ANTERO MIDSTREAM PARTNERS LP, 10-Q filed on 10/28/2015
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2015
Oct. 22, 2015
Common Units Outstanding
Oct. 22, 2015
Subordinated
Entity Registrant Name
Antero Midstream Partners LP 
 
 
Entity Central Index Key
0001598968 
 
 
Document Type
10-Q 
 
 
Document Period End Date
Sep. 30, 2015 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Non-accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
99,851,432 
75,940,957 
Document Fiscal Year Focus
2015 
 
 
Document Fiscal Period Focus
Q3 
 
 
Condensed Combined Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Current assets:
 
 
Cash and cash equivalents
$ 17,510 
$ 230,192 
Accounts receivable-affiliate
42,188 
31,563 
Accounts receivable - third party
664 
5,574 
Prepaid expenses
62 
518 
Total current assets
60,424 
267,847 
Property and equipment:
 
 
Gathering and compressions systems
1,431,850 
1,180,707 
Water handling systems
517,518 
421,012 
Less accumulated depreciation
(134,469)
(70,124)
Property and equipment, net
1,814,899 
1,531,595 
Other assets, net
7,468 
17,168 
Total assets
1,882,791 
1,816,610 
Current liabilities:
 
 
Accounts payable
22,668 
13,021 
Accounts payable-affiliate
3,560 
1,380 
Accrued capital expenditures
62,679 
49,974 
Accrued ad valorem tax
5,924 
5,862 
Accrued liabilities
7,919 
9,254 
Other current liabilities
131 
357 
Total current liabilities
102,881 
79,848 
Long-term liabilities:
 
 
Long-term debt
525,000 
115,000 
Contingent acquisition consideration
174,716 
 
Other
514 
859 
Total liabilities
803,111 
195,707 
Contingencies.
 
 
Contingencies (Note 10)
   
   
Partners' capital:
 
 
Subordinated unitholder - (75,940,957 units issued and outstanding)
(300,601)
180,757 
General partner
295 
 
Total partners' capital
1,079,680 
1,342,459 
Predecessor Parent investment
 
278,444 
Total capital
1,079,680 
1,620,903 
Total liabilities and partners' capital
1,882,791 
1,816,610 
Common Unitholders Public
 
 
Partners' capital:
 
 
Common unitholders - (58,922,054 units issued and outstanding, Antero 40,929,378 units issued and outstanding)
1,334,265 
1,090,037 
Total capital
1,334,265 
1,090,037 
Common Unitholder Antero
 
 
Partners' capital:
 
 
Common unitholders - (58,922,054 units issued and outstanding, Antero 40,929,378 units issued and outstanding)
45,721 
71,665 
Total capital
45,721 
71,665 
Subordinated Unitholder
 
 
Partners' capital:
 
 
Total capital
$ (300,601)
$ 180,757 
Condensed Combined Consolidated Balance Sheets (Parenthetical)
Sep. 30, 2015
Subordinated unitholder units issued
75,940,957 
Subordinated unitholder units outstanding
75,940,957 
Common Unitholders Public
 
Common unitholders units issued
58,922,054 
Common unitholders units outstanding
58,922,054 
Common Unitholder Antero
 
Common unitholders units issued
40,929,378 
Common unitholders units outstanding
40,929,378 
Condensed Combined Consolidated Statements of Operations and Comprehensive Income (Loss) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Revenue:
 
 
 
 
Gathering and compression-affiliate
$ 59,220 
$ 26,282 
$ 168,056 
$ 54,978 
Water handling-affiliate
21,819 
42,631 
86,759 
107,907 
Gathering and compression–third party
38 
 
38 
 
Water handling-third party
627 
2,671 
778 
2,671 
Total revenues
81,704 
71,584 
255,631 
165,556 
Revenue - affiliate
81,039 
68,913 
254,815 
162,885 
Operating expenses:
 
 
 
 
Direct operating
1,609 
12,579 
38,830 
32,532 
General and administrative (including $5,284, $17,663, $2,111 and $7,392 of equity-based compensation in 2015 and 2014, respectively)
13,842 
7,643 
37,923 
21,187 
Depreciation
21,561 
14,617 
63,515 
35,739 
Total operating expenses
37,012 
34,839 
140,268 
89,458 
Operating income
44,692 
36,745 
115,363 
76,098 
Interest expense
2,044 
2,455 
5,266 
4,121 
Net income and comprehensive income
42,648 
34,290 
110,097 
71,977 
Less Pre-Water Acquisition net income attributed to parent
(7,841)
 
(40,193)
 
Less general partner's interest in net income
(295)
 
(295)
 
Limited partners' interest in net income
$ 34,512 
 
$ 69,609 
 
Basic
 
 
 
 
Common units
$ 0.23 
 
$ 0.46 
 
Subordinated units
$ 0.22 
 
$ 0.45 
 
Diluted
 
 
 
 
Common units
$ 0.23 
 
$ 0.46 
 
Subordinated units
$ 0.22 
 
$ 0.45 
 
Basic
 
 
 
 
Common units
78,018,037 
 
76,640,925 
 
Subordinated units
75,940,957 
 
75,940,957 
 
Diluted
 
 
 
 
Common units
78,034,156 
 
76,657,439 
 
Subordinated units
75,940,957 
 
75,940,957 
 
Condensed Combined Consolidated Statements of Operations and Comprehensive Income (Loss) (Parenthetical) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Condensed Combined Consolidated Statements of Operations and Comprehensive Income
 
 
 
 
Equity-based compensation
$ 5,284 
$ 2,111 
$ 17,663 
$ 7,392 
Condensed Combined Consolidated Statements of Partners' Capital (USD $)
In Thousands, unless otherwise specified
Predecessor
Parent Net Investment.
Common Unitholders Public
Common Unitholder Antero
Subordinated Unitholder
General Partner
Total
Balance at Dec. 31, 2014
 
$ 1,090,037 
$ 71,665 
$ 180,757 
 
$ 1,620,903 
Balance at Dec. 31, 2014
278,444 
 
 
 
 
278,444 
Partner' Capital
 
 
 
 
 
 
Net income and comprehensive income
40,193 
21,227 
13,883 
34,499 
295 
110,097 
Distribution to unitholders
 
(21,358)
(13,902)
(35,259)
 
(70,519)
Deemed distribution from parent, net
(43,723)
 
 
 
 
(43,723)
Net proceeds from private placement of common units
 
240,972 
 
 
 
240,972 
Purchase price in excess of net assets from Antero
 
 
(261,186)
(486,156)
 
(747,342)
Issuance of common units to Antero
 
 
229,988 
 
 
229,988 
Carrying value of net assets acquired from Antero in Water Acquisition
(278,359)
 
 
 
 
(278,359)
Equity-based compensation
3,445 
3,387 
5,273 
5,558 
 
17,663 
Balance at Sep. 30, 2015
 
$ 1,334,265 
$ 45,721 
$ (300,601)
$ 295 
$ 1,079,680 
Condensed Combined Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Cash flows provided by operating activities:
 
 
Net income
$ 110,097 
$ 71,977 
Adjustment to reconcile net income (loss) to net cash provided by operating activities:
 
 
Depreciation
63,515 
35,739 
Equity-based compensation
17,663 
7,392 
Amortization of deferred financing costs
774 
 
Changes in assets and liabilities:
 
 
Accounts receivable-affiliate
1,963 
(20,715)
Accounts receivable - third party
4,910 
(860)
Prepaid expenses
457 
(16)
Accounts payable
673 
1,750 
Accounts payable-affiliate
781 
 
Accrued ad valorem tax
62 
3,376 
Accrued liabilities
(1,336)
3,853 
Net cash provided by operating activities
199,559 
102,496 
Cash flows used in investing activities:
 
 
Additions to gathering and compression systems
(282,826)
(428,036)
Additions to water handling systems
(53,086)
(159,097)
Acquired water handling assets
(28,560)
 
Change in working capital of affiliate related to property and equipment
40,277 
 
Change in other assets
10,883 
(6,761)
Net cash used in investing activities
(313,312)
(593,894)
Cash flows provided by (used in) financing activities:
 
 
Deemed distribution from parent, net
(43,723)
(5,491)
Water Acquisition
(633,457)
 
Distribution to unitholders
(70,519)
 
Proceeds from issuance of common units to public, net
240,972 
 
Borrowings on credit facilities, net
410,000 
500,000 
Payments of deferred financing costs
(1,956)
 
Other
(246)
(330)
Payments of IPO related costs
 
(2,781)
Net cash provided by (used in) financing activities
(98,929)
491,398 
Net decrease in cash and cash equivalents
(212,682)
 
Cash and cash equivalents, beginning of period
230,192 
 
Cash and cash equivalents, end of period
17,510 
 
Supplemental disclosure of cash flow information:
 
 
Cash paid during the period for interest and commitment fees
4,725 
3,586 
Supplemental disclosure of noncash investing activities:
 
 
Increase in accrued capital expenditures and accounts payable for property and equipment
$ 21,962 
$ 76,384 
Business and Organization
Business and Organization

(1)Business and Organization

 

Antero Midstream Partners LP (the “Partnership”) is a growth-oriented limited partnership formed by Antero Resources Corporation (“Antero”) to own, operate and develop midstream assets to service Antero’s natural gas, natural gas liquids (“NGLs”) and oil production.  On November 10, 2014, the Partnership completed its initial public offering (the “IPO”) of 46,000,000 common units representing limited partnership interests at a price of $25.00 per common unit.  The Partnership was originally formed as Antero Resources Midstream LLC and converted to a limited partnership in connection with the completion of the IPO.  At the closing of the IPO, Antero contributed substantially all of its high and low pressure gathering and compression assets to Antero Midstream LLC (“Midstream Operating”), and the equity interests of Midstream Operating were contributed to the Partnership. Our condensed combined consolidated financial statements as of September 30, 2015, include the accounts of the Partnership, Midstream Operating, Antero Water LLC Predecessor (“Antero Water”), and Antero Treatment LLC Predecessor (“Antero Treatment”), all of which are entities under common control.

