity-Based Compensation to our consolidated financial statements for additional information.

Depreciation expense. Depreciation expense increased by 3% from $132 million for the year ended December 31, 2022 to $136 million for the year ended December 31, 2023. This increase was primarily due to $4 million for our assets acquired during the fourth quarter of 2022 and $3 million related to assets placed in service between periods, partially offset by $3 million of lower expense related to our program to repurpose underutilized compressor units to expand existing or construct new compressor stations between periods.

Impairment of property and equipment expense. Impairment of property and equipment expense of $4 million for the year ended December 31, 2022 was primarily due to (i) a write-down of the Clearwater Facility related to the retirement obligation for the facility and (ii) cancelled projects. Impairment of property and equipment expense during the year ended December 31, 2023 related to cancelled projects.

Loss (gain) on asset sale. Gain on asset sale of $2 million for the year ended December 31, 2022 was primarily due to (i) the sale of four compressor engines, (ii) reimbursement of certain cancelled project costs and (iii) sales of miscellaneous equipment and excess pipe inventory. Loss on asset sale of $6 million for the year ended December 31, 2023 was primarily due to sales of miscellaneous equipment.

Interest expense. Interest expense increased by 14%, from $190 million for the year ended December 31, 2022 to $217 million for the year ended December 31, 2023 primarily due to increased interest rates on our Credit Facility due to higher benchmark rates during the year ended December 31, 2023 and higher average borrowings on our Credit Facility between periods as a result of our asset acquisitions during the fourth quarter of 2022.

Equity in earnings of unconsolidated affiliates. Equity in earnings in unconsolidated affiliates increased by 12%, from $94 million for the year ended December 31, 2022 to $105 million for the year ended December 31, 2023 primarily due to increased processing and fractionation volumes and higher processing and fractionation fees as a result of annual CPI-based adjustments.

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Income tax expense. Income tax expense increased by 9% from $117 million for the year ended December 31, 2022 to $128 million for the year ended December 31, 2023, which reflects effective tax rates of 26.5% and 25.7%, respectively. This income tax expense increase was primarily due to higher pre-tax income between periods.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2022

See “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations —Results of Operations” in our 2022 Annual Report on Form 10-K for a discussion of the results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2022.

Capital Resources and Liquidity

Sources and Uses of Cash

Capital resources and liquidity are provided by operating cash flows, available borrowings under our Credit Facility and capital market transactions. See Note 8—Long-Term Debt to our consolidated financial statements. We expect that the combination of these capital resources will be adequate to meet our working capital requirements, capital expenditures program and expected quarterly cash dividends for at least the next 12 months.

During the year ended December 31, 2023, we paid dividends of $0.90 per share, or a total of $435 million, to holders of our common stock, as applicable, and we paid $550,000 of dividends on our Series A Preferred Stock. On January 10, 2024, the Board declared a cash dividend on the shares of our common stock of $0.2250 per share for the quarter ended December 31, 2023. The dividend was paid on February 7, 2024 to stockholders of record as of January 24, 2024. Our Board also declared a cash dividend of $137,500 on our Series A Preferred Stock that was paid on February 14, 2024 in accordance with their terms. As of December 31, 2023, there were dividends in the amount of $68,750 accumulated in arrears on our Series A Preferred Stock. See Note 11—Cash Dividends and Note 12—Equity and Net Income Per Common Share to our consolidated financial statements for additional information.

As of December 31, 2023, we did not have any off-balance sheet arrangements.

