Antero Midstream Corp: Form 10-Q for the period ended Jun 30, 2024

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. The information provided below supplements, but does not form part of, our unaudited condensed 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. In this section, references to “Antero Midstream,” “AM,” the “Company,” “we,” “us,” and “our” refer to Antero Midstream Corporation and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

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.

Asset Acquisition

On May 1, 2024, we acquired certain Marcellus gas gathering and compression assets from Summit for $70 million in cash, before closing adjustments, with an effective date of April 1, 2024. This acquisition was funded with our operating cash flow. The acquired assets include 48 miles of high pressure gathering pipelines and two compressor stations with 100 MMcf/d of compression capacity. These assets were already interconnected to our low pressure and high pressure gas gathering systems at the time of acquisition and service Antero Resources’ production. Currently, we do not expect to make any significant capital investments related to the acquired assets. See Note 6—Property and Equipment to the unaudited condensed consolidated financial statements for more information.

Financing Highlights

Credit Facility

On July 30, 2024, we entered into an amendment and restatement of our senior secured revolving credit facility with lender commitments of $1.25 billion, which matures on July 30, 2029 (subject to certain terms and conditions related to the outstanding balances to our 2027, 2028 and 2029 notes). See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information.

Issuance of Senior Notes

On January 16, 2024, we issued $600 million of 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 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information.

Repurchase of Senior Notes

During the six months ended June 30, 2024, we repurchased or otherwise fully redeemed $550 million aggregate principal amount of our 2026 Notes at a weighted average premium of 101.975% of the principal amount thereof, plus accrued and unpaid interest. The 2026 Notes were retired as of May 16, 2024. See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information.

Share Repurchase Program

On February 13, 2024, our Board 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. The 1% U.S. federal excise tax on certain repurchases of stock by publicly traded U.S. corporations enacted as part of the Inflation Reduction Act of 2022 applies to our share repurchase program. During the three and six months ended June 30, 2024, we did not repurchase any shares under this program.

Market Conditions and Business Trends

Commodity Markets

Prices for natural gas decreased significantly while prices for NGLs and oil increased during the six months ended June 30, 2024 as compared to the same period of 2023. 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.

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 the second quarter of 2024. For example, the Consumer Price Index (“CPI”) for all urban consumers increased 3% from June 2022 to June 2023 and an additional 3% from June 2023 to June 2024 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 June 2024, 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.

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.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2024

The operating results of our reportable segments are as follows:

(in thousands)

(1) Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments.

(in thousands)

(1) Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments.

The operating data for Antero Midstream is as follows:

* Not meaningful or applicable.

(1) The average realized fees for the three months ended June 30, 2024 include annual CPI-based adjustments of approximately 1.6%.

Revenues. Total revenues increased by 4%, from $258 million for the three months ended June 30, 2023 to $270 million for the three months ended June 30, 2024. Total revenues included amortization of customer relationships of $18 million for the three months ended June 30, 2023 and 2024. Gathering and processing revenues increased by 9%, from $202 million for the three months ended June 30, 2023 to $220 million for the three months ended June 30, 2024. Water handling revenues decreased by 11%, from $56 million for the three months ended June 30, 2023 to $50 million for the three months ended June 30, 2024. These fluctuations primarily resulted from the following:

Gathering and Processing

• Low pressure gathering revenue increased $13 million period over period primarily due to lower growth incentive fee rebates of $12 million due to the expiration of the program on December 31, 2023 and increased low pressure gathering rates as a result of annual CPI-based adjustments, partially offset by decreased throughput volumes of 4 Bcf, or 46 MMcf/d. Low pressure gathering volumes decreased between periods primarily due to natural production decline, partially offset by 64 additional wells being connected to our system since June 30, 2023.
• Compression revenue increased $1 million period over period primarily due to increased compression rates as a result of annual CPI-based adjustments. Compression volumes remained relatively consistent between periods primarily due to 64 additional wells being connected to our system since June 30, 2023 and two compressor stations that were acquired during the second quarter of 2024, fully offset by natural production decline between periods.
• High pressure gathering revenue increased $4 million period over period primarily due to our acquisition of 48 miles of high pressure gathering lines during the second quarter of 2024 and increased high pressure gathering rates as a result of an annual CPI-based adjustment.