 

On September 17, 2015, the Partnership and Antero Treatment entered into the Contribution Agreement. Pursuant to the terms of the Contribution Agreement, Antero agreed to contribute (i) all of the outstanding limited liability company interests of Antero Water to the Partnership 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 complex to be constructed in Doddridge County, West Virginia, to Antero Treatment. In consideration for the contribution of the Contributed Assets, the Partnership (i) paid Antero a cash distribution equal to $552.5 million, less $171 million of assumed debt, (ii) issued 10,988,421 common units representing limited partner interests in the Partnership to Antero and distributed proceeds of approximately $241 million from the Partnership’s private placement of common units to a group of institutional investors and (iii) has agreed to pay Antero (a) $125 million in cash if the Partnership delivers 176,295,000 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 the Partnership delivers 219,200,000 barrels or more of fresh water during the period between January 1, 2018 and December 31, 2020.

 

Also on September 23, 2015, the Partnership completed the previously announced sale of 12,898,000 common units at $18.84 per common unit for net proceeds of approximately $240.2 million (the “Private Placement”). The Partnership used a portion of the net proceeds of the Private Placement to repay indebtedness assumed from Antero and to partially fund the Water Acquisition. 

 

Our gathering and compression assets consist of 8-, 12-, 16-, and 20-inch high and low pressure gathering pipelines and compressor stations that collect natural gas, NGLs and oil from Antero’s wells in the Marcellus Shale in West Virginia and the Utica Shale in Ohio. Our assets also include two independent fresh water distribution systems that deliver water used by Antero for hydraulic fracturing activities in Antero’s operating areas. The fresh water distribution systems consist of permanent buried pipelines, surface pipelines and fresh water storage facilitates, as well as pumping stations and impoundments to transport the fresh water throughout the pipeline system.

 

We have a right to participate for up to a 15% non-operating equity interest in an unnamed 50-mile regional gathering pipeline extension (the “Regional Gathering System”) that will expire six months following the date on which the Regional Gathering System is placed into service. In addition, we have entered into a right-of-first-offer agreement with Antero to allow for us to provide Antero with gas processing or NGLs fractionation, transportation or marketing services in the future.

 

 

 

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

(2)Summary of Significant Accounting Policies

(a) Basis of Presentation

 

These condensed combined consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information, and should be read in the context of the December 31, 2014 consolidated financial statements and notes thereto for a more complete understanding of the Partnership’s operations, financial position, and accounting policies.  The December 31, 2014 consolidated financial statements were originally filed with the SEC in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2014 and were subsequently recast to include the historical results of Antero Water.  The recast December 31, 2014 combined consolidated financial statements were filed with the SEC as Exhibit 99.1 to the Partnership’s Current Report on Form 8-K filed October 9, 2015.

 

The accompanying unaudited condensed combined consolidated financial statements of the Partnership 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 the Partnership’s financial position as of December 31, 2014 and September 30, 2015, the results of its operations for the three and nine months ended September 30, 2014 and 2015 and its cash flows for the nine months ended September 30, 2014 and 2015. The Partnership has no items of other comprehensive income or loss; therefore, its net income is identical to its comprehensive income. Operating results for the period ended September 30, 2015 are not necessarily indicative of the results that may be expected for the full year.

The accompanying condensed combined consolidated financial statements represent the assets, liabilities, and results of operations of Antero’s gathering and compression assets and water handling assets as the accounting predecessor (the “Predecessor”) to the Partnership, presented on a carve-out basis of Antero’s historical ownership of the Predecessor. The Predecessor financial statements have been prepared from the separate records maintained by Antero and may not necessarily be indicative of the actual results of operations that might have occurred if the Predecessor had been operated separately during the periods reported. References in these financial statements to “Predecessor,” “we,” “our,” “us” or like terms, when referring to periods prior to November 10, 2014, refer to Antero’s gathering, compression and water assets, our predecessor for accounting purposes.  References to “the Partnership,” “we,” “our,” “us” or like terms, when referring to periods between November 10, 2014 and September 23, 2015 refer to the Partnership’s gathering and compression assets and Antero’s water assets. References to “the Partnership,” “we,” “our,” “us” or like terms, when referring to periods since September 23, 2015 or when used in the present tense or prospectively, refer to the Partnership.

 

Certain costs of doing business which are incurred by Antero on our behalf have been reflected in the accompanying condensed combined consolidated financial statements. These costs include general and administrative expenses attributed to us by Antero in exchange for:

·

business services, such as payroll, accounts payable and facilities management;

·

corporate services, such as finance and accounting, legal, human resources, investor relations and public and regulatory policy; and

·

employee compensation, including equity‑based compensation.

Transactions between us and Antero have been identified in the condensed combined consolidated financial statements as transactions between affiliates (see Note 3).

As of the date these condensed combined consolidated financial statements were filed with the SEC, the Partnership completed its evaluation of potential subsequent events for disclosure and no items requiring disclosure were identified, except the declaration of a cash distribution to unitholders, as described in Note 6—Partnership Equity and Distributions.

(b)Revenue Recognition

We provide gathering and compression and water handling services under fee-based contracts primarily based on throughput. Under these arrangements, we receive fees for gathering oil and gas products and compression services. The revenue we earn from these arrangements is directly related to (1) in the case of natural gas gathering and compression, the volumes of metered natural gas that we gather, compress and deliver to natural gas compression sites or other transmission delivery points (2) in the case of oil and condensate gathering, the volumes of metered oil and condensate that we gather and deliver to other transmission delivery points or (3) in the case of water handling services, the quantities of fresh water delivered to our customers for use in their well completion operations. We recognize revenue when all of the following criteria are met: (1) persuasive evidence of an agreement exists, (2) services have been rendered, (3) prices are fixed or determinable and (4) collectability is reasonable assured. 

(c) Use of Estimates

The preparation of the condensed combined consolidated financial statements and notes in conformity with GAAP requires that management formulate estimates and assumptions that affect revenues, expenses, assets, liabilities and the disclosure of contingent assets and liabilities. Items subject to estimates and assumptions include the useful lives of property and equipment and valuation of accrued liabilities, among others. Although management believes these estimates are reasonable, actual results could differ from these estimates.

 

In the third quarter, as a result of our review of recent rulings, our estimated ad valorem tax expense was decreased by $8.4 million related to prior periods due to a change in our estimated future tax liability.  This was accounted for as a change in an accounting estimate. 

(d)Cash and Cash Equivalents

Prior to the IPO, the Predecessor’s gathering and compression operations were funded by Antero, and prior to September 23, 2015 Antero Water’s operations were funded by Antero. Net amounts funded by Antero are reflected as net contributions from parent on the accompanying Statements of Condensed Combined Consolidated Cash Flows.

 

We consider all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments.

 

(e)Property and Equipment

Property and equipment primarily consists of gathering pipelines, compressor stations and fresh water distribution pipelines and facilities stated at historical cost less accumulated depreciation. We capitalize construction-related direct labor and material costs. Maintenance and repair costs are expensed as incurred.

 

Depreciation is computed using the straight-line method over the estimated useful lives and salvage values of assets. The depreciation of fixed assets recorded under capital lease agreements is included in depreciation expense. Uncertainties that may impact these estimates of useful lives include, among others, changes in laws and regulations relating to environmental matters, including air and water quality, restoration and abandonment requirements, economic conditions, and supply and demand for our services in the areas in which we operate. When assets are placed into service, management makes estimates with respect to useful lives and salvage values that management believes are reasonable. However, subsequent events could cause a change in estimates, thereby impacting future depreciation amounts.

Our investment in property and equipment for the periods presented is as follows:

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Estimated useful lives

 

As of December 31, 2014

 

As of September 30, 2015

 

Land

 

n/a

 

$

3,383

 

$

3,430

 

Freshwater surface pipelines and equipment

 

5 years

 

 

20,931

 

 

32,165

 

Freshwater permanent buried pipelines and equipment

 

20 years

 

 

359,244

 

 

395,124

 

Gathering and compression systems

 

20 years

 

 

861,609

 

 

1,196,274

 

Construction-in-progress

 

n/a

 

 

356,552

 

 

322,375

 

Total property and equipment

 

 

 

 

1,601,719

 

 

1,949,368

 

Less accumulated depreciation

 

 

 

 

(70,124)

 

 

(134,469)

 

Property and equipment, net

 

 

 

$

1,531,595

 

$

1,814,899

 

 

(f)Impairment of Long‑Lived Assets

We evaluate our long‑lived assets for impairment when events or changes in circumstances indicate that the related carrying values of the assets may not be recoverable.  Generally, the basis for making such assessments is undiscounted future cash flow projections for the unit being assessed.  If the carrying values of the assets are deemed not recoverable, the carrying values are reduced to the estimated fair value, which is based on discounted future cash flows or other techniques, as appropriate.  No impairments for such assets have been recorded through September 30, 2015.