​

Cash Flows

The following table summarizes our cash flows for the years ended December 31, 2022 and 2023:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b"],["(in thousands)","","2022","","2023","\u200b"],["Net cash provided by operating activities","\u200b","$","699,604","\u200b","\u200b","779,063","\u200b"],["Net cash used in investing activities","\u200b","\u200b","(493,826)","\u200b","\u200b","(183,206)","\u200b"],["Net cash used in financing activities","\u200b","\u200b","(205,778)","\u200b","\u200b","(595,791)","\u200b"],["Net increase in cash and cash equivalents","\u200b","$","\u2014","\u200b","\u200b","66","\u200b"]]
[[/GREPCENT_TABLE]]

​

Year Ended December 31, 2022 Compared to Year Ended December 31, 2023

Operating Activities. Net cash provided by operating activities was $700 million and $779 million for the years ended December 31, 2022 and 2023, respectively. The increase in cash flows provided by operations between periods was primarily due to (i) higher revenues in the gathering and processing and water handling segments, (ii) higher distributions from unconsolidated affiliates and (iii) a $10 million tax refund received during the year ended December 31, 2023, partially offset by higher direct operating and interest expenses and changes in working capital between periods.

Investing Activities. Net cash flows used in investing activities decreased by $311 million from $494 million for the year ended December 31, 2022 to $183 million for the year ended December 31, 2023 primarily due to decreased asset acquisitions of $217 million and capital spending for our gathering systems and facilities, water handling systems and other assets of $115 million, partially offset by decreased return of investment in the Joint Venture of $17 million and asset sale proceeds of $5 million during the year ended December 31, 2022. The capital spending for our gathering systems, facilities and other and water handling systems decreased between periods primarily as a result of fewer capital projects during the year ended December 31, 2023.

52

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Financing Activities. Net cash used in financing activities was $206 million and $596 million for the years ended December 31, 2022 and 2023, respectively. The increase in cash flows used in financing activities between periods was primarily due to net repayments on our Credit Facility of $152 million during the year ended December 31, 2023, as compared to net borrowings on our Credit Facility of $235 million during the year ended December 31, 2022.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2022

See “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations —Capital Resources and Liquidity” in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of the cash flows for the year ended December 31, 2021 compared to the year ended December 31, 2022.

Capital Investments

Our capital expenditures were as follows:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b"],["(in thousands)","\u200b","2022","\u200b","2023","\u200b"],["Gathering systems and facilities","\u200b","$","208,868","\u200b","\u200b","132,112","\u200b"],["Water handling systems","\u200b","\u200b","73,052","\u200b","\u200b","52,620","\u200b"],["Investments in (return of investment in) unconsolidated affiliates","\u200b","\u200b","(17,000)","\u200b","\u200b","262","\u200b"],["Total capital expenditures","\u200b","$","264,920","\u200b","\u200b","184,994","\u200b"]]
[[/GREPCENT_TABLE]]

Our 2024 capital budget is $150 million to $170 million. Our capital budgets may be adjusted as business conditions warrant. If natural gas, NGLs and oil prices decline to levels below acceptable levels or costs increase to levels above acceptable levels, Antero Resources could choose to defer a significant portion of its budgeted capital expenditures until later periods. As a result, we may also defer a significant portion of our budgeted capital expenditures to achieve the desired balance between sources and uses of liquidity and prioritize capital projects that we believe have the highest expected returns and potential to generate consistent cash flows. We routinely monitor and adjust our capital expenditures in response to changes in Antero Resources’ development plans, changes in prices, availability of financing, acquisition costs, industry conditions, the timing of regulatory approvals, success or lack of success in Antero Resources’ drilling activities, contractual obligations, internally generated cash flows and other factors both within and outside our control. Additionally, we monitor our existing assets and look for opportunities to reuse or otherwise repurpose assets in an effort to optimize our capital efficiency.

Debt Agreements

Credit Facility

Antero Midstream Partners, as borrower (the “Borrower”), an indirect, wholly owned subsidiary of Antero Midstream Corporation, has a senior secured revolving credit facility with a consortium of banks. The Credit Facility provides for borrowing under either Adjusted Term Secured Overnight Financing Rate (“SOFR”) or the Base Rate (as each term is defined in the Credit Facility).

The Credit Facility has lender commitments of $1.25 billion and matures on October 26, 2026; provided that if on November 17, 2025 any of the 7.875% senior notes due May 15, 2026 (the “2026 Notes”) are outstanding, the Credit Facility will mature on such date. As of December 31, 2023, we had $630 million of borrowings and no letters of credit outstanding under the Credit Facility.

