Antero Midstream 2026 Q2 Earnings Call

Please go ahead. Thank you for joining us for Antero Midstream second quarter investor conference call.

We will spend a few minutes going through the financial and operating highlights. Then we will open it up for Q&A. I would also like to direct you to the homepage of our website at anteromidstream.com, where we have provided a separate earnings call presentation that will be reviewed during today's call. Today's call may contain certain non-GAAP financial measures. Please refer to the earnings press release for important disclosures regarding such measures. Joining me on the call today are Michael Kennedy, CEO and President of Antero Midstream, Justin Agnew, CFO of Antero Midstream, and Lenny Krueger, CFO of Antero Resources. With that, I will turn the call over to Mike.

Thanks, Dan. Good morning, everyone. I'll start my comments on slide number three. Last year has been an exciting year for growth in Appalachia, and more importantly, Antero Midstream. During the second quarter, we gathered over 4.1 BCF per day of gas, which was almost a 20% increase year-over-year. This growth was driven by the successful integration of the HG Midstream assets. This increased scale, premier footprint, and strong balance sheet positions Antero Midstream to capture the abundant opportunities that are beginning to materialize in the region. To this point, we've seen an acceleration of new gas-fired power generation project announcements and supply deals, including a 2-gigawatt combined cycle power plant in Doddridge County, West Virginia, accessed by AM's joint venture pipeline. We expect this trend to continue as final investment decisions and construction startups accelerate, providing increased visibility into the Appalachian demand growth story.

Looking ahead, we are positioning our infrastructure to support the significant demand growth over the next several years. This starts with beginning construction on our first intrastate regional pipeline called East Side Express. This large diameter east to west pipeline will enhance the regional connectivity of our dry gas gathering system with several downstream market outlets. We plan to phase in this project over the next several years as new market opportunities arise, with the objective of increasing optionality and supporting low cost dry gas growth. As the industrial builder in the state of West Virginia that gathers half of the gas produced in the state, we view this project as step one in positioning Antero Midstream to capture the incremental production needed to fulfill the visible demand growth. In our view, this production growth will have to come from high quality investment-grade producers with multi-decade inventories like Antero Resources.

In addition to this project, the opportunity set ahead of Antero Midstream is larger than ever. In aggregate, we are evaluating several billion dollars of infrastructure opportunities within the region and will be selective with projects that are near-term, actionable, and accretive to our free cash flow and generate attractive rates of return. Before turning the call over to Justin, I wanted to briefly touch on the early results we are seeing on our first return to the dry gas Marcellus in over a decade. As you can see on slide number four, EURs on our revisit were over 60% higher than offset wells completed the last time we were actively developing the area. This highlights the productivity improvements from enhanced completion designs and validates the decades of underlying resource that underpins the growth outlook at Antero Midstream. With that, I'll turn the call over to Justin.

Thanks, Mike. I'll start with our second quarter highlights on slide number five. The second quarter represents the first full quarter of contribution from the recently acquired HG assets, which have been successfully integrated. Adjusted EBITDA for the second quarter was a company record $289 million, which was a 2% increase year-over-year, driven by an increase in gathering volumes. Looking ahead to the third quarter, we expect high single-digit sequential EBITDA growth in Q3 driven by increased volumes, which keeps us on track to achieve our full year EBITDA guidance. Capital invested during the quarter was $47 million, which helped generate $80 million of free cash flow after dividends. This quarter marks the twelfth consecutive quarter of generating free cash flow after dividends, highlighting the consistency and durability of cash flows over the last three years.

I'll conclude my prepared remarks on slide number six, which highlights our pro forma balance sheet and maturity schedule. In July, we received over $370 million of damages and interest from Veolia. Pro forma for these proceeds, our leverage was 2.8 times as of June 30th, below our 3 times target and well ahead of schedule. Excess cash on hand and available capacity under our undrawn credit facility positioned us to call our nearest term 2028 maturity at par. As a result, we have no near-term maturities, and we've converted that debt into lower cost, pre-payable debt on our credit facility while maintaining significant liquidity. This financial flexibility is critical in today's environment as we position Antero Midstream to execute on the large opportunity set Mike referenced in his remarks.

Flexibility and project opportunity set, in addition to our organic growth strategy, position us well to continue delivering shareholder value over the long term and enhance our return of capital to shareholders. With that, operator, we are ready to open up for Q&A.

Yeah, it's really AR underwriting. It's $200 million-$300 million over the next two to three years. I think about kind of $100 million each year. I think it has seven interconnects, with long haul pipelines. Big pipe, 1.5 to 2 BCF a day. There will be opportunities, solely underwritten by Antero Resources and its development plans, with optionality to get third party business and connect with all those different pipes.

I think you've heard about all the different power plant construction, data center construction in West Virginia. That's capturing that from a midstream perspective, building these type of regional pipelines, or laterals off of existing pipelines, to those type of projects. I referenced it on the AR call, but a decade ago, a good go by was the Stonewall Pipeline. We had to farm that out. We didn't have the ability to build that internally, whether from capital or expertise. Now that's not the case. We are the builder in this area of the world. We have 1 million acres dedicated to us from AR. We have all these demand projects and power plants within that acreage or close to it. We will be building those pipelines and laterals for those type of projects within the state of West Virginia.