(g)Asset Retirement Obligations

Our gathering pipelines, compressor stations and freshwater distribution pipelines and facilities have an indeterminate life, if properly maintained. A liability for these asset retirement obligations will be recorded only if and when a future retirement obligation with a determinable life can be estimated. It has been determined by our operational management team that abandoning all other ancillary equipment, outside of the assets stated above, would require minimal costs. Because we are not able to make a reasonable estimate of when future dismantlement and removal dates of our pipelines, compressor stations and facilities, will occur, and because it has been determined that abandonment of all other ancillary assets would only require minimal costs, we have not recorded asset retirement obligations at December 31, 2014 or September 30, 2015.

 

(h)Litigation and Other Contingencies

 

An accrual is recorded for a loss contingency when its occurrence is probable and damages can be reasonably estimated based on the anticipated most likely outcome or the minimum amount within a range of possible outcomes. We regularly review contingencies to determine the adequacy of our accruals and related disclosures. The ultimate amount of losses, if any, may differ from these estimates.

We accrue losses associated with environmental obligations when such losses are probable and can be reasonably estimated. Accruals for estimated environmental losses are recognized no later than at the time a remediation feasibility study, or an evaluation of response options, is complete. These accruals are adjusted as additional information becomes available or as circumstances change. Future environmental expenditures are not discounted to their present value. Recoveries of environmental costs from other parties are recorded separately as assets at their undiscounted value when receipt of such recoveries is probable.

(i)Equity‑Based Compensation

Our condensed combined consolidated financial statements reflect various equity-based compensation awards granted by Antero, as well as compensation expense associated with our own plan. These awards include profits interests awards, restricted stock, stock options, restricted units, and phantom units. For purposes of these condensed combined consolidated financial statements, we recognized as expense in each period an amount allocated from Antero, with the offset included in partners’ capital. See Note 3—Transactions with Affiliates for additional information regarding Antero’s allocation of expenses to us.

 

In connection with the IPO, our general partner adopted the Antero Midstream Partners LP Long-Term Incentive Plan (“Midstream LTIP”), pursuant to which certain non-employee directors of our general partner and certain officers, employees and consultants of our general partner and its affiliates are eligible to receive awards representing equity interests in the Partnership. An aggregate of 10,000,000 common units may be delivered pursuant to awards under the Midstream LTIP, subject to customary adjustments. For accounting purposes, these units are treated as if they are distributed from us to Antero. Antero recognizes compensation expense for the units awarded to its employees and a portion of that expense is allocated to us. There is no cash paid to Antero for the amount allocated to us. See Note 5—Equity-Based Compensation.

 

(j)Income Taxes

Our condensed combined consolidated financial statements do not include a provision for income taxes as we are treated as a partnership for federal and state income tax purposes, with each partner being separately taxed on its share of taxable income.

 (k)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 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.

The carrying values on our balance sheet of our cash and cash equivalents, accounts receivable—affiliate, accounts receivable—third party, prepaid expenses, other assets, accounts payable, accounts payable—affiliate, accrued liabilities, accrued capital expenditures, accrued ad valorem tax, other current liabilities, other liabilities and the revolving credit facility approximate fair values due to their short-term maturities. 

As discussed in Note 8—Fair Value Measurement, the Partnership has agreed to pay Antero contingent consideration in connection with the Water Acquisition. See Note 8—Fair Value Measurement.

(l) Reclassifications   

Certain reclassifications have been made to prior periods’ financial information related to direct operating expenses to conform that information to our current period presentation. These reclassifications did not have an impact on net income for the periods previously reported.

Transactions with Affiliates
Transactions with Affiliates

(3)Transactions with Affiliates

(a)Revenues

Gathering and compression revenues earned from Antero were $26.3 million and $59.2 million during the three months ended September 30, 2014 and 2015, respectively, and $55.0 million and $168.1 million during the nine months ended September 30, 2014 and 2015, respectively. Water handling revenues earned from Antero were $42.6 million and $21.8 million during the three months ended September 30, 2014 and 2015, respectively, and $107.9 million and $86.8 million during the nine months ended September 30, 2014 and 2015, respectively. 

(b)Accounts receivable—affiliate and Accounts payable—affiliate

Accounts receivable—affiliate represents amounts due from Antero, primarily related to gathering and compression services, water handling services, net working capital receivable attributable to the Water Acquisition and other costs. Accounts payable—affiliate represents amounts due to Antero for general and administrative and other costs.

 

(c)Accounts Payable, Accrued Expenses, and Accrued Capital Expenditures

All accounts payable, accrued liabilities and accrued capital expenditures balances are due to transactions with unaffiliated parties. Prior to the IPO, all operating and capital expenditures, related to gathering and compression activities were funded through capital contributions from Antero and borrowings under its midstream credit facility. Prior to September 23, 2015, all operating and capital expenditures related to Antero Water were funded through capital contributions from Antero and borrowings under the water credit facility. See Note 4 — Long-term Debt. These balances were managed and paid under Antero’s cash management program. Following the IPO, we maintained our own bank accounts and sources of liquidity related to gathering and compression operations, and on September 23, 2015, we began to maintain our own bank accounts and sources of liquidity for water handling operations.

(d)Allocation of Costs

The employees supporting our operations are employees of Antero. Direct operating expense includes allocated costs of $0.5 million and $0.8 million during the three months ended September 30, 2014 and 2015, respectively, and $1.1 million and $2.2 million during the nine months ended September 30, 2014 and 2015, respectively, related to direct labor charges for Antero employees associated with the operation of our gathering lines and compressor stations. General and administrative expense includes allocated costs of $7.4 million and $11.6 million during the three months ended September 30, 2014 and 2015, respectively, and $20.9 million and $33.9 million during the nine months ended September 30, 2014 and 2015, respectively. These costs relate to: (i) various business services, including payroll processing, accounts payable processing and facilities management, (ii) various corporate services, including legal, accounting, treasury, information technology and human resources and (iii) compensation, including equity‑based compensation (see Note 5—Equity-Based Compensation for more information). These expenses are charged or allocated to us based on the nature of the expenses and are allocated based on a combination of our proportionate share of Antero’s gross property and equipment, capital expenditures and direct labor costs, as applicable.

(e)Water Acquisition

In the third quarter of 2015 we acquired Antero’s water handling business in exchange for a combination of cash and equity consideration. See Note 1—Business and Organization.

Long-term Debt
Long-term Debt

(4)Long-Term Debt

 

(a)Revolving Credit Facility

 

On November 10, 2014, in connection with the closing of the IPO, the Partnership entered into a revolving credit facility with a syndicate of bank lenders (the “revolving credit facility”). The revolving credit facility initially provided for lender commitments of $1.0 billion and a letter of credit sublimit of $150 million. The revolving credit facility will mature on November 10, 2019.

 

The revolving credit facility is ratably secured by mortgages on substantially all of our properties, including the properties of our restricted subsidiaries, and guarantees from our restricted subsidiaries. The revolving credit facility contains certain covenants including restrictions on indebtedness and distributions, and requirements with respect to leverage and interest coverage ratios. The Partnership was in compliance with all of the financial covenants under the revolving credit facility as of December 31, 2014 and September 30, 2015.

 

Principal amounts borrowed are payable on the maturity date with such borrowings bearing interest that is payable quarterly or, in the case of Eurodollar Rate Loans, at the end of the applicable interest period if shorter than three months. Interest is payable at a variable rate based on LIBOR or the base rate, determined by election at the time of borrowing. Commitment fees on the unused portion of the revolving credit facility are due quarterly at rates ranging from 0.25% to 0.375% of the unused facility based on utilization.

 

At December 31, 2014 and September 30, 2015, we had borrowings under the revolving credit facility of zero and $525 million, respectively, with a weighted average interest rate of 1.70% and no letters of credit outstanding at December 31, 2014 or September 30, 2015.

 

On September 23, 2015, aggregate lender commitments under the revolving credit facility increased to $1.5 billion in connection with the Water Acquisition.

 

(b)Midstream Credit Facility

 

Prior to the closing of the IPO on November 10, 2014, long-term debt represented amounts outstanding under a credit facility agreement between Midstream Operating, then a wholly owned subsidiary of Antero and now a wholly owned subsidiary of the Partnership, and the lenders under Antero’s credit facility (the “Antero credit facility”), that were incurred for the Water Acquisition and construction of the Predecessor’s gathering and compression assets (the “Midstream credit facility”). The facilities were ratably secured by mortgages on substantially all of Antero’s properties, by a security interest on substantially all of Midstream Operating’s personal property and by guarantees from Antero and its restricted subsidiaries. On November 10, 2014, in connection with the completion of the IPO, the outstanding balance of the Midstream credit facility was repaid out of the proceeds of the IPO, and this facility was assumed by Antero Water.

 

(c)Antero Water Credit Facility

 

On November 10, 2014, in connection with the closing of the IPO, Antero Water assumed the Midstream credit facility under amended terms (the “Water facility”), in order to provide for separate borrowings attributable to Antero’s water handling business. The Water facility was repaid in full and terminated on September 23, 2015, in connection with the Water Acquisition.

