Yahoo Finance Antero Midstream Corporation (NYSE:AM) Q1 2024 Earnings Call Transcript
Antero Midstream Corporation (NYSE:AM) Q1 2024 Earnings Call Transcript April 25, 2024
Antero Midstream Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to Antero Midstream First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Justin Agnew, Vice President of Finance and Investor Relations.
Justin Agnew: Good morning, and thank you for joining us for Antero Midstream's first quarter investor conference call. We'll spend a few minutes going through the financial and operating highlights, and then we'll open it up for Q&A. I would also like to direct you to the homepage of our website at www.anteromidstream.com, where we have provided a separate earnings call presentation that will be reviewed during today's call. Today's call may also contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures. Joining me on the call today are Paul Rady, Chairman, CEO and President of Antero Resources and Antero Midstream; Brendan Krueger, CFO of Antero Midstream; and Michael Kennedy, CFO of Antero Resources and Director of Antero Midstream. With that, I'll turn the call over to Paul.
Paul Rady: Thanks, Justin. Good morning, everyone. In my comments, I will discuss our capital projects completed in the first quarter, operational efficiencies in our water business and AR's peer-leading free cash flow breakeven costs. Brendan will then go through our first quarter results, which set multiple company records. Let's start with Slide number 3 titled Continued Asset Optimization. At the end of the first quarter, we placed our Grays Peak, compressor station in service as depicted in the light blue outline on the north part of our map. The station was the second compressor station that utilize relocated compressor units, which resulted in approximately $15 million in capital savings. Grays Peak has an initial capacity of 160 million cubic feet a day and will support the future throughput growth in the liquids-rich corridor of AR's acreage position.
Importantly, Grays Peak was placed online slightly ahead of schedule and on budget. This exemplifies our just-in-time capital investment philosophy and integrated planning with Antero Resources. Looking ahead, you can see in the yellow highlighted box, where the future expansion of the Grays Peak station will occur. Our visibility into the future development of our dedicated acreage allows us to phase in capacity over time as needed. This maximizes our project rates of return and drives our peer-leading return on invested capital. In addition to our capital efficiencies, we had significant operational efficiencies on the freshwater side of the business, highlighted on Slide number 4 titled 2024 Completion Efficiencies. During the first quarter, Antero Midstream delivered 113,000 barrels per day of freshwater to AR, who was running 1.3 completion crews on average.
The last time AM delivered a similar amount of water during the quarter. AR was running two completion crews on average. So, this is a 35% improvement. As depicted on the left-hand side of the page, AR averaged 11.3 completion stages per day, which is a quarterly company record and a 44% increase compared to 2022. This performance is partially due to AM's integrated freshwater delivery system. This system provides industry-leading water deliverability rates and eliminates the need for water trucks which significantly reduces congestion on our pad sites. In addition, an underappreciated aspect of our operations is the integrated planning between AR and AM. This starts with efficient pad design incorporating gathering and water lines and there's consistent communication between upstream and midstream teams and the elimination of non-productive time.
To put our planning [00:06:51] into perspective since AM acquired the water business almost a decade ago, we have had zero missed completions with our freshwater delivery system, which is an outstanding achievement. Adding to the development stability at AR is its premium natural gas price realizations highlighted on Slide 5, titled, Not All Transport to the U.S. Gulf Coast is Equal. This map illustrates AR's firm transportation portfolio directly into the heart of the LNG corridor, with several new LNG facilities starting up over the next several years, we expect to see a widening spread between sales points near Henry Hub and sales points outside of the Tier 1 markets. The blue callout box highlights a recent quote from a research commodity team that emphasizes this view.
They believe sales points within 100 miles of Henry Hub could see prices above $5 per MMBtu, while sales points outside of that range comprised at $3 to $4 per MMBtu. Importantly, 75% of AR's firm transportation delivers gas to these Tier 1 markets, providing direct exposure to these premium-priced markets. This solidifies AM's position as the critical first mile infrastructure to supply LNG across the globe. I'll finish my comments on Slide number 6 titled AR has the lowest free cash flow breakevens. We previously put this slide out highlighting that AR's breakeven natural gas price was $2.27 on an unhedged basis. As you can see on the left-hand side of the page, AR generated approximately $10 million of unhedged free cash flow in the first quarter of 2024 and when NYMEX gas averaged $2.24 per MMBtu.
In combination, AR's capital efficiency, liquids pricing uplift and premium natural gas price realizations results in development stability that underpins AM's consistency. As a midstream provider, we desire to service producers with the lowest overall breakeven costs, and AR certainly meets that test. With that, I will turn the call over to Brendan.
Brendan Krueger: Thanks, Paul. I will begin my comments on Slide number 7 titled First Quarter 2024 Highlights. The first quarter of 2024 was a record-breaking quarter, both financially and operationally. Antero Midstream's organic growth strategy delivered a 4% and 6% increase in gathering and processing volumes, respectively, compared to last year. We delivered double-digit EBITDA growth, combined with double-digit declines in capital year-over-year. The growing EBITDA and declining capital resulted in $182 million of free cash flow before dividends and $74 million of free cash flow after dividends, both of which were company records. All of this record free cash flow was utilized to reduce absolute debt during the quarter.
In combination, our EBITDA growth and declining debt resulted in leverage declining to 3.1x and from 3.3x at year-end 2023. The strong first quarter results place us on track to achieve our full year 2024 guidance. Looking ahead to the second quarter, we expect modest throughput growth compared to the first quarter offset by lower expected fresh water delivery volumes as a result of AR reducing its completion crews to one in February, consistent with our full year guidance. I'll finish my comments on Slide number 8, titled Executing on Debt and Leverage Reduction Plan. This page illustrates AM's free cash flow after dividends and leverage since we announced our 3x leverage target on our fourth quarter 2022 earnings release. As you can see, after the initial outspend to fund the drilling partnership growth in the first half of 2022, we transitioned to generate consistent free cash flow after dividends.
The first quarter represented the seventh consecutive quarter of generating free cash flow after dividends, which totaled almost $270 million on a cumulative basis. This has been used to reduce absolute debt and internally financed two highly accretive bolt-on acquisitions. In summary, our business continues to operate as efficiently as any midstream company in the industry and delivers consistent returns through commodity cycles. We are on track to achieve our 3x leverage target in the back half of 2024, which is almost 1.5 years ahead of our initial target laid out at the end of 2020. This positions AM to pursue incremental return of capital to shareholders. With that, operator, we are ready to take questions.
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