Water Handling

• Fresh water delivery revenue decreased $8 million period over period primarily due to decreased fresh water delivery volumes of 2 MMBbl, or 24 MBbl/d, partially offset by a 1.6% increase to the fresh water delivery rate for our long-term contract with Antero Resources as a result of the annual CPI-based adjustment. Fresh water delivery volumes decreased between periods primarily due to fewer wells serviced by our fresh water delivery system as a result of the timing of well completions by Antero Resources.
• Other fluid handling services revenue increased $2 million period over period primarily due to higher blending rates and higher other fluid volumes of 0.2 MMBbl, or 3 MBbl/d, between periods.

Direct operating expenses. Direct operating expenses increased by 7%, from $53 million for the three months ended June 30, 2023 to $56 million for the three months ended June 30, 2024. Gathering and processing direct operating expenses increased by 4%, from $25 million for the three months ended June 30, 2023 to $26 million for the three months ended June 30, 2024 primarily due to our acquisition of two compressor stations and 48 miles of high pressure gathering lines during the second quarter of 2024 and increased gathering volumes between periods. Water handling direct operating expenses increased by 10%, from $28 million for the three months ended June 30, 2023 to $30 million for the three months ended June 30, 2024 primarily due to increased pipeline maintenance, repair and monitoring activities and increased other fluid handling volumes between periods, partially offset by decreased fresh water delivery volumes during the three months ended June 30, 2024.

General and administrative (excluding equity-based compensation) expenses. General and administrative expenses (excluding equity-based compensation expense) remained consistent at $10 million for the three months ended June 30, 2023 and 2024, respectively.

Equity-based compensation expenses. Equity-based compensation expenses increased from $8 million for the three months ended June 30, 2023 to $12 million for the three months ended June 30, 2024 primarily due to annual equity-based awards granted during the first quarter of 2024. Our equity-based awards vest over three or four year service periods. See Note 9—Equity-Based Compensation to the unaudited condensed consolidated financial statements for additional information.

Depreciation expense. Depreciation expense increased by 7%, from $35 million for the three months ended June 30, 2023 to $38 million for the three months ended June 30, 2024. This increase was primarily due to $2 million related to assets placed in service or acquired between periods and $1 million of higher expense related to our program to repurpose underutilized compressor units to expand existing or construct new compressor stations during the three months ended June 30, 2024.

Loss on asset sale. Loss on asset sale of $6 million for the three months ended June 30, 2023 was primarily due to sales of miscellaneous equipment.

Interest expense. Interest expense decreased by 6%, from $55 million for the three months ended June 30, 2023 to $52 million for the three months ended June 30, 2024 primarily due to lower Prior Credit Facility borrowings between periods and the repurchase and redemption of the remaining $548 million principal amount of the 2026 Notes during the second quarter of 2024, partially offset by the issuance of $600 million principal amount of 2032 Notes during the first quarter of 2024.

Equity in earnings of unconsolidated affiliates. Equity in earnings of unconsolidated affiliates increased by 6%, from $26 million for the three months ended June 30, 2023 to $28 million for the three months ended June 30, 2024 primarily due to higher processing and fractionation fees as a result of annual CPI-based adjustments and increased fractionation volumes between periods.

Loss on early extinguishment of debt. During the three months ended June 30, 2024, we repurchased or redeemed the remaining $548 million aggregate principal amount of our 2026 Notes at a weighted average premium of 101.974% of the principal amount thereof, plus accrued and unpaid interest, and recognized a loss on early debt extinguishment of $14 million. There was no loss on early extinguishment of debt for the three months ended June 30, 2023. See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information.