 

As of December 31, 2014, Antero Water had a total outstanding balance under the Water facility of $115 million, with a weighted average interest rate of 2.19%. Antero was in compliance with all of the financial covenants under the Water facility as of December 31, 2014.

Equity-Based Compensation
Equity-Based Compensation

(5)Equity-Based Compensation

 

Our general and administrative expenses include equity-based compensation costs allocated to us by Antero for grants made pursuant to: (i) the Antero Resources Corporation Long‑Term Incentive Plan (the “Antero LTIP”); (ii) profits interests awards valued in connection with the Antero reorganization pursuant to its initial public offering of common stock, which closed on October 16, 2013; and (iii) the Midstream LTIP.  Equity‑based compensation expense allocated to us was $2.1 million and $5.3 million for the three months ended September 30, 2014 and 2015, respectively, and $7.4 million and $17.7 million for the nine months ended September 30, 2014 and 2015, respectively. These expenses were allocated to us based on our proportionate share of Antero’s labor costs. Antero has unamortized expense totaling approximately $175 million as of September 30, 2015 related to its various equity-based compensation plans and the Midstream LTIP. A portion of this will be allocated to us as it is amortized over the remaining service period of the related awards.

Midstream LTIP

 

Our general partner manages our operations and activities and Antero employs the personnel who provide support to our operations. In connection with the IPO, our general partner adopted the Midstream LTIP, pursuant to which non‑employee directors of our general partner and certain officers, employees and consultants of our general partner and its affiliates are eligible to receive awards representing ownership interests in the Partnership. An aggregate of 10,000,000 common units may be delivered pursuant to awards under the Midstream LTIP, subject to customary adjustments.  A total of 7,658,363 common units are available for future grant under the Midstream LTIP as of September 30, 2015. Restricted units and phantom units granted under the Midstream LTIP vest subject to the satisfaction of service requirements, upon the completion of which common units in the Partnership are delivered to the holder of the restricted units or phantom units. Compensation related to each restricted unit and phantom unit award is recognized on a straight-line basis over the requisite service period of the entire award.  The grant date fair values of these awards are determined based on the closing price of the Partnership’s common units on the date of grant. These units are accounted for as if they are distributed by the Partnership to Antero. Antero recognizes compensation expense for the units awarded and a portion of that expense is allocated to the Partnership. Antero allocates equity-based compensation expense to the Partnership based on our proportionate share of Antero’s direct labor costs. The Partnership’s portion of the equity-based compensation expense is included in general and administrative expenses, and recorded as a credit to the applicable classes of partners’ capital.  

 

A summary of restricted unit and phantom unit awards activity during the nine months ended September 30, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted
average

 

Aggregate

 

 

 

Number of
units

 

grant date
fair value

 

intrinsic value
(in thousands)

 

Total awarded and unvested, December 31, 2014

 

2,381,440

 

$

29.00

 

$

65,490

 

Granted

 

12,057

 

$

24.88

 

$

 —

 

Vested

 

 —

 

$

 —

 

$

 —

 

Forfeited

 

(51,860)

 

$

29.00

 

$

 —

 

Total awarded and unvested, September 30, 2015

 

2,341,637

 

$

28.98

 

$

41,822

 

 

Intrinsic values are based on the closing price of the Partnership’s common units on the referenced dates.  Unamortized expense of $52.5 million at September 30, 2015 is expected to be recognized by Antero over a weighted average period of approximately 3.1 years. A proportionate share of the expense will be allocated to us as it is recognized by Antero.

Partnership Equity and Distributions
Partnership Equity and Distributions

(6)Partnership Equity and Distributions

 

Our Minimum Quarterly Distribution

 

Our partnership agreement provides for a minimum quarterly distribution of $0.17 per unit for each quarter, or $0.68 per unit on an annualized basis.

Our partnership agreement generally provides that we distribute cash each quarter during the subordination period in the following manner:

·

first, to the holders of common units, until each common unit has received the minimum quarterly distribution of $0.17 plus any arrearages from prior quarters;

·

second, to the holders of subordinated units, until each subordinated unit has received the minimum quarterly distribution of $0.17; and

·

third, to the holders of common units and subordinated units pro rata until each has received a distribution of $0.1955.

If cash distributions to our unitholders exceed $0.1955 per common unit and subordinated unit in any quarter, our unitholders and our general partner, as the holder of our incentive distribution rights (“IDRs”), will receive distributions according to the following percentage allocations:

 

 

 

 

 

 

 

 

 

Marginal Percentage

 

 

 

Interest in

 

 

 

Distributions

 

 

 

 

 

General Partner

 

Total Quarterly Distribution

 

 

 

(as holder of

 

Target Amount

 

Unitholders

 

IDRs)

 

above $0.1955 up to $0.2125

    

85

%  

15

%  

above $0.2125 up to $0.2550

 

75

%  

25

%  

above $0.2550

 

50

%  

50

%  

 

General Partner Interest

 

Our general partner owns a non‑economic general partner interest in us, which does not entitle it to receive cash distributions. However, our general partner owns the IDRs and may in the future own common units or other equity interests in us and will be entitled to receive distributions on any such interests.

 

Subordinated Units

 

Antero owns all of our subordinated units. The principal difference between our common units and subordinated units is that, for any quarter during the subordination period, holders of the subordinated units are not entitled to receive any distribution from operating surplus until the common units have received the minimum quarterly distribution from operating surplus for such quarter plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. Subordinated units will not accrue arrearages. When the subordination period ends, all of the subordinated units will convert into an equal number of common units. The subordination period will end on the first business day after we have earned and paid at least $0.68 (the minimum quarterly distribution on an annualized basis) on each outstanding common unit and subordinated unit for each of three consecutive, non-overlapping four-quarter periods ending on or after September 30, 2017 and there are no outstanding arrearages on our common units.

 

To the extent we do not pay the minimum quarterly distribution on our common units, our common unitholders will not be entitled to receive such arrearage payments in the future except during the subordination period. To the extent we have cash available for distribution from operating surplus in any future quarter during the subordination period in excess of the amount necessary to pay the minimum quarterly distribution to holders of our common units, we will use this excess cash to pay any distribution arrearages on common units related to prior quarters before any cash distribution is made to holders of subordinated units.

Cash Distributions

 

On October 13, 2015, we announced that the board of directors of our general partner declared a cash distribution of $0.205 per unit for the quarter ended September 30, 2015. The distribution will be payable on November 30, 2015 to unitholders of record as of November 11, 2015.

The following table details the distributions paid during or pertaining to the first nine months of 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions

 

 

 

 

 

 

 

Limited Partners

 

 

 

 

 

 

 

 

 

 

Record Date

 

Distribution Date

Common unitholders

    

Subordinated unitholders

    

General partner (IDRs)

 

Total

 

 

Distributions per limited partner unit

 

 

 

 

($ in thousands, except per unit data)

 

 

 

 

February 13, 2015

 

February 27, 2015

$

7,161

 

$

7,161

 

$

 -

 

$

14,322

 

 

$

0.0943

May 13, 2015

 

May 27, 2015

$

13,669

 

$

13,669

 

$

 -

 

$

27,338

 

 

$

0.1800

July 13, 2015

 

July 17, 2015

$

14,429

 

$

14,429

 

$

 -

 

$

28,858

 

 

$

0.1900

November 11, 2015

 

November 30, 2015

$

20,470

 

$

15,568

 

$

295

 

$

36,333

 

 

$

0.2050

 

Net Income Per Limited Partner Unit
Net Income Per Limited Partner Unit

(7)Net Income Per Limited Partner Unit

 

The Partnership’s net income is attributed to the general partner and limited partners, including subordinated unitholders, in accordance with their respective ownership percentages, and when applicable, giving effect to incentive distributions paid to the general partner. Basic and diluted net income per limited partner unit is calculated by dividing limited partners’ interest in net income, less general partner incentive distributions, by the weighted average number of outstanding limited partner units during the period.

 

We compute earnings per unit using the two-class method for master limited partnerships. Under the two-class method, earnings per unit is calculated as if all of the earnings for the period were distributed under the terms of the partnership agreement, regardless of whether the general partner has discretion over the amount of distributions to be made in any particular period, whether those earnings would actually be distributed during a particular period from an economic or practical perspective, or whether the general partner has other legal or contractual limitations on its ability to pay distributions that would prevent it from distributing all of the earnings for a particular period.

 

We calculate net income available to limited partners based on the distributions pertaining to the current period’s net income. After adjusting for the appropriate period’s distributions, the remaining undistributed earnings or excess distributions over earnings, if any, are attributed to the general partner and limited partners in accordance with the contractual terms of the partnership agreement under the two-class method.

 

Basic earnings per unit is computed by dividing net earnings attributable to unitholders by the weighted average number of units outstanding during each period. Diluted net income per limited partner unit reflects the potential dilution that could occur if agreements to issue common units, such as awards under long-term incentive plans, were exercised, settled or converted into common units. When it is determined that potential common units resulting from an award should be included in the diluted net income per limited partner unit calculation, the impact is reflected by applying the treasury stock method. Earnings per common unit assuming dilution for the three months ended September 30, 2015 was calculated based on the diluted weighted average number of units outstanding of 78,034,156, including 16,119 dilutive units attributable to non-vested restricted unit and phantom unit awards. Earnings per common unit assuming dilution for the nine months ended September 30, 2015 was calculated based on the diluted weighted average number of units outstanding of 76,657,439, including 16,514 dilutive units attributable to non-vested restricted unit and phantom unit awards. For the three and nine months ended September 30, 2015, 2,309,580 and 2,314,388 non-vested phantom unit and restricted unit awards, respectively, were anti-dilutive and therefore excluded from the calculation of diluted earnings per unit.

