0001558370-17-005737.txt : 20170802 0001558370-17-005737.hdr.sgml : 20170802 20170802165934 ACCESSION NUMBER: 0001558370-17-005737 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 40 CONFORMED PERIOD OF REPORT: 20170630 FILED AS OF DATE: 20170802 DATE AS OF CHANGE: 20170802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Antero Midstream GP LP CENTRAL INDEX KEY: 0001623925 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 611748605 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38075 FILM NUMBER: 171000955 BUSINESS ADDRESS: STREET 1: 1615 WYNKOOP STREET CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: (303) 357-7310 MAIL ADDRESS: STREET 1: 1615 WYNKOOP STREET CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: Antero Resources Midstream Management LLC DATE OF NAME CHANGE: 20141031 10-Q 1 amgp-20170630x10q.htm 10-Q amgp_Current_Folio_10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10‑Q

 

(Mark One)

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2017

 

OR

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                    to

 

Commission file number: 001‑38075

 

ANTERO MIDSTREAM GP LP

(Exact name of registrant as specified in its charter)

 

Delaware

 

61‑1748605

(State or other jurisdiction of
incorporation or organization)

 

(IRS Employer Identification No.)

 

 

 

1615 Wynkoop Street
Denver, Colorado

 

80202

(Address of principal executive offices)

 

(Zip Code)

 

(303) 357‑7310

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☐  Yes   ☒   No*

 

*We completed our initial public offering on May 9, 2017 and, accordingly, have not been subject to the reporting requirements under Section 13 or 15(d) of the Securities Exchange Act of 1934 as amended for the past 90 days.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes  ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

 

Accelerated filer ☐

 

 

 

Non-accelerated filer ☒

 

Smaller reporting company ☐

(Do not check if a smaller reporting company)

 

 

 

 

                       Emerging growth company ☒

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☒ Yes  ☐ No

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act)  ☐ Yes  ☒ No

 

As of July 27, 2017, there were 186,174,063 common shares representing limited partner interests outstanding.

 

 

 


 

EXPLANATORY NOTE

 

Antero Midstream GP LP (“AMGP”) was originally formed as Antero Resources Midstream Management LLC (“ARMM”) in 2013, to become the general partner of Antero Midstream Partners LP (“Antero Midstream”), a master limited partnership that is publicly traded on the New York Stock Exchange (NYSE: AM). On May 4, 2017, ARMM converted from a Delaware limited liability company to a Delaware limited partnership and changed its name to Antero Midstream GP LP in connection with our initial public offering (“IPO”). Unless the context otherwise requires, references to “we” and “our” refer to: (i) for the period prior to May 4, 2017, Antero Resources Midstream Management, LLC, and (ii) beginning on May 4, 2017, Antero Midstream GP LP. We are traded on the New York Stock Exchange (NYSE: AMGP). We own 100% of the membership interests of Antero Midstream Partners GP LLC, which owns the non-economic general partner interest in Antero Midstream, and we own all of the Series A capital interests in Antero IDR Holdings LLC (“IDR LLC”), which entity owns the incentive distribution rights (“IDRs”) in Antero Midstream. IDR distributions earned by us through May 9, 2017 have been or will be distributed to Antero Resources Investment LLC (“Antero Investment”), the sole member of ARMM for all periods prior to the IPO, net of any related liabilities including income taxes through that date and expenses of the IPO.

 

 

 


 

1


 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the information in this report may contain forward-looking statements. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking statements. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. We own the general partner of Antero Midstream Partners LP (NYSE: AM) (“Antero Midstream”) and all of the capital interests in the owner of the incentive distribution rights (“IDRs”) in Antero Midstream. Antero Midstream is a master limited partnership 58.4% owned by Antero Resources Corporation (NYSE: AR) (“Antero Resources”) that was formed to primarily service Antero Resources’ production and completion activity in the Appalachian Basin’s Marcellus Shale and Utica Shale located in West Virginia and Ohio. Because the IDRs are our sole source of revenues, all potential risks and uncertainties that affect the results of operations, financial condition, or forecasts of future events of either Antero Resources or Antero Midstream will also affect us. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

·

our ability to pay distributions to our common shareholders;

·

our expected receipt of, and the amounts of, distributions from Antero Midstream and IDR LLC in respect of the IDRs;

·

Antero Resources’ expected production and ability to execute its drilling and development plan;

·

Our and Antero Midstream’s business strategies;

·

Antero Midstream’s ability to realize the anticipated benefits of its processing and fractionation joint venture with MarkWest Energy Partners, L.P.;

·

natural gas, natural gas liquids (“NGLs”), and oil prices;

·

competition and government regulations;

·

actions taken by third party producers, operators, processors and transporters;

·

legal or environmental matters;

·

costs of conducting gathering and compression operations;

·

general economic conditions;

·

credit markets;

·

operating hazards, natural disasters, weather related delays, casualty losses and other matters beyond our control;

·

uncertainty regarding Antero Midstream’s future operating results; and

2


 

·

plans, objectives, expectations and intentions contained in this report that are not historical.

We caution you that these forward looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our and Antero Midstream’s control, incident to Antero Midstream’s business. These risks include, but are not limited to, commodity price volatility, inflation, environmental risks, drilling and completion and other operating risks, regulatory changes, the uncertainty inherent in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, and the other risks described under “Risk Factors” in this Quarterly Report on Form 10-Q and in Antero Midstream’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, which has been included in this filing as Exhibit 99.1 and incorporated herein by reference.

Should one or more of the risks or uncertainties described in this report occur, or should underlying assumptions prove incorrect, our and Antero Midstream’s actual results and plans could differ materially from those expressed in any forward looking statements.

All forward looking statements, expressed or implied, included in this report are qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

3


 

PART I—FINANCIAL INFORMATION

 

 

Antero Midstream GP LP

Condensed Consolidated Balance Sheets

December 31, 2016 and June 30, 2017

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

    

December 31, 2016

    

June 30, 2017

Assets

Current assets:

 

  

 

 

  

 

Cash

 

$

9,609

 

 

11,391

Accounts receivable - related party

 

 

217

 

 

358

Total current assets

 

 

9,826

 

 

11,749

Investment in Antero Midstream Partners LP

 

 

7,543

 

 

15,328

Total assets

 

$

17,369

 

 

27,077

 

 

 

 

 

 

 

Liabilities and Partners' Capital

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

 —

 

 

347

Accrued liabilities

 

 

426

 

 

1,483

Income taxes payable

 

 

6,674

 

 

3,584

Total current liabilities

 

 

7,100

 

 

5,414

Liability for equity-based compensation

 

 

 —

 

 

2,723

Total liabilities

 

 

7,100

 

 

8,137

Partners' capital

 

 

10,269

 

 

18,940

Total liabilities and partners' capital

 

$

17,369

 

 

27,077

 

See accompanying notes to condensed consolidated financial statements.

4


 

Antero Midstream GP LP

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended June 30, 2016 and 2017

(Unaudited)

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

2016

  

2017

Equity in earnings of Antero Midstream Partners LP

$

2,731

 

 

15,328

Total income

 

2,731

 

 

15,328

General and administrative expense

 

145

 

 

3,203

Equity-based compensation

 

 —

 

 

9,631

Total expenses

 

145

 

 

12,834

Income before income taxes

 

2,586

 

 

2,494

Provision for income taxes

 

(1,036)

 

 

(5,755)

Net income (loss) and comprehensive income (loss)

$

1,550

 

 

(3,261)

 

 

 

 

 

 

Net loss attributable to Antero Midstream GP LP subsequent to IPO

 

 

 

$

(1,621)

 

 

 

 

 

 

Net loss per common share

 

 

 

$

(0.01)

 

 

 

 

 

 

Weighted average number of common shares outstanding (basic and diluted):

 

 

 

 

186,170

 

 

See accompanying notes to condensed consolidated financial statements.