Income tax expense. Income tax expense remained relatively consistent for the three months ended June 30, 2023 and 2024 at $29 million and $28 million, respectively, which reflects effective tax rates of 25.1% and 24.8%, respectively.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2024

The operating results of our reportable segments are as follows:

(in thousands)

(1) Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments.

(in thousands)

(1) Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments.

The operating data for Antero Midstream is as follows:

* Not meaningful or applicable.

(1) The average realized fees for the six months ended June 30, 2024 include annual CPI-based adjustments of approximately 1.6%.

Revenues. Total revenues increased by 6%, from $518 million for the six months ended June 30, 2023 to $549 million for the six months ended June 30, 2024. Total revenues included amortization of customer relationships of $35 million for each of the six months ended June 30, 2023 and 2024. Gathering and processing revenues increased by 12%, from $392 million for the six months ended June 30, 2023 to $438 million for the six months ended June 30, 2024. Water handling revenues decreased by 12%, from $126 million for the six months ended June 30, 2023 to $111 million for the six months ended June 30, 2024. These fluctuations primarily resulted from the following:

Gathering and Processing

• Low pressure gathering revenue increased $32 million period over period primarily due to lower growth incentive fee rebates of $24 million due to the expiration of the program on December 31, 2023, increased throughput volumes of 11 Bcf, or 42 MMcf/d, and increased low pressure gathering rates as a result of annual CPI-based adjustments. Low pressure gathering volumes increased between periods primarily due to 64 additional wells being connected to our system since June 30, 2023.
• Compression revenue increased $5 million period over period primarily due to increased throughput volumes of 14 Bcf, or 59 MMcf/d, and increased compression rates as a result of annual CPI-based adjustments. Compression volumes increased between periods primarily due to 64 additional wells being connected to our system since June 30, 2023 and two compressor stations that were acquired during the second quarter of 2024.
• High pressure gathering revenue increased $9 million period over period primarily due to increased throughput volumes of 24 Bcf, or 118 MMcf/d and increased high pressure gathering rates as a result of an annual CPI-based adjustment. The high pressure gathering volumes increased period over period primarily due to 64 additional wells being connected to our system since June 30, 2023 and our acquisition of 48 miles of high pressure gathering lines during the second quarter of 2024.

Water Handling

• Fresh water delivery revenue decreased $11 million period over period primarily due to decreased fresh water delivery volumes of 3 MMBbl, or 17 MBbl/d, partially offset by a 1.6% increase to the fresh water delivery rate for our long-term contract with Antero Resources as a result of the annual CPI-based adjustment. Fresh water delivery volumes decreased between periods primarily due to fewer wells serviced by our fresh water delivery system as a result of the timing of well completions by Antero Resources.
• Other fluid handling services revenue decreased $4 million period over period primarily due to decreased water trucking volumes, which are billed at cost plus 3%, partially offset by higher blending volumes and rates between periods.

Direct operating expenses. Direct operating expenses remained consistent at $110 million for the six months ended June 30, 2023 and 2024, respectively. Gathering and processing direct operating expenses increased by 6%, from $49 million for the six months ended June 30, 2023 to $52 million for the six months ended June 30, 2024 primarily due to increased gathering and compression volumes between periods and our acquisition of two compressor stations and 48 miles of high pressure gathering lines during the second quarter of 2024. Water handling direct operating expenses decreased by 5%, from $61 million for the six months ended June 30, 2023 to $58 million for the six months ended June 30, 2024 primarily due to lower water handling and fresh water volumes between periods, partially offset by increased pipeline maintenance, repair and monitoring activities between periods, partially offset by decreased fresh water delivery volumes during the six months ended June 30, 2024.

General and administrative (excluding equity-based compensation) expenses. General and administrative expenses (excluding equity-based compensation expense) remained relatively consistent at $21 million and $22 million for the six months ended June 30, 2023 and 2024, respectively.