The Partnership’s calculation of net income per common and subordinated unit for the periods indicated is as follows ($ in thousands, except per unit data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

    

 

 

2014

  

2015

 

2014

  

2015

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

  

$

34,290

  

$

42,648

  

$

71,977

  

$

110,097

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-IPO net income attributed to parent

 

 

(34,290)

 

 

 —

 

 

(71,977)

 

 

 —

 

Pre-Water Acquisition net income attributed to parent

 

 

 —

 

 

(7,841)

 

 

 —

 

 

(40,193)

 

General partner interest in net income attributable to incentive distribution rights

 

 

 —

 

 

(295)

 

 

 —

 

 

(295)

 

Limited partner interest in net income

  

$

 —

 

$

34,512

 

$

 —

 

$

69,609

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocable to common units - basic and diluted

 

$

 —

 

$

17,561

 

$

 —

 

$

35,110

 

Net income allocable to subordinated units - basic and diluted

 

 

 —

 

 

16,951

 

 

 —

 

 

34,499

 

Limited partner interest in net income - basic and diluted

 

$

 —

 

$

34,512

 

$

 —

 

$

69,609

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average limited partner units  outstanding - basic

 

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

 

 —

 

 

78,018

 

 

 —

 

 

76,641

 

Subordinated units

 

 

 —

 

 

75,941

 

 

 —

 

 

75,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average limited partner units  outstanding - diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

 

 —

 

 

78,034

 

 

 —

 

 

76,657

 

Subordinated units

 

 

 —

 

 

75,941

 

 

 —

 

 

75,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per limited partner unit - basic

 

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

$

 —

 

$

0.23

 

$

 —

 

$

0.46

 

Subordinated units

 

$

 —

 

$

0.22

 

$

 —

 

$

0.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per limited partner unit - diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

$

 —

 

$

0.23

 

$

 —

 

$

0.46

 

Subordinated units

 

$

 —

 

$

0.22

 

$

 —

 

$

0.45

 

 

Fair Value Measurement
Fair Value Measurement

(8) Fair Value Measurement

In connection with the Water Acquisition, we have agreed to pay Antero (a) $125 million in cash if the Partnership delivers 176,295,000 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 the Partnership delivers 219,200,000 barrels or more of fresh water during the period between January 1, 2018 and December 31, 2020. This contingent consideration liability is valued based on Level 3 inputs.

The following table provides a reconciliation of changes in Level 3 financial liabilities measured at fair value on a recurring basis for the periods shown below (in thousands):

 

 

 

 

 

 

 

 

 

 

Contingent Consideration

 

 

Three months ended September 30, 2015

    

Nine months ended September 30, 2015

Beginning balance

 

$

 —

 

$

 —

Initial estimate upon acquisition

 

 

174,716

 

 

174,716

Ending balance

 

$

174,716

 

$

174,716

 

We account for contingent consideration in accordance with applicable accounting guidance pertaining to business combinations. We are contractually obligated to pay Antero contingent consideration in connection with the Water Acquisition, and therefore recorded this contingent consideration liability at the time of the Water Acquisition. We update our assumptions each reporting period based on new developments and adjust such amounts to fair value based on revised assumptions, if applicable, until such consideration is satisfied through payment upon achievement of the specified objectives or it is eliminated upon failure to achieve the specified objectives.

As of September 30, 2015, we are obligated to pay these amounts in 2019 and 2020. 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. The fair value of the contingent consideration liability associated with future milestone payments was based on the risk adjusted present value of the contingent consideration payout.

Reporting Segments
Reporting Segments

(9)    Reporting Segments

The Partnership’s operations are located in the United States and are organized into two reporting segments: (1) gathering and compression and (2) water handling.

Gathering and Compression

The gathering and compression segment includes a network of gathering pipelines and compressor stations that collect natural gas, NGLs and oil from Antero’s wells in the Marcellus Shale in West Virginia and the Utica Shale in Ohio.

Water Handling

The Partnership’s water handling segment includes two independent fresh water distribution systems that source and deliver fresh water from the Ohio River and several regional waterways for well completion operations in Antero’s operating areas. These systems consist of permanent buried pipelines, surface pipelines and fresh water storage facilitates, as well as pumping stations and impoundments to transport the fresh water throughout the pipelines. The water handling segment also includes a water treatment facility, currently under construction.

 

These segments are monitored separately by management for performance and are consistent with internal financial reporting. These segments have been identified based on the differing products and services, regulatory environment and the expertise required for these operations. We evaluate the performance of the Partnership’s business segments based on operating income. Interest expense is primarily managed and evaluated on a consolidated basis.

Summarized financial information concerning the Partnership’s segments for the periods indicated is shown in the following table (in thousands):

 

 

 

 

 

 

 

 

 

 

 

  

Gathering and

  

Water

  

Consolidated

 

  

Compression

  

Handling

  

Total

Three months ended September 30, 2014

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Revenue - affiliate

 

$

26,282

 

$

42,631

 

$

68,913

Revenue - third-party

 

 

 -

 

 

2,671

 

 

2,671

Total revenues

 

$

26,282

 

$

45,302

 

$

71,584

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Direct operating

 

 

3,525

 

 

9,054

 

 

12,579

General and administrative (before equity-based compensation)

 

 

3,956

 

 

1,576

 

 

5,532

Equity-based compensation

 

 

1,562

 

 

549

 

 

2,111

Depreciation

 

 

10,227

 

 

4,390

 

 

14,617

Total

 

$

19,270

 

$

15,569

 

$

34,839

Operating income

 

$

7,012

 

$

29,733

 

$

36,745

Segment assets

 

$

1,071,273

 

$

396,692

 

$

1,467,965

Capital expenditures for segment assets

 

$

162,482

 

$

53,305

 

$

215,787

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2015

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Revenue - affiliate

 

$

59,220

 

$

21,819

 

$

81,039

Revenue - third-party

 

 

38

 

 

627

 

 

665

Total revenues

 

$

59,258

 

$

22,446

 

$

81,704

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Direct operating

 

 

(3,164)

 

 

4,773

 

 

1,609

General and administrative (before equity-based compensation)

 

 

7,060

 

 

1,498

 

 

8,558

Equity-based compensation

 

 

4,205

 

 

1,079

 

 

5,284

Depreciation

 

 

15,076

 

 

6,485

 

 

21,561

Total

 

$

23,177

 

$

13,835

 

$

37,012

Operating income

 

$

36,081

 

$

8,611

 

$

44,692

Segment assets

 

$

1,395,057

 

$

487,734

 

$

1,882,791

Capital expenditures for segment assets

 

$

82,751

 

$

19,821

 

$

102,572

Acquired water handling assets

 

$

 -

 

$

28,560

 

$

28,560

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Gathering and

  

Water

  

Consolidated

 

 

  

Compression

  

Handling

  

Total

 

Nine months ended September 30, 2014

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

Revenue - affiliate

 

$

54,978

 

$

107,907

 

$

162,885

 

Revenue - third-party

 

 

 -

 

 

2,671

 

 

2,671

 

Total revenues

 

$

54,978

 

$

110,578

 

$

165,556

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Direct operating

 

 

6,661

 

 

25,871

 

 

32,532

 

General and administrative (before equity-based compensation)

 

 

9,710

 

 

4,085

 

 

13,795

 

Equity-based compensation

 

 

5,365

 

 

2,027

 

 

7,392

 

Depreciation

 

 

24,991

 

 

10,748

 

 

35,739

 

Total

 

$

46,727

 

$

42,731

 

$

89,458

 

Operating income

 

$

8,251

 

$

67,847

 

$

76,098

 

Segment assets

 

$

1,071,273

 

$

396,692

 

$

1,467,965

 

Capital expenditures for segment assets

 

$

428,036

 

$

159,097

 

$

587,133

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

Revenue - affiliate

 

$

168,056

 

$

86,759

 

$

254,815

 

Revenue - third-party

 

 

38

 

 

778

 

 

816

 

Total revenues

 

$

168,094

 

$

87,537

 

$

255,631

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Direct operating

 

 

19,817

 

 

19,013

 

 

38,830

 

General and administrative (before equity-based compensation)

 

 

16,467

 

 

3,793

 

 

20,260

 

Equity-based compensation

 

 

14,218

 

 

3,445

 

 

17,663

 

Depreciation

 

 

44,748

 

 

18,767

 

 

63,515

 

Total

 

$

95,250

 

$

45,018

 

$

140,268

 

Operating income

 

$

72,844

 

$

42,519

 

$

115,363

 

Segment assets

 

$

1,395,057

 

$

487,734

 

$

1,882,791

 

Capital expenditures for segment assets

 

$

282,826

 

$

53,086

 

$

335,912

 

Acquired water handling assets

 

$

 -

 

$

28,560

 

$

28,560

 

 

Contingencies
Contingencies

(10)  Contingencies

 

Environmental Obligations

We are subject to federal, state and local regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. During the third quarter of 2015, the West Virginia Department of Environmental Protection (“WVDEP”) issued Antero Midstream a NOV for improper installation of an engine catalyst at the startup of the North Canton Compressor Station.  Antero Midstream continues to negotiate with WVDEP to resolve this matter, but believes that it could result in monetary sanctions exceeding $100,000; however, we do not expect that any ultimate sanction will have a material impact on the financial position, results of operations, or liquidity of Antero Midstream.