5


 

Antero Midstream GP LP

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Six Months Ended June 30, 2016 and 2017

(Unaudited)

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

2016

  

2017

Equity in earnings of Antero Midstream Partners LP

$

4,581

 

 

26,881

Total income

 

4,581

 

 

26,881

General and administrative expense

 

185

 

 

5,307

Equity-based compensation

 

 —

 

 

17,954

Total expenses

 

185

 

 

23,261

Income before income taxes

 

4,396

 

 

3,620

Provision for income taxes

 

(1,738)

 

 

(10,180)

Net income (loss) and comprehensive income (loss)

$

2,658

 

 

(6,560)

 

 

 

 

 

 

Net loss attributable to Antero Midstream GP LP subsequent to IPO

 

 

 

$

(1,621)

 

 

 

 

 

 

Net loss per common share

 

 

 

$

(0.01)

 

 

 

 

 

 

Weighted average number of common shares outstanding (basic and diluted):

 

 

 

 

186,170

 

 

See accompanying notes to condensed consolidated financial statements.

 

6


 

Antero Midstream GP LP

Condensed Consolidated Statement of Partners’ Capital

Six Months Ended June 30, 2017

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares Representing Limited Partner Interests

 

Antero Resources Midstream Management LLC Members' Equity

 

Partners' Capital

Balance at December 31, 2016

 

$

 —

 

 

10,269

 

 

10,269

Pre-IPO net loss and comprehensive loss

 

 

 —

 

 

(4,939)

 

 

(4,939)

Pre-IPO equity-based compensation

 

 

 —

 

 

10,237

 

 

10,237

Conversion of Antero Resources Midstream Management LLC to a limited partnership

 

 

15,567

 

 

(15,567)

 

 

 —

Post-IPO net loss and comprehensive loss

 

 

(1,621)

 

 

 —

 

 

(1,621)

Post-IPO equity-based compensation

 

 

4,994

 

 

 —

 

 

4,994

Balance at June 30, 2017

 

$

18,940

 

 

 —

 

 

18,940

 

See accompanying notes to condensed consolidated financial statements.

7


 

Antero Midstream GP LP

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30, 2016 and 2017

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

    

2016

    

2017

 

Cash flows provided by operating activities:

 

  

 

 

  

 

 

Net income (loss)

 

$

2,658

 

 

(6,560)

 

Adjustment to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Equity in earnings of Antero Midstream Partners LP

 

 

(4,581)

 

 

(26,881)

 

Distributions received from Antero Midstream Partners LP

 

 

2,819

 

 

19,096

 

Equity-based compensation

 

 

 —

 

 

17,954

 

Deferred income taxes

 

 

(368)

 

 

 —

 

Changes in current assets and liabilities:

 

 

 

 

 

 —

 

Accounts receivable - related party

 

 

(201)

 

 

(141)

 

Accounts payable

 

 

 —

 

 

347

 

Accrued liabilities

 

 

145

 

 

1,057

 

Income taxes payable

 

 

1,941

 

 

(3,090)

 

Net cash provided by operating activities

 

 

2,413

 

 

1,782

 

Cash flows used in investing activities

 

 

 —

 

 

 —

 

Cash flows used in financing activities

 

 

 —

 

 

 —

 

Net increase in cash

 

 

2,413

 

 

1,782

 

Cash, beginning of period

 

 

72

 

 

9,609

 

Cash, end of period

 

$

2,485

 

 

11,391

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

8


 

Table of Contents

ANTERO MIDSTREAM GP LP

Notes to Condensed Consolidated Financial Statements

December 31, 2016 and June 30, 2017

 

(1)   Business and Organization

 

Antero Midstream GP LP (“AMGP”) was originally formed as Antero Resources Midstream Management LLC (“ARMM”) in 2013, to become the general partner of Antero Midstream Partners LP (“Antero Midstream”), a master limited partnership that is publicly traded on the New York Stock Exchange (NYSE: AM). On May 4, 2017, ARMM converted from a Delaware limited liability company to a Delaware limited partnership and changed its name to Antero Midstream GP LP in connection with our initial public offering (“IPO”). Unless the context otherwise requires, references to “we” and “our” refer to: (i) for the period prior to May 4, 2017, ARMM, and (ii) beginning on May 4, 2017, Antero Midstream GP LP. We own 100% of the membership interests of Antero Midstream Partners GP LLC (“AMP GP”), which owns the non-economic general partner interest in Antero Midstream, and we own all of the Series A capital interests (“Series A Units”) in Antero IDR Holdings LLC (“IDR LLC”), which entity owns the incentive distribution rights (“IDRs”) in Antero Midstream.  IDR LLC also has Series B profits interests (“Series B Units”) outstanding that entitle the holders to receive up to 6% of the distributions that Antero Midstream makes on the IDRs in excess of $7.5 million per quarter, subject to certain vesting conditions (see Note 3—Long-Term Incentive Plans).

 

Our only income results from distributions made on the IDRs of Antero Midstream. IDRs entitle holders to receive cash distributions from Antero Midstream when distributions exceed certain target amounts (see Note 4 – Distributions from Antero Midstream).  We are taxed as a corporation for U.S. federal income tax purposes and we refer to our outstanding limited partner interests as common shares.

 

We are managed by our general partner, AMGP GP LLC (“AMGP GP”), who will establish the quarterly cash distribution for our shares payable to shareholders. AMGP GP has a board of directors appointed by certain members of Antero Resources Investment LLC (“Antero Investment”) the former member of ARMM. Following the completion of our IPO, certain of our directors and executive officers own AMGP common shares as well as Series B Units in IDR LLC. In addition, certain of our directors and executive officers own a portion of Antero Resources Corporation’s (“Antero Resources”) (NYSE: AR) common stock and Antero Midstream’s common units. We have an agreement with Antero Resources to provide general and administrative services to us for a fee of $0.5 million per year, subject to annual inflation adjustments. We also incur recurring direct expenses for the costs associated with being a publicly traded entity.

 

IDR distributions earned by us through May 9, 2017 have been or will be distributed to Antero Investment for all periods prior to the IPO, net of any related liabilities including income taxes through that date and expenses of the IPO.

 

Antero Midstream was formed by Antero Resources to own, operate and develop midstream energy assets to service Antero Resources’ oil and gas producing assets. Both Antero Midstream and Antero Resources’ assets are located in the Marcellus Shale and Utica Shale located in West Virginia and Ohio. Antero Midstream’s assets consist of gathering pipelines, compressor stations, and water handling and treatment systems, which provide midstream services to Antero Resources under long term, fixed fee contracts. The Partnership also has a 15% equity interest in the gathering system of Stonewall Gas Gathering LLC (“Stonewall”) and a 50% equity interest in a joint venture to develop processing and fractionation assets with MarkWest Energy Partners, L.P. (“MarkWest”). Our results of operations, financial position and cash flows are dependent on the results of operations, financial position and cash flows of Antero Midstream. As a result, these unaudited condensed consolidated financial statements should be read in conjunction with Antero Midstream’s audited combined consolidated financial statements and notes thereto presented in its Annual Report on Form 10-K for the year ended December 31, 2016, as well as Antero Midstream’s unaudited condensed consolidated financial statements presented in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.

 

9


 

Table of Contents

ANTERO MIDSTREAM GP LP

Notes to Condensed Consolidated Financial Statements

December 31, 2016 and June 30, 2017

 

(2)   Summary of Significant Accounting Policies

 

(a)   Basis of Presentation

 

These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial information. The accompanying unaudited condensed financial statements of AMGP have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and, accordingly, do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, these statements include all adjustments (consisting of normal and recurring accruals) considered necessary for a fair presentation of our financial position as of December 31, 2016 and June 30, 2017, and our results of operations and cash flows for the three and six months ended June 30, 2016 and 2017. We have no items of other comprehensive income (loss); therefore, our net income (loss) is identical to our comprehensive income (loss). Operating results for the period ended June 30, 2017 are not necessarily indicative of the results that may be expected for the full year.