We have a choice of borrowing at Adjusted Term SOFR or at the base rate. Principal amounts borrowed are payable on the maturity date with such borrowings bearing interest that is payable (i) with respect to base rate loans, quarterly and (ii) with respect to SOFR Loans, the last day of each Interest Period (as defined below); provided that if any Interest Period for a SOFR Loan exceeds three months, interest will be payable on the respective dates that fall every three months after the beginning of such Interest Period. SOFR Loans bear interest at a rate per annum equal to the rate for SOFR rate loans for three or six months (the “Interest Period”) plus an applicable margin ranging from 150 to 250 basis points (subject to certain exceptions), depending on the leverage ratio then in effect. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month SOFR Rate loans plus 100 basis points, plus an applicable margin ranging from 50 to 150 basis points (subject to certain exceptions) depending on the leverage ratio then in effect.

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The Credit Facility is guaranteed by our subsidiaries and is secured by mortgages on substantially all of Antero Midstream Partners’ and its subsidiaries’ properties. The Credit Facility contains restrictive covenants that may limit our ability to, among other things:

[[GREPCENT_TABLE]]
[["","\u25cf","incur additional indebtedness;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","sell assets;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","make loans to others;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","make investments and acquisitions;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","enter into mergers;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","make certain restricted payments;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","incur liens; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","engage in certain other transactions without the prior consent of the lenders."]]
[[/GREPCENT_TABLE]]

The Credit Facility also requires us to maintain the following financial ratios (subject to certain exceptions):

[[GREPCENT_TABLE]]
[["","\u25cf","a consolidated interest coverage ratio, which is the ratio of our consolidated EBITDA to its consolidated current interest charges of at least 2.5 to 1.0 at the end of each fiscal quarter;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","a consolidated total leverage ratio, which is the ratio of consolidated debt to consolidated EBITDA, of not more than 5.00 to 1.00 at the end of each fiscal quarter; provided that, at our election (the \u201cFinancial Covenant Election\u201d), the consolidated total leverage ratio shall be no more than 5.25 to 1.0; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","after a Financial Covenant Election, a consolidated senior secured leverage ratio covenant rather than the consolidated total leverage ratio covenant, which is the ratio of consolidated senior secured debt to consolidated EBITDA, of not more than 3.75 to 1.0."]]
[[/GREPCENT_TABLE]]

We were in compliance with the applicable covenants and ratios as of December 31, 2023.

See Note 8—Long-Term Debt to the consolidated financial statements for more information.

Senior Notes

The following table summarizes the material terms of our senior unsecured notes as of December 31, 2023:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","2026 Notes","\u200b","2027 Notes","\u200b","2028 Notes","\u200b","2029 Notes","\u200b"],["Outstanding principal (in thousands)","\u200b","$","550,000","\u200b","$","650,000","\u200b","$","650,000","\u200b","$","750,000","\u200b"],["Interest rate","\u200b","\u200b","7.875","%","\u200b","5.75","%","\u200b","5.75","%","\u200b","5.375","%"],["Maturity date","\u200b","\u200b","May 15, 2026","\u200b","\u200b","March 1, 2027","\u200b","\u200b","January 15, 2028","\u200b","\u200b","June 15, 2029","\u200b"],["Interest payment dates","\u200b","\u200b","May 15, Nov. 15","\u200b","\u200b","Mar. 1, Sept. 1","\u200b","\u200b","Jan. 15, July 15","\u200b","\u200b","Jun. 15, Dec. 15","\u200b"],["Make-whole redemption date (1)","\u200b","\u200b","May 15, 2025","\u200b","\u200b","March 1, 2025","\u200b","\u200b","January 15, 2026","\u200b","\u200b","June 15, 2026","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","On or after these dates, we may redeem the applicable series of senior notes, in whole or in part, at a redemption price equal to 100% of the principal amount redeemed, together with accrued and unpaid interest up to the redemption date. Prior to such date, we may, in certain circumstances, redeem the notes at a redemption price that includes an applicable premium as defined in the indentures to such notes."]]
[[/GREPCENT_TABLE]]

​

See Note 8—Long-Term Debt to the consolidated financial statements for more information.