Summary of Significant Accounting Policies (Policies)

(a) Basis of Presentation

 

These condensed combined consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information, and should be read in the context of the December 31, 2014 consolidated financial statements and notes thereto for a more complete understanding of the Partnership’s operations, financial position, and accounting policies.  The December 31, 2014 consolidated financial statements were originally filed with the SEC in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2014 and were subsequently recast to include the historical results of Antero Water.  The recast December 31, 2014 combined consolidated financial statements were filed with the SEC as Exhibit 99.1 to the Partnership’s Current Report on Form 8-K filed October 9, 2015.

 

The accompanying unaudited condensed combined consolidated financial statements of the Partnership 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 the Partnership’s financial position as of December 31, 2014 and September 30, 2015, the results of its operations for the three and nine months ended September 30, 2014 and 2015 and its cash flows for the nine months ended September 30, 2014 and 2015. The Partnership has no items of other comprehensive income or loss; therefore, its net income is identical to its comprehensive income. Operating results for the period ended September 30, 2015 are not necessarily indicative of the results that may be expected for the full year.

The accompanying condensed combined consolidated financial statements represent the assets, liabilities, and results of operations of Antero’s gathering and compression assets and water handling assets as the accounting predecessor (the “Predecessor”) to the Partnership, presented on a carve-out basis of Antero’s historical ownership of the Predecessor. The Predecessor financial statements have been prepared from the separate records maintained by Antero and may not necessarily be indicative of the actual results of operations that might have occurred if the Predecessor had been operated separately during the periods reported. References in these financial statements to “Predecessor,” “we,” “our,” “us” or like terms, when referring to periods prior to November 10, 2014, refer to Antero’s gathering, compression and water assets, our predecessor for accounting purposes.  References to “the Partnership,” “we,” “our,” “us” or like terms, when referring to periods between November 10, 2014 and September 23, 2015 refer to the Partnership’s gathering and compression assets and Antero’s water assets. References to “the Partnership,” “we,” “our,” “us” or like terms, when referring to periods since September 23, 2015 or when used in the present tense or prospectively, refer to the Partnership.

 

Certain costs of doing business which are incurred by Antero on our behalf have been reflected in the accompanying condensed combined consolidated financial statements. These costs include general and administrative expenses attributed to us by Antero in exchange for:

·

business services, such as payroll, accounts payable and facilities management;

·

corporate services, such as finance and accounting, legal, human resources, investor relations and public and regulatory policy; and

·

employee compensation, including equity‑based compensation.

Transactions between us and Antero have been identified in the condensed combined consolidated financial statements as transactions between affiliates (see Note 3).

As of the date these condensed combined consolidated financial statements were filed with the SEC, the Partnership completed its evaluation of potential subsequent events for disclosure and no items requiring disclosure were identified, except the declaration of a cash distribution to unitholders, as described in Note 6—Partnership Equity and Distributions.

(b)Revenue Recognition

We provide gathering and compression and water handling services under fee-based contracts primarily based on throughput. Under these arrangements, we receive fees for gathering oil and gas products and compression services. The revenue we earn from these arrangements is directly related to (1) in the case of natural gas gathering and compression, the volumes of metered natural gas that we gather, compress and deliver to natural gas compression sites or other transmission delivery points (2) in the case of oil and condensate gathering, the volumes of metered oil and condensate that we gather and deliver to other transmission delivery points or (3) in the case of water handling services, the quantities of fresh water delivered to our customers for use in their well completion operations. We recognize revenue when all of the following criteria are met: (1) persuasive evidence of an agreement exists, (2) services have been rendered, (3) prices are fixed or determinable and (4) collectability is reasonable assured. 

(c) Use of Estimates

The preparation of the condensed combined consolidated financial statements and notes in conformity with GAAP requires that management formulate estimates and assumptions that affect revenues, expenses, assets, liabilities and the disclosure of contingent assets and liabilities. Items subject to estimates and assumptions include the useful lives of property and equipment and valuation of accrued liabilities, among others. Although management believes these estimates are reasonable, actual results could differ from these estimates.

 

In the third quarter, as a result of our review of recent rulings, our estimated ad valorem tax expense was decreased by $8.4 million related to prior periods due to a change in our estimated future tax liability.  This was accounted for as a change in an accounting estimate. 

(d)Cash and Cash Equivalents

Prior to the IPO, the Predecessor’s gathering and compression operations were funded by Antero, and prior to September 23, 2015 Antero Water’s operations were funded by Antero. Net amounts funded by Antero are reflected as net contributions from parent on the accompanying Statements of Condensed Combined Consolidated Cash Flows.

 

We consider all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments.

 

 

(e)Property and Equipment

Property and equipment primarily consists of gathering pipelines, compressor stations and fresh water distribution pipelines and facilities stated at historical cost less accumulated depreciation. We capitalize construction-related direct labor and material costs. Maintenance and repair costs are expensed as incurred.

 

Depreciation is computed using the straight-line method over the estimated useful lives and salvage values of assets. The depreciation of fixed assets recorded under capital lease agreements is included in depreciation expense. Uncertainties that may impact these estimates of useful lives include, among others, changes in laws and regulations relating to environmental matters, including air and water quality, restoration and abandonment requirements, economic conditions, and supply and demand for our services in the areas in which we operate. When assets are placed into service, management makes estimates with respect to useful lives and salvage values that management believes are reasonable. However, subsequent events could cause a change in estimates, thereby impacting future depreciation amounts.

Our investment in property and equipment for the periods presented is as follows:

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Estimated useful lives

 

As of December 31, 2014

 

As of September 30, 2015

 

Land

 

n/a

 

$

3,383

 

$

3,430

 

Freshwater surface pipelines and equipment

 

5 years

 

 

20,931

 

 

32,165

 

Freshwater permanent buried pipelines and equipment

 

20 years

 

 

359,244

 

 

395,124

 

Gathering and compression systems

 

20 years

 

 

861,609

 

 

1,196,274

 

Construction-in-progress

 

n/a

 

 

356,552

 

 

322,375

 

Total property and equipment

 

 

 

 

1,601,719

 

 

1,949,368

 

Less accumulated depreciation

 

 

 

 

(70,124)

 

 

(134,469)

 

Property and equipment, net

 

 

 

$

1,531,595

 

$

1,814,899

 

 

(f)Impairment of Long‑Lived Assets

We evaluate our long‑lived assets for impairment when events or changes in circumstances indicate that the related carrying values of the assets may not be recoverable.  Generally, the basis for making such assessments is undiscounted future cash flow projections for the unit being assessed.  If the carrying values of the assets are deemed not recoverable, the carrying values are reduced to the estimated fair value, which is based on discounted future cash flows or other techniques, as appropriate.  No impairments for such assets have been recorded through September 30, 2015.

(g)Asset Retirement Obligations

Our gathering pipelines, compressor stations and freshwater distribution pipelines and facilities have an indeterminate life, if properly maintained. A liability for these asset retirement obligations will be recorded only if and when a future retirement obligation with a determinable life can be estimated. It has been determined by our operational management team that abandoning all other ancillary equipment, outside of the assets stated above, would require minimal costs. Because we are not able to make a reasonable estimate of when future dismantlement and removal dates of our pipelines, compressor stations and facilities, will occur, and because it has been determined that abandonment of all other ancillary assets would only require minimal costs, we have not recorded asset retirement obligations at December 31, 2014 or September 30, 2015.

 

(h)Litigation and Other Contingencies

 

An accrual is recorded for a loss contingency when its occurrence is probable and damages can be reasonably estimated based on the anticipated most likely outcome or the minimum amount within a range of possible outcomes. We regularly review contingencies to determine the adequacy of our accruals and related disclosures. The ultimate amount of losses, if any, may differ from these estimates.

We accrue losses associated with environmental obligations when such losses are probable and can be reasonably estimated. Accruals for estimated environmental losses are recognized no later than at the time a remediation feasibility study, or an evaluation of response options, is complete. These accruals are adjusted as additional information becomes available or as circumstances change. Future environmental expenditures are not discounted to their present value. Recoveries of environmental costs from other parties are recorded separately as assets at their undiscounted value when receipt of such recoveries is probable.

(i)Equity‑Based Compensation

Our condensed combined consolidated financial statements reflect various equity-based compensation awards granted by Antero, as well as compensation expense associated with our own plan. These awards include profits interests awards, restricted stock, stock options, restricted units, and phantom units. For purposes of these condensed combined consolidated financial statements, we recognized as expense in each period an amount allocated from Antero, with the offset included in partners’ capital. See Note 3—Transactions with Affiliates for additional information regarding Antero’s allocation of expenses to us.

 

In connection with the IPO, our general partner adopted the Antero Midstream Partners LP Long-Term Incentive Plan (“Midstream LTIP”), pursuant to which certain non-employee directors of our general partner and certain officers, employees and consultants of our general partner and its affiliates are eligible to receive awards representing equity interests in the Partnership. An aggregate of 10,000,000 common units may be delivered pursuant to awards under the Midstream LTIP, subject to customary adjustments. For accounting purposes, these units are treated as if they are distributed from us to Antero. Antero recognizes compensation expense for the units awarded to its employees and a portion of that expense is allocated to us. There is no cash paid to Antero for the amount allocated to us. See Note 5—Equity-Based Compensation.