 

As of the date these condensed consolidated financial statements were filed with the SEC, AMGP completed its evaluation of potential subsequent events for disclosure and no items requiring disclosure were identified other than as disclosed in Note 7 – Subsequent Events.

 

(b)   Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of Antero Midstream GP LP and its wholly-owned subsidiaries AMP GP and IDR LLC.

 

(c)   Investment in Antero Midstream

 

We have determined that Antero Midstream is a variable interest entity (“VIE”) for which we are not the primary beneficiary and therefore do not consolidate. We have concluded that Antero Resources is the primary beneficiary of Antero Midstream and should consolidate its financial statements. Antero Resources is the primary beneficiary based on its power to direct the activities that most significantly impact Antero Midstream’s economic performance and its obligations to absorb losses or receive benefits of Antero Midstream that could be significant to it. Antero Resources owns approximately 58.4% of the outstanding limited partner interests in Antero Midstream and its officers and management group also act as management of Antero Midstream. Antero Midstream was formed to own, operate and develop midstream energy assets to service Antero Resources’ production under long term contracts as described herein. We do not own any limited partnership interests in Antero Midstream and have no capital interests in Antero Midstream. We have not provided and do not anticipate providing financial support to Antero Midstream.

Antero Resources and Antero Midstream have contracts with 20 year initial terms and automatic renewal provisions, whereby Antero Resources has dedicated the gathering and compression rights, water delivery and handling services, and gas processing rights to Antero Midstream on a fee basis on all of its current and future acreage, excluding any pre-existing dedications or third-party commitments. The contracts call for Antero Resources to present, in advance, drilling and completion plans in order for Antero Midstream to put in place gathering and compression, water handling, and gas processing assets to service Antero Resources’ assets. The drilling and completion capital investment decisions made by Antero Resources controls the development and operation of all of Antero Midstream’s assets. Antero Resources therefore controls the activities that most significantly impact Antero Midstream’s economic performance. Because of these contractual obligations and the capital requirements related to these obligations, Antero Midstream has devoted and, for the foreseeable future, will devote substantially all of its resources to servicing Antero Resources’ operations and revenues from Antero Resources will provide substantially all of Antero Midstream’s financial support and therefore

10


 

Table of Contents

ANTERO MIDSTREAM GP LP

Notes to Condensed Consolidated Financial Statements

December 31, 2016 and June 30, 2017

 

its ability to finance its operations. Because of the long term contractual commitment to support Antero Resources’ substantial growth plans, Antero Midstream will be practically and physically constrained from providing any substantive amount of services to third parties.

Our ownership of the non-economic general partner interest in Antero Midstream provides us with significant influence over Antero Midstream, but not control over the decisions that most significantly impact the economic performance of Antero Midstream. Our ownership of IDRs of Antero Midstream entitles us to receive cash distributions from Antero Midstream when distributions exceed certain target amounts. The ownership of these interests and IDRs do not require us to provide financial support to Antero Midstream. We obtained these interests upon our formation for no consideration. Therefore, they have no cost basis and are classified as long term investments. Our share of Antero Midstream’s earnings as a result of our ownership of IDRs is accounted for using the equity method of accounting. We recognize distributions earned from Antero Midstream as “Equity in earnings of Antero Midstream Partners LP” on our statement of operations in the period in which they are earned and are allocated to our capital account. Our long term interest in IDRs on the balance sheet is recorded in “Investment in Antero Midstream Partners LP.” The ownership of the general partner interests and IDRs do not provide us with any claim to the assets of Antero Midstream other than the balance in our Antero Midstream capital account. IDRs are recognized as earned and increase our capital account and equity investment. When these distributions are paid to us they reduce our capital accounts and our equity investment in Antero Midstream. See Note 4—Distributions from Antero Midstream.

 

(d)   Use of Estimates

 

The preparation of the condensed consolidated financial statements and notes in conformity with GAAP requires that management formulate estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

 

(e)   Income Taxes

 

We regularly review our tax positions in each significant taxing jurisdiction in the process of evaluating our tax provision. We make adjustments to our tax provision when: (i) facts and circumstances regarding a tax position change, causing a change in management’s judgment regarding that tax position; and/or (ii) a tax position is effectively settled with a tax authority at a differing amount.

 

Equity-based compensation expense of $18.0 million and IPO costs of $5.0 million are not and will not be deductible for federal income tax purposes and, along with the effect of state taxes, account for the difference between the federal tax rate of 35% and the rate at which the income tax expense was provided for the six months ended June 30, 2017.

 

(f)   General and Administrative Expenses

 

General and administrative costs incurred during 2016 and 2017 primarily relate to legal and other costs incurred in connection with our IPO. Post-IPO general and administrative expense consist primarily of management fees paid to Antero Resources, and other legal and administrative expenses.

 

(g) Fair Value Measures

 

The Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures , clarifies the definition of fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance also relates to all nonfinancial assets and liabilities that are not recognized or disclosed on a recurring basis (e.g., the initial recognition of asset retirement obligations and impairments of long ‑lived assets). The fair value is the price that we estimate would be received to sell

11


 

Table of Contents

ANTERO MIDSTREAM GP LP

Notes to Condensed Consolidated Financial Statements

December 31, 2016 and June 30, 2017

 

an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is used to prioritize inputs to valuation techniques used to estimate fair value. An asset or liability subject to the fair value requirements is categorized within the hierarchy based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The highest priority (Level 1) is given to unadjusted quoted market prices in active markets for identical assets or liabilities, and the lowest priority (Level 3) is given to unobservable inputs. Level 2 inputs are data, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly.

 

 

(3)   Long-Term Incentive Plans

 

IDR LLC has 99,500 Series B Units authorized and outstanding that entitle the holders to receive up to 6% of the amount of the distributions that Antero Midstream makes on its IDRs in excess of $7.5 million per quarter, subject to certain vesting conditions.  Series B Units issued to common law employees of AMGP, including officers of AMGP and Antero Resources employees who provide services directly to AMGP, are classified as equity awards. Series B Units issued to Antero Resources employees who are not common law employees of AMGP are classified as liability awards. IDR LLC granted 92,000 Series B Units that are equity classified awards and 8,000 Series B Units that are liability classified awards. During the second quarter of 2017, 500 Series B Units that were equity classified awards were forfeited. The Series B Units vest ratably over a three year period. The holders of vested Series B Units have the right to convert the units to common shares with a value equal to their pro rata share of up to 6% of any increase in our equity value in excess of $2.0 billion. In no event will the aggregate number of newly issued common shares exceed 6% of the total number of our issued and outstanding common shares.

 

For equity classified awards, we recognize expense for the grant date fair value of the awards over the vesting period of the awards. Forfeitures are accounted for as they occur by reversing expense previously recognized for awards that were forfeited during the period.  The grant date fair value of the Series B Unit awards was estimated using a Monte Carlo simulation using various assumptions including a floor equity value of $2.0 billion, expected volatility of 43% based on historical volatility of a peer group of publicly traded partnerships, a risk free rate of 2.45%, and expected IDR distributions based on internal estimates discounted based on a weighted average cost of capital assumption of 7.25%. Based on these assumptions, the estimated value of each Series B Unit was $999 when they were issued.

 

For liability classified awards, we recognize expense for the fair value of the awards over the vesting period of the awards. Forfeitures are accounted for as they occur by reversing expense previously recognized for awards that were forfeited during the period. We update our assumptions each reporting period based on new developments and adjust such amounts to fair value based on revised assumptions, if applicable, over the vesting period. At June 30, 2017, the fair value of the Series B Unit awards was estimated using a Monte Carlo simulation using various assumptions including an equity value of $4.1 billion, expected volatility of 42% based on historical volatility of a peer group of publicly traded partnerships, a risk free rate of 2.28%, and expected IDR distributions based on internal estimates discounted based on a weighted average cost of capital assumption of 7.25%. Based on these assumptions, the estimated value of each Series B Unit at June 30, 2017 is $2,042.  The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy.

