Antero Midstream Corporation (AM) Earnings Call Transcript & Summary

Greetings, and welcome to the Antero Midstream Corporation Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] It's now my pleasure to turn the call over to Dan Katzenberg, Vice President, Investor Relations. Please go ahead.

Thank you for joining us for Antero Midstream's Second Quarter Investor Conference Call. We will spend a few minutes going through the financial and operating highlights, and then we will open it up for Q&A. I would also like to direct you to the homepage of our website at intel midstream.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 suction measures. Joining me on the call today are Michael Kennedy, CEO and President; of Antero Midstream, Justin Agnew, CFO of Antero Midstream and Brendan 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 #3. Last year has been an exciting year for growth in Appalachian, 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 startup 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 eSight Express. This large diameter East-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 1 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 we'll 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 #4, 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 #5. 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 12th consecutive quarter of generating free cash flow after dividends, highlighting the consistency and durability of cash flows over the last 3 years. I'll conclude my prepared remarks on Slide #6. And which highlights our pro forma balance sheet and maturity schedule. In July, we received over $370 million of damages and interest from BOEM. Pro forma for these proceeds, our leverage was 2.8x as of June 30. The below our 3x target and well ahead of schedule. Excess cash on hand and availability 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 have converted that debt into lower-cost prepayable debt on our credit facility while maintaining significant liquidity. This financial flexibility is critical into today's environment as we position Antero Midstream to execute on the large opportunity that Mike referenced in his remarks. This 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.

[Operator Instructions] Our first question today is coming from John Mackay from Goldman Sachs.

Let's start on Eastside Express. Just wondering if there's a little more you can share with us in terms of CapEx expectations and the contracting side. Is this AR underwriting? Are you looking to get customers on the demand side to underwrite? Maybe just walk us through the spending and the return profile?

Yes, it's really AR underwriting, but it's $200 million to $300 million over the next 2 to 3 years. So think about kind of $100 million each year. I think at 7 interconnects with long-haul pipelines, big pipe, 1.5 to 2 Bcf a day. So there will be opportunities, but solely underwritten by Antero Resources and its development plans, but with optionality to get third-party business and connect with all those different pipes.

That's helpful. And then maybe just looking broadly, you mentioned the several billion of opportunities. Maybe just walk us through some of the general buckets that could include -- is there anything in there that could kind of dovetail with some of the top saving initiatives that AR has been talking about? Or should we kind of think about this as pretty separate.

Yes. No, 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 buy the Stonewall pipeline. We had to farm that out. We don'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. So we will be building those pipelines and laterals to those type of projects within the state of West Virginia.

Appreciate it. Maybe just a clarification. Is there a kind of time frame on that you can throw out there? .

No, we just said this is our first one that Eastside expressed. So that's over the next 2 to 3 years. That's a '28-'29 time frame. We're hopeful to announce more in the near term.

Next question is coming from Jeremy Tonet from JPMorgan.

Just want to pull back that several billion of CapEx opportunities as you said there. And it sounds like some of this could be servicing third parties beyond AR here. And just wondering that part of the business -- how much opportunity do you see to grow as far as servicing other producers or just in general, moving beyond what AR provides.

Yes. I'm not going to project backlog right now, there's 15 projects. generally make that up all with the state of West Virginia. So that's what we're looking at Antero Midstream could be involved solely or more probability-wise, with AR's gas. So we're way more comfortable what they are as a supplier of that AR, of course, we know exactly when they drill wells and where the gas goes and very confident in that throughput. So probably most likely associated with AR, but there are 15 projects on this list. I'm looking at right now and AR is probably half of them.

Okay. Got it. And then just moving towards water here, just wondering what opportunities on the water beneficial reuse side you might see there, given disposal cost, much higher in the Northeast versus Texas, does that create more incentive economic benefit to recycle here? Just wondering what that -- any updates there?