(j)Income Taxes

Our condensed combined consolidated financial statements do not include a provision for income taxes as we are treated as a partnership for federal and state income tax purposes, with each partner being separately taxed on its share of taxable income.

(k)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 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.

The carrying values on our balance sheet of our cash and cash equivalents, accounts receivable—affiliate, accounts receivable—third party, prepaid expenses, other assets, accounts payable, accounts payable—affiliate, accrued liabilities, accrued capital expenditures, accrued ad valorem tax, other current liabilities, other liabilities and the revolving credit facility approximate fair values due to their short-term maturities. 

As discussed in Note 8—Fair Value Measurement, the Partnership has agreed to pay Antero contingent consideration in connection with the Water Acquisition. See Note 8—Fair Value Measurement.

(l) Reclassifications   

Certain reclassifications have been made to prior periods’ financial information related to direct operating expenses to conform that information to our current period presentation. These reclassifications did not have an impact on net income for the periods previously reported.

Summary of Significant Accounting Policies (Tables)
Schedule of investment in property and equipment

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Estimated useful lives

 

As of December 31, 2014

 

As of September 30, 2015

 

Land

 

n/a

 

$

3,383

 

$

3,430

 

Freshwater surface pipelines and equipment

 

5 years

 

 

20,931

 

 

32,165

 

Freshwater permanent buried pipelines and equipment

 

20 years

 

 

359,244

 

 

395,124

 

Gathering and compression systems

 

20 years

 

 

861,609

 

 

1,196,274

 

Construction-in-progress

 

n/a

 

 

356,552

 

 

322,375

 

Total property and equipment

 

 

 

 

1,601,719

 

 

1,949,368

 

Less accumulated depreciation

 

 

 

 

(70,124)

 

 

(134,469)

 

Property and equipment, net

 

 

 

$

1,531,595

 

$

1,814,899

 

 

Equity-Based Compensation (Tables)
Summary of restricted unit and phantom unit awards activity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted
average

 

Aggregate

 

 

 

Number of
units

 

grant date
fair value

 

intrinsic value
(in thousands)

 

Total awarded and unvested, December 31, 2014

 

2,381,440

 

$

29.00

 

$

65,490

 

Granted

 

12,057

 

$

24.88

 

$

 —

 

Vested

 

 —

 

$

 —

 

$

 —

 

Forfeited

 

(51,860)

 

$

29.00

 

$

 —

 

Total awarded and unvested, September 30, 2015

 

2,341,637

 

$

28.98

 

$

41,822

 

 

Partnership Equity and Distributions (Tables)

 

 

 

 

 

 

 

 

Marginal Percentage

 

 

 

Interest in

 

 

 

Distributions

 

 

 

 

 

General Partner

 

Total Quarterly Distribution

 

 

 

(as holder of

 

Target Amount

 

Unitholders

 

IDRs)

 

above $0.1955 up to $0.2125

    

85

%  

15

%  

above $0.2125 up to $0.2550

 

75

%  

25

%  

above $0.2550

 

50

%  

50

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions

 

 

 

 

 

 

 

Limited Partners

 

 

 

 

 

 

 

 

 

 

Record Date

 

Distribution Date

Common unitholders

    

Subordinated unitholders

    

General partner (IDRs)

 

Total

 

 

Distributions per limited partner unit

 

 

 

 

($ in thousands, except per unit data)

 

 

 

 

February 13, 2015

 

February 27, 2015

$

7,161

 

$

7,161

 

$

 -

 

$

14,322

 

 

$

0.0943

May 13, 2015

 

May 27, 2015

$

13,669

 

$

13,669

 

$

 -

 

$

27,338

 

 

$

0.1800

July 13, 2015

 

July 17, 2015

$

14,429

 

$

14,429

 

$

 -

 

$

28,858

 

 

$

0.1900

November 11, 2015

 

November 30, 2015

$

20,470

 

$

15,568

 

$

295

 

$

36,333

 

 

$

0.2050

 

Net Income Per Limited Partner Unit (Tables)
Schedule of net income per common and subordinated unit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

    

 

 

2014

  

2015

 

2014

  

2015

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

  

$

34,290

  

$

42,648

  

$

71,977

  

$

110,097

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-IPO net income attributed to parent

 

 

(34,290)

 

 

 —

 

 

(71,977)

 

 

 —

 

Pre-Water Acquisition net income attributed to parent

 

 

 —

 

 

(7,841)

 

 

 —

 

 

(40,193)

 

General partner interest in net income attributable to incentive distribution rights

 

 

 —

 

 

(295)

 

 

 —

 

 

(295)

 

Limited partner interest in net income

  

$

 —

 

$

34,512

 

$

 —

 

$

69,609

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocable to common units - basic and diluted

 

$

 —

 

$

17,561

 

$

 —

 

$

35,110

 

Net income allocable to subordinated units - basic and diluted

 

 

 —

 

 

16,951

 

 

 —

 

 

34,499

 

Limited partner interest in net income - basic and diluted

 

$

 —

 

$

34,512

 

$

 —

 

$

69,609

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average limited partner units  outstanding - basic

 

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

 

 —

 

 

78,018

 

 

 —

 

 

76,641

 

Subordinated units

 

 

 —

 

 

75,941

 

 

 —

 

 

75,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average limited partner units  outstanding - diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

 

 —

 

 

78,034

 

 

 —

 

 

76,657

 

Subordinated units

 

 

 —

 

 

75,941

 

 

 —

 

 

75,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per limited partner unit - basic

 

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

$

 —

 

$

0.23

 

$

 —

 

$

0.46

 

Subordinated units

 

$

 —

 

$

0.22

 

$

 —

 

$

0.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per limited partner unit - diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

$

 —

 

$

0.23

 

$

 —

 

$

0.46

 

Subordinated units

 

$

 —

 

$

0.22

 

$

 —

 

$

0.45

 

 

Fair Value Measurement (Tables)
Schedule of reconciliation of changes in Level 3 financial liabilities measured at fair value on a recurring basis

The following table provides a reconciliation of changes in Level 3 financial liabilities measured at fair value on a recurring basis for the periods shown below (in thousands):

 

 

 

 

 

 

 

 

 

 

Contingent Consideration

 

 

Three months ended September 30, 2015

    

Nine months ended September 30, 2015

Beginning balance

 

$

 —

 

$

 —

Initial estimate upon acquisition

 

 

174,716

 

 

174,716

Ending balance

 

$

174,716

 

$

174,716

 

Reporting Segments (Tables)
Schedule of financial information concerning the Partnership's segments

Summarized financial information concerning the Partnership’s segments for the periods indicated is shown in the following table (in thousands):

 

 

 

 

 

 

 

 

 

 

 

  

Gathering and

  

Water

  

Consolidated

 

  

Compression

  

Handling

  

Total

Three months ended September 30, 2014

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Revenue - affiliate

 

$

26,282

 

$

42,631

 

$

68,913

Revenue - third-party

 

 

 -

 

 

2,671

 

 

2,671

Total revenues

 

$

26,282

 

$

45,302

 

$

71,584

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Direct operating

 

 

3,525

 

 

9,054

 

 

12,579

General and administrative (before equity-based compensation)

 

 

3,956

 

 

1,576

 

 

5,532

Equity-based compensation

 

 

1,562

 

 

549

 

 

2,111

Depreciation

 

 

10,227

 

 

4,390

 

 

14,617

Total

 

$

19,270

 

$

15,569

 

$

34,839

Operating income

 

$

7,012

 

$

29,733

 

$

36,745

Segment assets

 

$

1,071,273

 

$

396,692

 

$

1,467,965

Capital expenditures for segment assets

 

$

162,482

 

$

53,305

 

$

215,787

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2015

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Revenue - affiliate

 

$

59,220

 

$

21,819

 

$

81,039

Revenue - third-party

 

 

38

 

 

627

 

 

665

Total revenues

 

$

59,258

 

$

22,446

 

$

81,704

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Direct operating

 

 

(3,164)

 

 

4,773

 

 

1,609

General and administrative (before equity-based compensation)

 

 

7,060

 

 

1,498

 

 

8,558

Equity-based compensation

 

 

4,205

 

 

1,079

 

 

5,284

Depreciation

 

 

15,076

 

 

6,485

 

 

21,561

Total

 

$

23,177

 

$

13,835

 

$

37,012

Operating income

 

$

36,081

 

$

8,611

 

$

44,692

Segment assets

 

$

1,395,057

 

$

487,734

 

$

1,882,791

Capital expenditures for segment assets

 

$

82,751

 

$

19,821

 

$

102,572

Acquired water handling assets

 

$

 -

 

$

28,560

 

$

28,560

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Gathering and

  

Water

  

Consolidated

 

 

  

Compression

  

Handling

  

Total

 

Nine months ended September 30, 2014

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

Revenue - affiliate

 

$

54,978

 

$

107,907

 

$

162,885

 

Revenue - third-party

 

 

 -

 

 

2,671

 

 

2,671

 

Total revenues

 

$

54,978

 

$

110,578

 

$

165,556

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Direct operating

 