 

We recognized expense, of $9.6 million, of which $7.5 million is classified as equity awards and $2.1 million is classified as liability awards, during the three months ended June 30, 2017. We recognized expense of $18.0 million, of which $15.3 million is classified as equity awards and $2.7 million is classified as liability awards, during the six months ended June 30, 2017. As of June 30, 2017, there was $89.8 million of unamortized compensation expense related to nonvested Series B Units that is expected to be recognized over the next 2.5 years.

 

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Table of Contents

ANTERO MIDSTREAM GP LP

Notes to Condensed Consolidated Financial Statements

December 31, 2016 and June 30, 2017

 

On April 17, 2017, we also adopted the Antero Midstream GP LP Long-Term Incentive Plan (“2017 LTIP”), pursuant to which certain non-employee directors of our general partner and certain officers, employees and consultants of Antero Resources are eligible to receive awards representing equity interests in AMGP. An aggregate of 930,851 common shares may be delivered pursuant to awards under the 2017 LTIP, subject to customary adjustments. As of June 30, 2017, no awards had been made under the 2017 LTIP.

 

(4)   Distributions from Antero Midstream

 

Antero Midstream’s partnership agreement provides for a target minimum quarterly distribution of $0.17 per unit for each quarter, or $0.68 per unit on an annualized basis. The partnership agreement generally provides that it distribute cash each quarter to the holders of the common units pro rata until each unit has received a distribution of $0.1955.

 

If cash distributions to Antero Midstream’s unitholders exceed $0.1955 per common unit in any quarter, IDR LLC, as the holder of Antero Midstream’s IDRs, will receive distributions according to the following percentage allocations:

 

 

 

 

 

 

 

 

 

 

Marginal Percentage Interest in Distributions

Total Quarterly Distribution
Target Amount

 

Antero Midstream Common Unitholders

 

Holder of IDRs

above $0.1955 up to $0.2125

 

85

%  

 

15

%  

above $0.2125 up to $0.2550

 

75

%  

 

25

%  

above $0.2550

 

50

%  

 

50

%  

 

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Table of Contents

ANTERO MIDSTREAM GP LP

Notes to Condensed Consolidated Financial Statements

December 31, 2016 and June 30, 2017

 

From the initial public offering of Antero Midstream in the fourth quarter of 2014 through June 30, 2017, distributions per common unit and distributions related to the IDRs were as follows:

 

 

 

 

 

 

 

 

 

 

Quarter
and
Year

    

Distribution Date

    

Antero Midstream Distribution Amount
per Common Unit

    

Income Attributable to IDRs
($ thousands)

Q4 2014

 

February 27, 2015

 

$

0.0943

 

$

 —

Q1 2015

 

May 27, 2015

 

$

0.1800

 

$

 —

Q2 2015

 

August 27, 2015

 

$

0.1900

 

$

 —

Q3 2015

 

November 30, 2015

 

$

0.2050

 

$

295

Q4 2015

 

February 29, 2016

 

$

0.2200

 

$

969

Q1 2016

 

May 25, 2016

 

$

0.2350

 

$

1,850

Q2 2016

 

August 24, 2016

 

$

0.2500

 

$

2,731

Q3 2016

 

November 24, 2016

 

$

0.2650

 

$

4,820

Q4 2016

 

February 8, 2017

 

$

0.2800

 

$

7,543

Q1 2017

 

May 10, 2017

 

$

0.3000

 

$

11,553

Q2 2017

 

August 16, 2017

 

$

0.3200

 

$

15,328

 

IDR distributions paid by Antero Midstream relating to periods prior to May 9, 2017, the closing of our IPO, have been or will be distributed to Antero Investment.

 

(5)   Related Party Transactions

 

Certain of AMGP’s shareholders, including members of its executive management group, own a significant interest in AMGP and, either through their representatives or directly, serve as members of the Board of Directors for Antero Resources and the Boards of Directors for the general partners of Antero Midstream and AMGP.  These same groups or individuals own common shares in Antero Resources and limited partner interests Antero Midstream.  AMGP’s executive management group also manages the operations and business affairs of Antero Resources and Antero Midstream.

(a) Accounts receivable – related party

 

Accounts receivable at December 31, 2016 and June 30, 2017 includes general and administrative expenses of $0.2 million and $0.4 million respectively, paid by AMGP on behalf of Antero Investment.

 

(b) Accounts payable

 

Accounts payable at December 31, 2016 and June 30, 2017 includes $0.3 million payable to Antero Resources for general and administrative expenses.

 

(6)   Summarized Financial Information for Antero Midstream

 

Summarized financial information for Antero Midstream, our investee accounted for using the equity method of accounting, is included in this note. The following tables present summarized income statement and balance sheet information for Antero Midstream (in thousands).

 

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Table of Contents

ANTERO MIDSTREAM GP LP

Notes to Condensed Consolidated Financial Statements

December 31, 2016 and June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summarized Antero Midstream Income Statement Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2016

 

2017

  

2016

 

2017

 

 

(in thousands)

Revenues

 

$

136,810

 

 

193,766

 

 

272,882

 

 

368,536

Operating expenses

 

 

83,503

 

 

101,199

 

 

172,955

 

 

194,272

Operating income

 

$

53,307

 

 

92,567

 

 

99,927

 

 

174,264

Net income

 

 

49,912

 

 

87,175

 

 

92,829

 

 

162,267

Net income attributable to incentive distribution rights

 

 

(2,731)

 

 

(15,328)

 

 

(4,581)

 

 

(26,881)

Limited partners' interest in net income

 

$

47,181

 

 

71,847

 

 

88,248

 

 

135,386

 

 

 

 

 

 

 

 

Summarized Antero Midstream Balance Sheet Information

 

 

 

 

 

 

 

 

 

December 31, 2016

 

June 30, 2017

 

 

(in thousands)

Current assets

 

$

79,950

 

 

98,126

Non-current assets

 

$

2,269,945

 

 

2,663,811

Current liabilities

 

$

82,013

 

 

95,366

Non-current liabilities

 

$

1,045,072

 

 

1,147,618

Partners' capital

 

$

1,222,810

 

 

1,518,953

 

 

 

(7)Subsequent Events

 

The board of directors of our general partner has declared a cash distribution of $0.027 per share for the quarter ended June 30, 2017. The distribution reflects pro-rated distribution for the quarter from the closing of our IPO on May 9, 2017 through June 30, 2017. The distribution will be payable on August 23, 2017 to shareholders of record as of August 3, 2017.

 

 

 

 

 

 

 

 

 

15


 

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

You should read the following discussion and analysis of financial condition and results of operations in conjunction with the condensed consolidated financial statements, and notes thereto, included elsewhere in this report. The information provided below supplements, but does not form part of, our condensed consolidated financial statements. This discussion contains forward looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on these items that could impact our future operating performance or financial condition, please see “Item 1A. Risk Factors” and the section entitled “Cautionary Statement Regarding Forward Looking Statements.” We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law. For more information please refer to the final prospectus dated May 3, 2017, filed with the SEC on May 5, 2017, and Antero Midstream’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, which has been included in this filing as Exhibit 99.1 and incorporated herein by reference.

 

Overview

 

We are a Delaware limited partnership that is taxed as a corporation for U.S. federal income tax purposes. We own 100% of the membership interests in Antero Midstream Partners GP LLC, which owns the non-economic general partner interest in Antero Midstream Partners LP (NYSE: AM) (“Antero Midstream”) and we own all of the Series A capital interests (“Series A Units”) in Antero IDR Holdings (“IDR LLC”), which owns the incentive distribution rights (“IDRs”) in Antero Midstream. IDR LLC also has Series B profits interests (“Series B Units”) outstanding that entitle the holders to receive up to 6% of the distributions tha Antero Midstream makes on the IDRs in excess of $7.5 million per quarter, subject to certain vesting conditions. Antero Midstream is a growth-oriented master limited partnership 58.4% owned by Antero Resources Corporation (NYSE: AR) (“Antero Resources”) and formed to own, operate and develop midstream energy infrastructure primarily to service Antero Resources’ rapidly increasing production and completion activity in the Appalachian Basin’s Marcellus Shale and Utica Shale located in West Virginia and Ohio. We believe that Antero Midstream’s strategically located assets and integrated relationship with Antero Resources position it to be a leading Appalachian midstream provider across the full midstream value chain.