Equity-based compensation expenses. Equity-based compensation expenses increased from $15 million for the six months ended June 30, 2023 to $21 million for the six months ended June 30, 2024 primarily due to annual equity-based awards granted during the first quarter of 2024. Our equity-based awards vest over three or four year service periods. See Note 9—Equity-Based Compensation to the unaudited condensed consolidated financial statements for additional information.

Depreciation expense. Depreciation expense increased by 6%, from $70 million for the six months ended June 30, 2023 to $75 million for the six months ended June 30, 2024. This increase was primarily due to $3 million related to assets placed in service or acquired between periods and $2 million of higher expense related to our program to repurpose underutilized compressor units to expand existing or construct new compressor stations during the six months ended June 30, 2024.

Loss on asset sale. Loss on asset sale of $6 million for the six months ended June 30, 2023 was primarily due to sales of miscellaneous equipment.

Interest expense. Interest expense decreased by 4%, from $110 million for the six months ended June 30, 2023 to $105 million for the six months ended June 30, 2024 primarily due to lower Prior Credit Facility borrowings between periods and the repurchase and redemption of the remaining $550 million principal amount of the 2026 Notes during the six months ended June 30, 2024, partially offset by the issuance of $600 million principal amount of 2032 Notes during the six months ended June 30, 2024.

Equity in earnings of unconsolidated affiliates. Equity in earnings of unconsolidated affiliates increased by 9%, from $50 million for the six months ended June 30, 2023 to $55 million for the six months ended June 30, 2024 primarily due to increased processing and fractionation volumes and higher processing and fractionation fees as a result of annual CPI-based adjustments between periods.

Loss on early extinguishment of debt. During the six months ended June 30, 2024, we repurchased or otherwise fully redeemed the $550 million aggregate principal amount of our 2026 Notes at a weighted average premium of 101.975% of the principal amount thereof, plus accrued and unpaid interest, and recognized a loss on early debt extinguishment of $14 million. There was no loss on early extinguishment of debt for the six months ended June 30, 2023. See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements for more information.

Income tax expense. Income tax expense increased by 7%, from $61 million for the six months ended June 30, 2023 to $65 million for the six months ended June 30, 2024, which reflects effective tax rates of 25.9% and 25.5%, respectively. The increase in income tax expense between periods is primarily due to higher income before income taxes during the six months ended June 30, 2024.

Capital Resources and Liquidity

Sources and Uses of Cash

Capital resources and liquidity are provided by operating cash flows and available borrowings under our Credit Facility and capital market transactions. See Note 7—Long-Term Debt to the unaudited condensed 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.

Our Board declared a cash dividend on the shares of our common stock of $0.2250 per share for the quarter ended June 30, 2024. The dividend is payable on August 7, 2024 to stockholders of record as of July 24, 2024. Our Board also declared a cash dividend of $137,500 on the shares of Series A Preferred Stock that is payable on August 14, 2024 in accordance with their terms as discussed in Note 11—Equity and Net Income Per Common Share. As of June 30, 2024, there were dividends in the amount of $68,750 accumulated in arrears on our Series A Preferred Stock.

We expect our future cash requirements relating to working capital, capital expenditures, acquisitions and quarterly cash dividends to our stockholders will be funded from cash flows internally generated from our operations or borrowings under the Credit Facility.

As of June 30, 2024, we did not have any off-balance sheet arrangements.

Cash Flows

The following table summarizes our cash flows for the six months ended June 30, 2023 and 2024:

(in thousands)

Operating activities. Net cash provided by operating activities was $368 million and $426 million for the six months ended June 30, 2023 and 2024, respectively. The increase in cash flows provided by operations between periods was primarily due to higher gathering and processing revenues, changes in working capital and higher distributions from our equity method investments during the six months ended June 30, 2024, partially offset by lower water handling revenues between periods.

Investing activities. Net cash flows used in investing activities was $84 million and $148 million for the six months ended June 30, 2023 and 2024, respectively. The increase in cash flows used in investing activities between periods was primarily due to our acquisition of gathering and compression assets during the second quarter of 2024 of $70 million, before closing adjustments, partially offset by decreased capital spending for our water handling systems of $9 million primarily as a result of fewer capital projects between periods.

