Antero Midstream Corp. Q1 FY2025 earnings call

• Paul Rady discussed the 2025 capital budget, noting the Torrey's Peak Compressor Station was placed online in March ahead of schedule, with reuse savings of approximately $30 million at Torrey's Peak and over $50 million across three stations, expecting over $60 million of additional reuse savings over the next five years. He also highlighted growth in Appalachia gas demand due to power generation, data centers, and other projects, with natural gas demand estimates for data centers doubling in six months and the percentage of data centers expected to use natural gas increasing from 50% to 70%.
• Brendan Krueger mentioned Q1 highlights including EBITDA of $274 million, free cash flow after dividends of $79 million, the company's low debt and capital efficiency with a 17% reinvestment rate (best in class), and the ability to allocate approximately 65% of EBITDA for dividends, debt reduction, and share repurchases, nearly double the C Corp average in the midstream space.

During the first quarter, Antero Midstream generated $274 million of EBITDA, a 3% increase year-over-year. This was driven by an increase in gathering and processing volumes, with processing volumes reaching a company record of 1.65 Bcf a day. Free cash flow after dividends was $79 million, a 7% increase year-over-year, marking the 11th consecutive quarter of generating free cash flow after dividends. Debt was reduced towards 2.9 times as of March 31. In terms of revenue contribution, the gathering and processing segment was a key driver, with volumes increasing to support the EBITDA growth.

• Expect further increases in gathering volumes to drive low to mid-single digit year-over-year growth in gathering volumes in 2025 versus 2024. - Free cash flow after dividends has been above $75 million for the second straight quarter. - Leverage declined towards 2.9 times as of March 31. - Capital efficiency with a 17% reinvestment rate is maintained as best in class.

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

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

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

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

Q: Just a follow-up on your commentary on data centers. You all gave a good rundown in your prepared remarks, but just curious if you could provide any additional details on how conversations are heading about commercialization and how AM could benefit from the trend?

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

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

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

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

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

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

A: Yes. We're still looking at that similar number. I think those 8. most of that volume we tend to highlight will fall into that second quarter. So if you look at 1Q to 2Q, I'd expect a pretty similar level of volume. You had the second completion crew running for a month in the first quarter and you'll have it running for a month in the second quarter. So should expect similar volumes there.

Q: And then on the lateral length, still expecting the 13,200, I know the AR length of completed came in a little bit higher, but is that still a good average to look at?

A: Yes. That's a good number to think about.