 

Our revenues are generated solely from the cash distributions we receive from Antero Midstream through our interests in IDR LLC. Because our success is dependent upon the operations and management of Antero Midstream and its resulting performance, Antero Midstream’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, has been included in this filing as Exhibit 99.1 and incorporated herein by reference.

 

Address, Internet Website and Availability of Public Filings

 

Our principal executive offices are at 1615 Wynkoop Street, Denver, Colorado 80202. Our telephone number is (303) 357‑7310. Our website is located at www.anteromidstreamgp.com.

 

We will make available free of charge our Annual Reports on Form 10‑K, our Quarterly Reports on Form 10‑Q and our Current Reports on Form 8‑K as soon as reasonably practicable after we file such material with, or furnish it to, the SEC. These documents are located on our website under the “Investors Relations” link.

 

Information on our website is not incorporated into this Quarterly Report on Form 10‑Q or our other filings with the SEC and is not a part of them.

 

Second Quarter 2017 Developments and Highlights

 

Cash Distributions

 

We distribute cash available for distribution to our shareholders. Cash available for distribution is the cash distribution received from Antero Midstream reduced by reserves for estimated federal and state income taxes, general and

16


 

administrative expenses, and reserves for other purposes deemed necessary by the board of directors of our general partner. Our calculation of estimated cash available for distribution for the period indicated is as follows (in thousands):

 

 

 

 

 

 

 

Six Months Ended June 30, 2017

Cash distributions from Antero Midstream Partners LP

 

$

26,881

General and administrative expenses

 

 

(5,307)

Provision for income taxes

 

 

(10,180)

Reserve for distribution on unvested Series B Units

 

 

(709)

Cash available for distribution

 

$

10,685

 

 

 

 

Cash available for distribution attributable to Antero Midstream Partners LP subsequent to IPO

 

$

4,969

 

The board of directors of our general partner has declared a cash distribution of $0.027 per share for the quarter ended June 30, 2017. The distribution reflects pro-rated distribution for the quarter from the closing of our IPO on May 9, 2017 through June 30, 2017. The distribution will be payable on August 23, 2017 to shareholders of record as of August 3, 2017.

 

Items Affecting Comparability of Our Financial Results

 

Certain of the historical financial results discussed below may not be comparable to future financial results primarily as a result of the significant increase in the scope of Antero Midstream’s operations over the last several years. Antero Midstream’s gathering and compression and water handling and treatment systems are relatively new, as a substantial portion of these assets have built within the last four years. Accordingly, Antero Midstream’s revenues and expenses over that time reflect the significant increase in operations. Similarly, Antero Resources has experienced significant changes in its production and drilling and completion schedule over that same period. As our revenue is predicated on Antero Midstream’s cash available for distribution, any change in Antero Midstream’s revenue and expenses could have a direct impact on us. Accordingly, it may be difficult to project trends from our historical financial data going forward. In addition, our historical results of operations do not reflect the incremental expenses we expect to incur as a result of being a publicly traded company.

 

Results of Operations

 

Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of

 

 

Three Months Ended June 30,

 

Increase

 

 

2016

  

2017

 

(Decrease)

  

Equity in earnings of Antero Midstream Partners LP

$

2,731

 

 

15,328

 

 

12,597

 

Total income

 

2,731

 

 

15,328

 

 

12,597

 

General and administrative expense

 

145

 

 

3,203

 

 

3,058

 

Equity-based compensation

 

 —

 

 

9,631

 

 

9,631

 

Total expenses

 

145

 

 

12,834

 

 

12,689

 

Income before income taxes

 

2,586

 

 

2,494

 

 

(92)

 

Provision for income taxes

 

(1,036)

 

 

(5,755)

 

 

(4,719)

 

Net income (loss) and comprehensive income (loss)

$

1,550

 

 

(3,261)

 

 

(4,811)

 

 

Equity in earnings of Antero Midstream Partners LP. Equity in earnings of Antero Midstream increased from $2.7 million for the three months ended June 30, 2016 to $15.3 million for the three months ended June 30, 2017. Antero Midstream’s per-unit distribution increased from $0.25 per unit in the second quarter of 2016 to $0.32 in the second quarter of 2017, resulting in the increase in IDRs and resulting increase in our equity in earnings of Antero Midstream.

17


 

 

General and administration expenses. General and administration expenses increased from less than $0.2 million for the three months ended June 30, 2016 to $3.2 million for the three months ended June 30, 2017. In the second quarter of 2016, we did not incur any significant general and administrative costs because we had no operations; however, in the second quarter of 2017 we incurred approximately $2.9 million of general and administrative costs primarily in connection with our IPO.

 

Equity-based compensation expenses. Equity-based compensation expenses increased from zero for the three months ended June 30, 2016 to $9.6 million for the three months ended June 30, 2017. The increase was due to the issuance of equity-based compensation in the form of Series B Units. See Note 3 to the condensed consolidated financial statements.

 

Income tax expense. Income tax expense increased from $1.1 million for the three months ended June 30, 2016 to $5.8 million for the three months ended June 30, 2017. The increase is primarily due to higher taxable income as a result of the increase in equity in earnings of Antero Midstream Partners LP related to the IDRs.

 

The difference between income tax expense and expected income tax expense computed by applying the federal statutory rate of 35% to pre-tax income is caused by nondeductible equity-based compensation and IPO expenses and state income taxes.

 

Net income (loss) and comprehensive income (loss). Net income (loss) and comprehensive income (loss) decreased from net income of $1.6 million for the three months ended June 30, 2016 to a net loss of $3.3 million for the three months ended June 30, 2017. The decrease was primarily due to an increase in equity-based compensation and general and administrative expenses, partially offset by the increase in equity in earnings of Antero Midstream Partners LP in the second quarter of 2017.

 

18


 

Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of

 

 

Six Months Ended June 30,

 

Increase

 

 

2016

  

2017

 

(Decrease)

  

Equity in earnings of Antero Midstream Partners LP

$

4,581

 

 

26,881

 

 

22,300

 

Total income

 

4,581

 

 

26,881

 

 

22,300

 

General and administrative expense

 

185

 

 

5,307

 

 

5,122

 

Equity-based compensation

 

 —

 

 

17,954

 

 

17,954

 

Total expenses

 

185

 

 

23,261

 

 

23,076

 

Income before income taxes

 

4,396

 

 

3,620

 

 

(776)

 

Provision for income taxes

 

(1,738)

 

 

(10,180)

 

 

(8,442)

 

Net income (loss) and comprehensive income (loss)

$

2,658

 

 

(6,560)

 

 

(9,218)

 

 

Equity in earnings of Antero Midstream Partners LP. Equity in earnings of Antero Midstream increased from $4.6 million for the six months ended June 30, 2016 to $26.9 million for the six months ended June 30, 2017. Antero Midstream’s per-unit distribution increased from $0.25 per unit in the second quarter of 2016 to $0.32 in the second quarter of 2017, resulting in the increase in IDRs and resulting increase in our equity in earnings of Antero Midstream.

 

General and administration expenses. General and administration expenses increased from $0.2 million for the six months ended June 30, 2016 to $5.3 million for the six months ended June 30, 2017. In the second quarter of 2016 we did not incur any significant general and administrative costs because we had no operations; however, in the second quarter of 2017 we incurred approximately $5.0 million of general and administrative costs primarily in connection with our IPO.

 

Equity-based compensation expenses. Equity-based compensation expenses increased from zero for the six months ended June 30, 2016 to $18.0 million for the six months ended June 30, 2017. The increase was due to the issuance of equity-based compensation in the form of Series B Units. See Note 3 to the condensed consolidated financial statements.

