Equity Method Investments

12 Months Ended

Dec. 31, 2018

(3)Antero Midstream Partners LP

In 2014, the Company formed Antero Midstream to own, operate, and develop midstream energy assets that service Antero’s production. Antero Midstream’s assets consist of gathering systems and compression facilities, water handling and treatment facilities, and interests in processing and fractionation plants, through which it provides services to Antero under long-term, fixed-fee contracts. AMGP indirectly owns the general partnership interest in Antero Midstream and directly owns capital interests in IDR LLC, which owns the incentive distribution rights in Antero Midstream. Antero Midstream is an unrestricted subsidiary as defined by Antero’s senior secured revolving bank credit facility (the “Credit Facility”). As an unrestricted subsidiary, Antero Midstream and its subsidiaries are not guarantors of Antero’s obligations, and Antero is not a guarantor of Antero Midstream’s obligations (see Note 17).

On September 23, 2015, Antero contributed (i) all of the outstanding limited liability company interests of Antero Water LLC (“Antero Water”) to Antero Midstream and (ii) all of the assets, contracts, rights, permits and properties owned or leased by Antero and used primarily in connection with the construction, ownership, operation, use or maintenance of Antero’s advanced wastewater treatment facility under construction in Doddridge County, West Virginia, to Antero Treatment LLC (“Antero Treatment”), a subsidiary of Antero Midstream (collectively, (i) and (ii) are referred to herein as the “Contributed Assets”). In consideration for the Contributed Assets, Antero Midstream (i) paid to Antero a cash distribution equal to $552 million, less $171 million of assumed debt, (ii) issued to Antero 10,988,421 common units representing limited partner interests in Antero Midstream, (iii) distributed to Antero proceeds of approximately $241 million from a private placement of Antero Midstream common units, and (iv) has agreed to pay Antero (a) $125 million in cash if Antero Midstream delivers 176 million barrels or more of fresh water during the period between January 1, 2017 and December 31, 2019 and (b) an additional $125 million in cash if Antero Midstream delivers 219 million barrels or more of fresh water during the period between January 1, 2018 and December 31, 2020. As of December 31, 2018, Antero Midstream has delivered 128 million of the 176 million barrels and we expect to receive the entire amount of the contingent consideration for the 176 million barrels or more fresh water delivered during the period between January 1, 2017 and December 31, 2019, but Antero Midstream has delivered 71 million of the 219 million barrels and we do not expect Antero Midstream to deliver 219 million barrels or more of fresh water during the period between January 1, 2018 and December 31, 2020.

Antero Midstream has an Equity Distribution Agreement (the “Distribution Agreement”) pursuant to which Antero Midstream may sell, from time to time through brokers acting as its sales agents, common units representing limited partner interests having an aggregate offering price of up to $250 million. Sales of the common units are made by means of ordinary brokers’ transactions on the New York Stock Exchange, at market prices, in block transactions, or as otherwise agreed to between Antero Midstream and the sales agents. Proceeds are used for general partnership purposes, which may include repayment of indebtedness and funding working capital or capital expenditures. Antero Midstream is under no obligation to offer and sell common units under the Distribution Agreement. During the year ended December 31, 2018, Antero Midstream did not sell any common units under the Distribution Agreement. During the year ended December 31, 2017, Antero Midstream issued and sold 777,262 common units under the Distribution Agreement, resulting in net proceeds of $26 million after deducting commissions and other offering costs. As of December 31, 2018, Antero Midstream had the capacity to issue additional common units under the Distribution Agreement up to an aggregate sales price of $157 million.

On February 6, 2017, Antero Midstream formed a joint venture (the “Joint Venture”) to develop processing assets in Appalachia with MarkWest Energy Partners, L.P. (“MarkWest”), a wholly owned subsidiary of MPLX, L.P. (see Note 5). In conjunction with the formation of the Joint Venture, on February 10, 2017, Antero Midstream issued 6,900,000 common units, including common units issued pursuant to the underwriters’ option to purchase additional common units, generating net proceeds of approximately $223 million. Antero Midstream used the net proceeds to fund the initial contribution to the Joint Venture, repay outstanding borrowings under its credit facility, and for general partnership purposes.

On March 30, 2016, Antero sold 8,000,000 of its Antero Midstream common units for $178 million. On September 11, 2017, Antero sold 10,000,000 of its Antero Midstream common units for $311 million. These sales of units are reflected in stockholders’ equity as additional paid-in capital, net of taxes.

Antero Midstream also owns a 15% equity interest in the gathering system of Stonewall Gas Gathering LLC (“Stonewall”) which operates a 67-mile pipeline on which Antero is an anchor shipper.

Antero owned approximately 52.9% and 52.8% of the limited partner interests of Antero Midstream at December 31, 2017 and December 31, 2018, respectively.

Antero Midstream Partners LP

Equity Method Investments

Equity Method Investments

(5) Equity Method Investments

In 2016, Antero Midstream acquired a 15% equity interest in Stonewall Gas Gathering LLC (“Stonewall”), which operates a regional gathering pipeline on which Antero is an anchor shipper.

On February 6, 2017, Antero Midstream formed the Joint Venture to develop gas processing and fractionation assets in Appalachia with MarkWest, a wholly owned subsidiary of MPLX. Antero Midstream and MarkWest each own a 50% equity interest in the Joint Venture and MarkWest operates the Joint Venture assets, which consist of processing plants in West Virginia, and a one-third interest in a MarkWest fractionator in Ohio.

The Company’s consolidated statements of operations and comprehensive income (loss) include Antero Midstream’s proportionate share of the net income of equity method investees. When Antero Midstream records its proportionate share of net income, it increases equity income in the consolidated statements of operations and comprehensive income (loss) and the carrying value of that investment on the Company’s consolidated balance sheet. When a distribution is received, it is recorded as a reduction to the carrying value of that investment on the consolidated balance sheet. The Company uses the equity method of accounting to account for its investments in Stonewall and the Joint Venture because Antero Midstream exercises significant influence, but not control, over the entities. The Company’s judgment regarding the level of influence over its equity investments includes considering key factors such as Antero Midstream’s ownership interest, representation on the board of directors, and participation in the policy-making decisions of Stonewall and the Joint Venture.

The following table is a reconciliation of investments in unconsolidated affiliates for the years ending December 31, 2017 and 2018 in thousands):


	Stonewall (2)		MarkWest Joint Venture		Total
Balance at December 31, 2016	$	68,299		—		68,299
Investments (1)		—		235,004		235,004
Equity in net income of unconsolidated affiliates		10,304		9,890		20,194
Distributions from unconsolidated affiliates		(11,475)		(8,720)		(20,195)
Balance at December 31, 2017		67,128		236,174		303,302
Investments (1)		—		136,475		136,475
Equity in net income of unconsolidated affiliates		10,740		29,540		40,280
Distributions from unconsolidated affiliates		(9,765)		(36,650)		(46,415)
Balance at December 31, 2018	$	68,103		365,539		433,642

⁽¹⁾

Investments in the Joint Venture relate to capital contributions for construction of additional processing facilities.

⁽²⁾

Distributions are net of operating and capital requirements retained by Stonewall.