We may, from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, open market purchases, privately negotiated transactions or otherwise. Any such repurchases will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved could be material. See Note 8—Long-Term Debt to the consolidated financial statements for more information.

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Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. Any new accounting policies or updates to existing accounting policies as a result of recently adopted accounting standards have been included in Note 2—Summary of Significant Accounting Policies to our consolidated financial statements. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities. Accounting estimates and assumptions are considered to be critical if there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported amounts in our consolidated financial statements that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our financial statements.

Property and Equipment

Property and equipment primarily consists of gathering pipelines, compressor stations and the water handling assets. We evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying values of the assets may not be recoverable.  Generally, the basis for making such assessments is undiscounted future cash flow projections for the assets being assessed.  If the carrying values of the assets are deemed not recoverable, the carrying values are reduced to the estimated fair values, which are calculated using the expected present value of future cash flows method. Significant assumptions used in the cash flow forecasts include future net operating margins, future volumes, discount rates and future capital requirements.

Determination of depreciation expense requires judgment regarding the estimated useful lives and salvage values of property and equipment. Uncertainties that may impact these estimates of useful lives include, among others, changes in laws and regulations relating to environmental matters, including air and water quality, restoration and abandonment requirements, economic conditions and supply and demand for the Company’s services in the areas in which it operate. Historically, we have not experienced material changes in our results of operations from revisions to the estimated useful lives or salvage values of our property and equipment. However, these estimates are reviewed periodically and can be subject to revision as circumstances warrant. We believe that the estimates and assumptions related to depreciation expense are critical because the assumptions used to estimate useful lives and salvage values of property and equipment are susceptible to change as circumstances warrant. These assumptions affect depreciation expense and, if changed, could have a material effect on the Company's results of operations and financial position.

Income Taxes

Income taxes are accounted for using the asset and liability approach. Under this approach, deferred income tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis. We record deferred income tax expense to the extent our deferred income tax liabilities exceed our deferred income tax assets. We record a deferred income tax benefit to the extent our deferred income tax assets exceed our deferred income tax liabilities. We are subject to state and federal income taxes, but are currently not in a cash tax paying position with respect to federal income taxes.

We record a valuation allowance when we believe all or a portion of our deferred income tax assets will not be realized. In assessing the realizability of our deferred income tax assets, management considers whether some portion or all of the deferred income tax assets will be realized based on a more-likely-than-not standard of judgment. The ultimate realization of deferred income tax assets is dependent upon our ability to generate future taxable income during the periods in which our deferred income tax assets are deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income and tax planning strategies in making this assessment, estimates of which may be imprecise due to unforeseen future events or conditions outside of our control, including changes in Antero Resources’ production or development plans or changes to tax laws and regulations. The amount of deferred income tax assets considered realizable could change based upon the amounts of taxable income actually generated, or as estimates of future taxable income change. As of December 31, 2023, we have recognized a valuation allowance of $3 million related to charitable contributions.

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The calculation of deferred income tax assets and liabilities involves uncertainties in the application of complex tax laws and regulations. We recognize in our financial statements those tax positions which we believe are more-likely-than-not to be sustained upon examination by the IRS or state revenue authorities. We believe that the estimates and assumptions related to income taxes are critical because the assumptions and estimates required to assess the likelihood that our deferred income tax assets will be recovered from future taxable income, as well as the amount and timing of a valuation allowance on our deferred income tax assets is an exercise in judgement and susceptible to change as circumstances warrant. These assumptions affect deferred income tax liability and income tax expense and, if changed, could have a material effect on the Company's financial position and results of operations.