 

Income tax expense. Income tax expense increased from $1.7 million for the six months ended June 30, 2016 to $10.2 million for the six months ended June 30, 2017. The increase is primarily due to higher taxable income as a result of the increase in equity in earnings of Antero Midstream Partners LP related to the IDRs.

 

The difference between income tax expense and expected income tax expense computed by applying the federal statutory rate of 35% to pre-tax income is caused by nondeductible equity-based compensation and IPO expenses and state income taxes.

 

Net income (loss) and comprehensive income (loss). Net income (loss) and comprehensive income (loss) decreased from net income of $2.7 million for the six months ended June 30, 2016 to a net loss of $6.6 million for the six months ended June 30, 2017. The decrease was primarily due to an increase in equity-based compensation and general and administrative expenses, partially offset by the increase in equity in earnings of Antero Midstream Partners LP in 2017.

 

Capital Resources and Liquidity

 

Sources and Uses of Cash

 

As a result of our interest in IDR LLC, we will receive at least 94% of the cash distributions paid by Antero Midstream on the IDRs. Our interest in the IDR distributions is our only cash-generating asset.  We expect that capital resources generated from IDR distributions from Antero Midstream will be adequate to meet our working capital requirements and expected quarterly cash distributions for at least the next twelve months.

 

19


 

Cash Flows Provided by Operating Activities

 

Although distributions from Antero Midstream increased by $16.3 million in 2017 compared to 2016, general and administrative expenses (primarily attributable to the IPO) increased by $5.1 million, and $13.3 million of cash was paid in 2017 for 2016 and 2017 income taxes. These changes together with other working capital items, resulted in cash provided by operating activities remaining at $2.4 million for the six months ended June 30, 2016 and $1.8 million for the six months ended June 30, 2017.

 

Cash Flows Used in Investing and Financing Activities

 

We did not have any investing or financing cash flow activities during the three months ended June 30, 2016 or 2017.

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our financial statements.

 

Equity-Based Compensation

 

Equity-based compensation grants are measured at their grant date fair value and related compensation cost is recognized over the vesting period of the grant. Compensation cost for awards with graded vesting provisions is recognized on a straight line basis over the requisite service period of each separately vesting portion of the award. Estimating the fair value of each award involves a number of significant estimates including interest rates, expected volatility of our equity value, and expected distributions on the Series B Units.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2017, we did not have any off-balance sheet arrangements.

 

 

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.

 

The nature of our business and operations is such that no activities or transactions are conducted or entered into by us that would require us to have a discussion under this item.

For a discussion of these matters as they pertain to Antero Midstream, please read Item 3. “Quantitative and Qualitative Disclosures About Market Risk” of Antero Midstream’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, which has been included in this filing as Exhibit 99.1 and incorporated herein by reference, as the activities of Antero Midstream have a significant impact on our results of operations and financial position.

Item 4.   Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a15(b) under the Securities Exchange Act of 1934, as amended (the Exchange Act), we have evaluated, under the supervision and with the participation of our management, including our principal executive officer

20


 

and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a15(e) and 15d15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2017 at a reasonable assurance level.

 

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) during the second quarter of 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

21


 

PART II—OTHER INFORMATION

 

Item 1.   Legal Proceedings.

 

Our operations are subject to a variety of risks and disputes normally incident to our business. As a result, we may, at any given time, be a defendant in various legal proceedings and litigation arising in the ordinary course of business. However, we are not currently subject to any material litigation.

 

Item 1A. Risk Factors. 

 

We are subject to the risks set forth in our prospectus dated May 3, 2017 and filed with the SEC on May 5, 2017 that were set forth under the caption “Risk Factors.” The risks described in our prospectus could materially and adversely affect our business, financial condition, cash flows, and results of operations. There have been no material changes to the risks described in our prospectus and under the heading “Risk Factors” in Antero Midstream’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, which has been included in this filing as Exhibit 99.1 and incorporated herein by reference. We may experience additional risks and uncertainties not currently known to us, or, as a result of developments occurring in the future, conditions that we currently deem to be immaterial may also materially and adversely affect our business, financial condition, cash flows and results of operations.

 

Certain holders of our common shares have investments in our affiliates that may conflict with the interests of other holders of our common shares.

Certain funds affiliated with Warburg Pincus LLC (“Warburg”), certain funds affiliated with Yorktown Partners LLC (“Yorktown”), Paul M. Rady and Glen C. Warren, Jr. (collectively, the “Sponsors”) collectively own 100% of our general partner, a majority of our outstanding common shares and a portion of the Series B Units in IDR LLC.  Affiliates of Warburg and Yorktown, Mr. Rady and Mr. Warren serve as members of the board of directors of our general partner and board of directors of Antero Resources, and each of  Warburg and Yorktown are controlled in part by individuals who serve as members of the board of directors of our general partner and the board of directors of Antero Resources. The Sponsors also own common units representing limited partner interests in Antero Midstream and shares of common stock in Antero Resources. As a result of their investments in Antero Midstream and Antero Resources, the Sponsors may have conflicts of interest with other holders of our common shares. These conflicts of interest could arise in the future between us, on the one hand, and the Sponsors, on the other hand, regarding, among other things, decisions to modify or limit the IDRs in the future, the terms of our agreements with Antero Midstream and Antero Resources and their respective subsidiaries and the pursuit of potentially competitive business activities or business opportunities.

 

Item 5.   Other Information. 

 

Disclosure pursuant to Section 13(r) of the Securities Exchange Act of 1934

 

Pursuant to Section 13(r) of the Securities Exchange Act of 1934, we, Antero Midstream GP LP, may be required to disclose in our annual and quarterly reports to the SEC, whether we or any of our “affiliates” knowingly engaged in certain activities, transactions or dealings relating to Iran or with certain individuals or entities targeted by U.S. economic sanctions. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law. Because the SEC defines the term “affiliate” broadly, it includes any entity under common “control” with us (and the term “control” is also construed broadly by the SEC).

 

The description of the activities below has been provided to us by Warburg, affiliates of which: (i) beneficially own more than 10% of our outstanding common shares and/or are members of our general partner’s board of directors, (ii) beneficially own more than 10% of the equity interests of, and have the right to designate members of the board of directors of Santander Asset Management Investment Holdings Limited (“SAMIH”). SAMIH may therefore be deemed to be under common “control” with us; however, this statement is not meant to be an admission that common control exists.

 

22


 

The disclosure below relates solely to activities conducted by SAMIH and its affiliates. The disclosure does not relate to any activities conducted by us or by Warburg and does not involve our or Warburg’s management. Neither we nor Warburg has had any involvement in or control over the disclosed activities, and neither we nor Warburg has independently verified or participated in the preparation of the disclosure. Neither we nor Warburg is representing as to the accuracy or completeness of the disclosure nor do we or Warburg undertake any obligation to correct or update it.

 

We understand that one or more SEC-reporting affiliates of SAMIH intend to disclose in their next annual or quarterly SEC report that:

 

a) Santander UK plc (“Santander UK”) holds two savings accounts and one current account for two customers resident in the United Kingdom (“UK”) who are currently designated by the United States (“US”) under the Specially Designated Global Terrorist (“SDGT”) sanctions program. Revenues and profits generated by Santander UK on these accounts in the first half of calendar year (“CY”) 2017 were negligible relative to the overall revenues and profits of Banco Santander SA.

(b) Santander UK holds two frozen current accounts for two UK nationals who are designated by the US under the SDGT sanctions program. The accounts held by each customer have been frozen since their designation and have remained frozen through the first half of CY 2017. The accounts are in arrears (£1,844.73 in debit combined) and are currently being managed by Santander UK Collections & Recoveries department. No revenues or profits were generated by Santander UK on this account in the first half of CY 2017.

 

Item 6.   Exhibits.

 

The exhibits required to be filed pursuant to the requirements of Item 601 of Regulation S-K are set forth in the Exhibit Index accompanying this Form 10‑Q and are incorporated herein by reference.