Financing activities. Net cash used in financing activities was $284 million and $278 million for the six months ended June 30, 2023 and 2024, respectively. The decrease in cash flows used in financing activities between periods was primarily due to the issuance of the 2032 Notes of $600 million, partially offset by our repurchases and redemption of the 2026 Notes of $561 million, higher net repayments on our Prior Credit Facility of $18 million, deferred financing costs payments for the 2032 Notes of $7 million and higher tax withholdings for the settlement of equity-based compensation awards of $6 million between periods.

2024 Capital Investment

On February 14, 2024, we announced a capital budget with a range of $150 million to $170 million. This capital budget supports Antero Resources’ maintenance capital program for 2024. Our capital budget may be adjusted as business conditions warrant. Additionally, we monitor our existing assets and look for opportunities to reuse or otherwise repurpose assets in an effort to optimize our capital efficiency.

Our capital expenditures were as follows:

(in thousands)

Debt Agreements

See Note 7—Long-Term Debt to the unaudited condensed consolidated financial statements and to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2023 Form 10-K for information on our debt agreements.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated 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 unaudited condensed consolidated financial statements. The preparation of our unaudited condensed 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 unaudited condensed 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 unaudited condensed consolidated financial statements. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2023 Form 10-K for information on our critical accounting estimates.

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risk. The term “market risk” refers to the risk of loss arising from adverse changes in commodity prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures.

Commodity Price Risk

Our gathering and compression and water services agreements with Antero Resources provide for fixed-fee and cost of service fee structures, and we intend to continue to pursue additional fixed-fee or cost of service fee opportunities with Antero Resources and third parties in order to avoid direct commodity price exposure. However, to the extent that our future contractual arrangements with Antero Resources or third parties do not provide for fixed-fee or cost of service fee structures, we may become subject to commodity price risk. We are subject to commodity price risks to the extent that they impact Antero Resources’ development program and production and therefore our gathering, compression, and water handling volumes. We cannot predict to what extent our business would be impacted by lower commodity prices and any resulting impact on Antero Resources’ operations.

Interest Rate Risk

Our primary exposure to interest rate risk results from outstanding borrowings under the Credit Facility, which has a floating interest rate. We do not currently, but may in the future, hedge the interest on portions of our borrowings under the Credit Facility from time-to-time in order to manage risks associated with floating interest rates. At June 30, 2024, we had $556 million of borrowings or letters of credit outstanding under the Prior Credit Facility. A 1.0% increase in the Prior Credit Facility interest rate would have resulted in an estimated $1 million increase in interest expense for the six months ended June 30, 2024.

Credit Risk

We are dependent on Antero Resources as our primary customer, and we expect to derive substantially all of our revenues from Antero Resources for the foreseeable future. As a result, any event, whether in our area of operations or otherwise, that adversely affects Antero Resources’ production, drilling schedule, financial condition, leverage, market reputation, liquidity, results of operations or cash flows may adversely affect our revenues and operating results.

Further, we are subject to the risk of non-payment or non-performance by Antero Resources, including with respect to our gathering and compression and water handling services agreements. We cannot predict the extent to which Antero Resources’ business would be impacted if conditions in the energy industry were to deteriorate, nor can we estimate the impact such conditions would have on Antero Resources’ ability to execute its drilling and development program or to perform under our agreements. Any material non-payment or non-performance by Antero Resources could adversely affect our revenues and operating results and our ability to return capital to stockholders.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2024 at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are subject to certain risks and hazards due to the nature of the business activities we conduct. For a discussion of these risks, see “Item 1A. Risk Factors” in the 2023 Form 10-K. There have been no material changes to the risks described in such report. We may experience additional risks and uncertainties not currently known to us. Furthermore, as a result of developments occurring in the future, conditions that we currently deem to be immaterial may also materially and adversely affect us.