 

23


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

 

ANTERO MIDSTREAM GP LP

 

 

 

 

 

 

By:

AMGP GP LLC, its general partner

 

 

 

 

 

 

By:

/s/ Michael Kennedy

 

 

 

Michael Kennedy

 

 

 

Chief Financial Officer

 

 

 

 

 

 

Date:

August 2, 2017

 

 

 

 

24


 

EXHIBIT INDEX

 

 

 

 

3.1

 

Certificate of Conversion of Antero Resources Midstream Management LLC from a Delaware limited liability company to a Delaware limited partnership, dated as of May 4, 2017 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8‑K (Commission File No. 001‑ 38075) filed on May 9, 2017).

3.2

 

Certificate of Limited Partnership of Antero Midstream GP LP, dated as of May 4, 2017 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8‑K  (Commission File No. 001‑ 38075) filed on May 9, 2017).

3.3

 

Agreement of Limited Partnership of Antero Midstream GP LP, dated as of May 9, 2017, by and between AMGP GP LLC, as the General Partner, and Antero Resources Investment LLC, as the Organizational Limited Partner  (incorporated by reference to Exhibit 3.3 to the Current Report on Form 8‑K (Commission File No. 001‑ 38075) filed on May 9, 2017).

3.4

 

Certificate of Formation of AMGP GP LLC, dated as of April 18, 2017 (incorporated by reference to Exhibit 3.5 to Antero Resources Midstream Management LLC’s  Registration Statement on Form S-1 (Commission File No. 333‑ 216975) filed on April 24, 2017).

3.5

 

Limited Liability Company Agreement of AMGP GP LLC, dated as of May 9, 2017, by and among Warburg Pincus Private Equity X O&G, L.P., Warburg Pincus X Partners, L.P., Warburg Pincus Private Equity VIII, LP, Warburg Pincus Netherlands Private Equity VIII C.V.I, WP-WPVIII Investors, L.P., Yorktown Energy Partners V, L.P., Yorktown Energy Partners VI, L.P., Yorktown Energy Partners VII, L.P., Yorktown Energy Partners VIII, L.P., Paul M. Rady and Glen C. Warren, Jr. (incorporated by reference to Exhibit 3.4 to the Current Report on Form 8‑K (Commission File No. 001‑ 38075) filed on May 9, 2017).

3.6

 

Agreement of Limited Partnership of Antero Midstream Partners LP dated as of November 10, 2014 (incorporated by reference to Exhibit 3.1 to Antero Midstream Partners LP's Current Report on Form 8-K filed November 17, 2014).

3.7

 

Amendment No. 1 dated February 23, 2016 to the Agreement of Limited Partnership of Antero Midstream Partners LP (incorporated by reference to Exhibit 3.4 to Antero Midstream Partners LP's Annual Report on Form 10-K filed February 24, 2016).

3.8

 

Limited Liability Company Agreement of Antero IDR Holdings LLC dated December 31, 2016 (incorporated by reference to Exhibit 3.9 to Antero Resources Midstream Management LLC’s  Registration Statement on Form S-1 (Commission File No. 333‑ 216975) filed on April 7, 2017).

4.1

 

Registration Rights Agreement, dated as of May 9, 2017, by and among Antero Midstream GP LP, Warburg Pincus Private Equity X O&G, L.P., Warburg Pincus X Partners, L.P., Warburg Pincus Private Equity VIII, LP, Warburg Pincus Netherlands Private Equity VIII C.V.I, WP-WPVIII Investors, L.P., Yorktown Energy Partners V, L.P., Yorktown Energy Partners VI, L.P., Yorktown Energy Partners VII, L.P., Yorktown Energy Partners VIII, L.P., Paul M. Rady and Glen C. Warren, Jr. (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8‑K (Commission File No. 001‑ 38075) filed on May 9, 2017).

10.1

 

Services Agreement, dated as of May 9, 2017, by and among Antero Midstream GP LP, AMGP GP LLC, Antero IDR Holdings LLC and Antero Resources Corporation (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8‑K (Commission File No. 001‑38705) filed on May 9, 2017).

10.2

 

Form of Antero Midstream GP LP Long-Term Incentive Plan (incorporated by reference to Exhibit 10.10 to Antero Resources Midstream Management LLC’s  Registration Statement on Form S-1 (Commission File No. 333‑ 216975) filed on April 7, 2017).

10.3

 

Form of Indemnification Agreement (incorporated by reference to Exhibit 10.13 to Antero Resources Midstream Management LLC’s  Registration Statement on Form S-1 (Commission File No. 333‑ 216975) filed on April 24, 2017).

10.4

 

Second Amendment to Credit Agreement, by and among Antero Midstream Partners LP, the lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.1 to Antero Midstream Partners LP's Current Report on Form 8-K (Commission File No. 001-36719) filed on April 11, 2017).

31.1

*

Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241).

31.2

*

Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241).

25


 

32.1

*

Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

32.2

*

Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

99.1

*

Antero Midstream Partners LP’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.

101

*

The following financial information from this Form 10‑Q of ANTERO MIDSTREAM GP LP for the quarter ended June 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Partners’ Capital, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text.

 


The exhibits marked with the asterisk symbol (*) are filed or furnished with this Quarterly Report on Form 10‑Q.

26


EX-31.1 2 amgp-20170630ex311619968.htm EX-31.1 amgp_EX31_1

Exhibit 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

 

I, Paul M. Rady, Chief Executive Officer of Antero Midstream GP LP, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017 of Antero Midstream GP LP (the “registrant”);

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

 

b.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

c.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

Date: August 2, 2017

 

 

 

/s/ Paul M. Rady

 

Paul M. Rady

 

Chief Executive Officer

 

 


EX-31.2 3 amgp-20170630ex312f8f91b.htm EX-31.2 amgp_EX31_2

Exhibit 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

 

I, Michael N. Kennedy, Chief Financial Officer of Antero Midstream GP LP, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017 of Antero Midstream GP LP (the “registrant”);

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

 

b.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

c.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

Date: August 2, 2017

 

 

 

/s/ Michael N. Kennedy

 

Michael N. Kennedy

 

Chief Financial Officer

 

 


EX-32.1 4 amgp-20170630ex321a884c5.htm EX-32.1 amgp_EX32_1

Exhibit 32.1

 

CERTIFICATION OF

CHIEF EXECUTIVE OFFICER

OF ANTERO MIDSTREAM GP LP

PURSUANT TO 18 U.S.C. SECTION 1350

 

In connection with this Quarterly Report on Form 10-Q of Antero Midstream GP LP for the quarter ended June 30, 2017, I, Paul M. Rady, Chief Executive Officer of Antero Midstream GP LP, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

1.

This Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.

The information contained in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 fairly presents, in all material respects, the financial condition and results of operations of Antero Midstream GP LP for the periods presented therein.

 

 

 

Date: August 2, 2017

 

 

 

/s/ Paul M. Rady

 

Paul M. Rady

 

Chief Executive Officer

 

 


EX-32.2 5 amgp-20170630ex322894741.htm EX-32.2 amgp_EX32_2

Exhibit 32.2

 

CERTIFICATION OF

CHIEF FINANCIAL OFFICER

OF ANTERO MIDSTREAM GP LP

PURSUANT TO 18 U.S.C. SECTION 1350

 

In connection with this Quarterly Report on Form 10-Q of Antero Midstream GP LP for the quarter ended June 30, 2017, I, Michael N. Kennedy, Chief Financial Officer of Antero Midstream GP LP, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

1.

This Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.

The information contained in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 fairly presents, in all material respects, the financial condition and results of operations of Antero Midstream GP LP for the periods presented therein.

 

 

 

Date: August 2, 2017

 

 

 

/s/ Michael N. Kennedy

 

Michael N. Kennedy

 

Chief Financial Officer

 

 


EX-99.1 6 amgp-20170630ex99151dd5a.htm EX-99.1 amgp_EX99_1

EXHIBIT 99.1

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2017

 

OR

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                    to                   

 

Commission file number: 001-36719

 

ANTERO MIDSTREAM PARTNERS LP

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

46-4109058

(State or other jurisdiction of
incorporation or organization)

 

(IRS Employer Identification No.)

 

 

 

1615 Wynkoop Street
Denver, Colorado

 

80202

(Address of principal executive offices)

 

(Zip Code)

 

(303) 357-7310

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒ Yes  ☐ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ☒ Yes  ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large accelerated filer ☒

 

Accelerated filer ☐

 

 

 

Non-accelerated filer ☐

 

Smaller reporting company ☐

(Do not check if a smaller reporting company)

 

Emerging growth company ☐

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  ☐ Yes  ☒ No

 

As of July 27, 2017, there were 186,545,870 common units outstanding.

 

 


 

1


 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the information in this report may contain forward-looking statements. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. Words such as “may,” “assume,” “forecast,” “position,” “predict,” “strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking statements. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

·

Antero Resources Corporation’s expected production and ability to meet its drilling and development plan;

·

our ability to execute our business strategy;

·

our ability to realize the anticipated benefits of investing in unconsolidated affiliates;

·

natural gas, natural gas liquids (“NGLs”) and oil prices;

·

competition and government regulations;

·

actions taken by third-party producers, operators, processors and transporters;

·

legal or environmental matters;

·

costs of conducting our gathering and compression operations;

·

general economic conditions;

·

credit markets;

·

operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control;

·

uncertainty regarding our future operating results; and

·

plans, objectives, expectations and intentions in this Form 10-Q that are not historical.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incidental to our business. These risks include, but are not limited to, commodity price volatility, inflation, environmental risks, drilling and completion and other operating risks, regulatory changes, the uncertainty inherent in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, and the other risks described under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”) on file with the Securities and Exchange Commission (“SEC”) and in “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q.

Should one or more of the risks or uncertainties described in this report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

2


 

PART I—FINANCIAL INFORMATION

ANTERO MIDSTREAM PARTNERS LP

Condensed Consolidated Balance Sheets

December 31, 2016 and June 30, 2017

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

    

December 31, 2016

    

June 30, 2017

Assets

Current assets:

 

 

 

 

  

 

Cash and cash equivalents

 

$

14,042

 

 

17,533

Accounts receivable–Antero Resources

 

 

64,139

 

 

79,062

Accounts receivable–third party

 

 

1,240

 

 

1,237

Prepaid expenses

 

 

529

 

 

294

Total current assets

 

 

79,950

 

 

98,126

Property and equipment, net

 

 

2,195,879

 

 

2,394,276

Investment in unconsolidated affiliates

 

 

68,299

 

 

259,697

Other assets, net

 

 

5,767

 

 

9,838

Total assets

 

$

2,349,895

 

 

2,761,937

Liabilities and Partners' Capital

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

16,979

 

 

15,077

Accounts payable–Antero Resources

 

 

3,193

 

 

2,989

Accrued liabilities

 

 

61,641

 

 

77,096

Other current liabilities

 

 

200

 

 

204

Total current liabilities

 

 

82,013

 

 

95,366

Long-term liabilities:

 

 

 

 

 

 

Long-term debt

 

 

849,914

 

 

945,449

Contingent acquisition consideration

 

 

194,538

 

 

201,654

Other

 

 

620

 

 

515

Total liabilities

 

 

1,127,085

 

 

1,242,984

 

 

 

 

 

 

 

Partners' capital:

 

 

 

 

 

 

Common unitholders - public (70,020 units and 77,672 units issued and outstanding at December 31, 2016 and June 30, 2017, respectively)

 

 

1,458,410

 

 

1,722,808

Common unitholder - Antero Resources (32,929 units and 108,870 units issued and outstanding at December 31, 2016 and June 30, 2017, respectively)

 

 

26,820

 

 

(219,183)

Subordinated unitholder - Antero Resources (75,941 issued and outstanding at December 31, 2016)

 

 

(269,963)

 

 

 —

General partner

 

 

7,543

 

 

15,328

Total partners' capital

 

 

1,222,810

 

 

1,518,953

Total liabilities and partners' capital

 

$

2,349,895

 

 

2,761,937

 

See accompanying notes to condensed consolidated financial statements.

3


 

ANTERO MIDSTREAM PARTNERS LP

Condensed Consolidated Statements of Operations and Comprehensive Income

Three Months Ended June 30, 2016 and 2017

(Unaudited)

(In thousands, except per unit amounts)

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

2016

 

2017

 

 

 

Revenue:

    

 

 

    

 

 

Gathering and compression–Antero Resources

 

$

71,715

 

 

98,633

Water handling and treatment–Antero Resources

 

 

64,893

 

 

95,004

Gathering and compression–third party

 

 

202

 

 

129

Total revenue

 

 

136,810

 

 

193,766

Operating expenses:

 

 

 

 

 

 

Direct operating

 

 

42,597

 

 

52,308

 General and administrative (including $6,793 and $6,951 of equity-based 

 compensation in 2016 and 2017, respectively)

 

 

13,305

 

 

14,789

Depreciation

 

 

24,140

 

 

30,512

Accretion of contingent acquisition consideration

 

 

3,461

 

 

3,590

Total operating expenses

 

 

83,503

 

 

101,199

Operating income

 

 

53,307

 

 

92,567

Interest expense, net

 

 

(3,879)

 

 

(9,015)

Equity in earnings of unconsolidated affiliates

 

 

484

 

 

3,623

Net income and comprehensive income

 

 

49,912

 

 

87,175

Net income attributable to incentive distribution rights

 

 

(2,731)

 

 

(15,328)

Limited partners' interest in net income

 

$

47,181

 

 

71,847

 

 

 

 

 

 

 

Net income per limited partner unit - basic and diluted

 

$

0.27   

 

 

0.39   

 

 

 

 

 

 

 

Weighted average limited partner units outstanding - basic

 

 

176,172   

 

 

186,065   

Weighted average limited partner units outstanding - diluted

 

 

176,226   

 

 

186,533   

 

See accompanying notes to condensed consolidated financial statements.

4


 

ANTERO MIDSTREAM PARTNERS LP

Condensed Consolidated Statements of Operations and Comprehensive Income

Six Months Ended June 30, 2016 and 2017

(Unaudited)

(In thousands, except per unit amounts)

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

2016

 

2017

 

 

 

Revenue:

    

 

 

    

 

 

Gathering and compression–Antero Resources

 

$

141,066

 

 

190,157

Water handling and treatment–Antero Resources

 

 

131,339

 

 

178,115

Gathering and compression–third party

 

 

477

 

 

264

Total revenue

 

 

272,882

 

 

368,536

Operating expenses:

 

 

 

 

 

 

Direct operating

 

 

91,738

 

 

99,862

General and administrative (including $12,766 and $13,237 of equity-based compensation in 2016 and 2017, respectively)

 

 

26,397

 

 

29,246

Depreciation

 

 

47,963

 

 

58,048

Accretion of contingent acquisition consideration

 

 

6,857

 

 

7,116

Total operating expenses

 

 

172,955

 

 

194,272

Operating income

 

 

99,927

 

 

174,264

Interest expense, net

 

 

(7,582)

 

 

(17,851)

Equity in earnings of unconsolidated affiliates

 

 

484

 

 

5,854

Net income and comprehensive income

 

 

92,829

 

 

162,267

Net income attributable to incentive distribution rights

 

 

(4,581)

 

 

(26,881)

Limited partners' interest in net income

 

$

88,248

 

 

135,386

 

 

 

 

 

 

 

Net income per limited partner unit - basic and diluted

 

$

0.50   

 

 

0.73   

 

 

 

 

 

 

 

Weighted average limited partner units outstanding - basic

 

 

176,167   

 

 

184,558   

Weighted average limited partner units outstanding - diluted

 

 

176,203   

 

 

185,002   

 

See accompanying notes to condensed consolidated financial statements.

5


 

ANTERO MIDSTREAM PARTNERS LP

Condensed Consolidated Statements of Partners’ Capital

Six Months Ended June 30, 2017 (Unaudited)

(In thousands)