 

6,661

 

 

25,871

 

 

32,532

 

General and administrative (before equity-based compensation)

 

 

9,710

 

 

4,085

 

 

13,795

 

Equity-based compensation

 

 

5,365

 

 

2,027

 

 

7,392

 

Depreciation

 

 

24,991

 

 

10,748

 

 

35,739

 

Total

 

$

46,727

 

$

42,731

 

$

89,458

 

Operating income

 

$

8,251

 

$

67,847

 

$

76,098

 

Segment assets

 

$

1,071,273

 

$

396,692

 

$

1,467,965

 

Capital expenditures for segment assets

 

$

428,036

 

$

159,097

 

$

587,133

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

Revenue - affiliate

 

$

168,056

 

$

86,759

 

$

254,815

 

Revenue - third-party

 

 

38

 

 

778

 

 

816

 

Total revenues

 

$

168,094

 

$

87,537

 

$

255,631

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Direct operating

 

 

19,817

 

 

19,013

 

 

38,830

 

General and administrative (before equity-based compensation)

 

 

16,467

 

 

3,793

 

 

20,260

 

Equity-based compensation

 

 

14,218

 

 

3,445

 

 

17,663

 

Depreciation

 

 

44,748

 

 

18,767

 

 

63,515

 

Total

 

$

95,250

 

$

45,018

 

$

140,268

 

Operating income

 

$

72,844

 

$

42,519

 

$

115,363

 

Segment assets

 

$

1,395,057

 

$

487,734

 

$

1,882,791

 

Capital expenditures for segment assets

 

$

282,826

 

$

53,086

 

$

335,912

 

Acquired water handling assets

 

$

 -

 

$

28,560

 

$

28,560

 

 

Business and Organization (Details) (USD $)
9 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended 0 Months Ended
Sep. 30, 2015
Sep. 30, 2015
Regional Gathering System
mi
Sep. 17, 2015
Contribution Agreement
Sep. 17, 2015
Contribution Agreement
Sep. 17, 2015
Contribution Agreement
Contingent Consideration Period One
bbl
Sep. 17, 2015
Contribution Agreement
Contingent Consideration Period One
Sep. 17, 2015
Contribution Agreement
Contingent Consideration Period Two
bbl
Sep. 17, 2015
Contribution Agreement
Contingent Consideration Period Two
Nov. 10, 2014
IPO
Sep. 23, 2015
Private Placement
Sep. 17, 2015
Private Placement
Sep. 23, 2015
Private Placement
Sep. 30, 2015
Common Unitholders Public
Sep. 30, 2015
Common Unitholder Antero
Business and Organization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Units issued
 
 
 
 
 
 
 
 
46,000,000 
 
 
 
 
 
Price per common unit of limited partnership
 
 
 
 
 
 
 
 
$ 25.00 
$ 18.84 
 
 
 
 
Common unitholders units issued
 
 
 
10,988,421 
 
 
 
 
 
 
 
12,898,000 
58,922,054 
40,929,378 
Subordinated units outstanding
75,940,957 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net proceeds received from shares of common units sold
 
 
 
 
 
 
 
 
 
$ 240,200,000 
$ 241,000,000 
 
 
 
Cash distribution
633,457,000 
 
552,500,000 
 
 
 
 
 
 
 
 
 
 
 
Debt assumed
 
 
 
171,000,000 
 
 
 
 
 
 
 
 
 
 
Contingent consideration
 
 
 
 
 
$ 125,000,000 
 
$ 125,000,000 
 
 
 
 
 
 
Threshold number of barrels of water to trigger contingent consideration payment
 
 
 
 
176,295,000 
 
219,200,000 
 
 
 
 
 
 
 
Threshold non-operating equity percentage
 
15.00% 
 
 
 
 
 
 
 
 
 
 
 
 
Distance of regional gathering pipeline extension (in miles)
 
50 
 
 
 
 
 
 
 
 
 
 
 
 
Time period for expiration of participation in regional gathering pipeline extension
 
6 months 
 
 
 
 
 
 
 
 
 
 
 
 
Summary of Significant Accounting Policies (Details) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2015
Dec. 31, 2014
Decrease in ad velorem tax expense
$ 8,400,000 
 
 
Property and equipment:
 
 
 
Property and equipment
1,949,368,000 
1,949,368,000 
1,601,719,000 
Less accumulated depreciation
(134,469,000)
(134,469,000)
(70,124,000)
Property and equipment, net
1,814,899,000 
1,814,899,000 
1,531,595,000 
Impairment of Long-Lived Assets
 
 
 
Impairment of assets
 
 
Stock-Based Compensation
 
 
 
Granted (in shares)
 
12,057 
 
Forfeited (in shares)
 
(51,860)
 
Midstream LTIP
 
 
 
Stock-Based Compensation
 
 
 
Number of stock-based compensation awards authorized
10,000,000 
10,000,000 
 
Land
 
 
 
Property and equipment:
 
 
 
Property and equipment
3,430,000 
3,430,000 
3,383,000 
Freshwater surface pipelines and equipment
 
 
 
Property and equipment:
 
 
 
Useful life
 
5 years 
 
Property and equipment
32,165,000 
32,165,000 
20,931,000 
Freshwater permanent buried pipelines and equipment
 
 
 
Property and equipment:
 
 
 
Useful life
 
20 years 
 
Property and equipment
395,124,000 
395,124,000 
359,244,000 
Gathering and compression systems
 
 
 
Property and equipment:
 
 
 
Useful life
 
20 years 
 
Property and equipment
1,196,274,000 
1,196,274,000 
861,609,000 
Gathering and compression systems - under construction
 
 
 
Property and equipment:
 
 
 
Property and equipment
$ 322,375,000 
$ 322,375,000 
$ 356,552,000 
Transactions with Affiliates (Details) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Revenue:
 
 
 
 
Water handling-affiliate
$ 21,819,000 
$ 42,631,000 
$ 86,759,000 
$ 107,907,000 
Allocation of costs
 
 
 
 
General and administrative expense
11,600,000 
7,400,000 
33,900,000 
20,900,000 
Agreements
 
 
 
 
Gathering and compression-affiliate
59,220,000 
26,282,000 
168,056,000 
54,978,000 
Antero Midstream Partners LP
 
 
 
 
Allocation of costs
 
 
 
 
Direct labor expenses
$ 800,000 
$ 500,000 
$ 2,200,000 
$ 1,100,000 
Long-term Debt (Details) (USD $)
9 Months Ended
Sep. 30, 2015
New revolving credit facility
Sep. 23, 2015
New revolving credit facility
Dec. 31, 2014
New revolving credit facility
Nov. 10, 2014
New revolving credit facility
Sep. 30, 2015
Letter of credit
Dec. 31, 2014
Letter of credit
Nov. 10, 2014
Letter of credit
Sep. 30, 2015
Line of credit
Minimum
Sep. 30, 2015
Line of credit
Maximum
Dec. 31, 2014
Antero Water
Antero Water Credit Facility
Long-term debt
 
 
 
 
 
 
 
 
 
 
Outstanding balance
$ 525,000,000 
 
$ 0 
 
$ 0 
$ 0 
 
 
 
$ 115,000,000 
Current borrowing capacity
 
 
 
 
 
 
150,000,000 
 
 
 
Commitment fees on the unused portion (as a percent)
 
 
 
 
 
 
 
0.25% 
0.375% 
 
Maximum amount of the Credit Facility
 
$ 1,500,000,000 
 
$ 1,000,000,000 
 
 
 
 
 
 
Weighted average interest rate (as a percent)
1.70% 
 
1.70% 
 
 
 
 
 
 
2.19% 
Equity Based Compensation (Details) (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Number of units
 
 
 
 
Total awarded and unvested at the beginning of the period (in shares)
 
 
2,381,440 
 
Granted (in shares)
 
 
12,057 
 
Forfeited (in shares)
 
 
(51,860)
 
Total awarded and unvested at the end of the period (in shares)
2,341,637 
 
2,341,637 
 
Weighted average grant date fair value
 
 
 
 
Total awarded and unvested at the beginning of the period (in dollars per unit)
 
 
$ 29.00 
 
Granted (in dollars per unit)
 
 
$ 24.88 
 
Forfeited (in dollars per unit)
 
 
$ 29.00 
 
Total awarded and unvested at the end of the period (in dollars per unit)
$ 28.98 
 
$ 28.98 
 
Aggregate intrinsic value
 
 
 
 
Total awarded and unvested at the beginning of the period
 
 
$ 65,490,000 
 
Total awarded and unvested at the end of the period
41,822,000 
 
41,822,000 
 
Additional disclosures
 
 
 
 
Equity-based compensation expense
5,284,000 
2,111,000 
17,663,000 
7,392,000 
Antero
 
 
 
 
Additional disclosures
 
 
 
 
Unamortized expense
52,500,000 
 
52,500,000 
 
Weighted average period for recognizing unrecognized stock-based compensation expense
 
 
3 years 1 month 6 days 
 
Midstream LTIP
 
 
 
 
Additional disclosures
 
 
 
 
Number of stock-based compensation awards authorized
10,000,000 
 
10,000,000 
 
Number of shares available for future grant under the Plan
7,658,363 
 
7,658,363 
 
Various equity based compensation plans |
Antero
 
 
 
 
Additional disclosures
 
 
 
 
Unamortized expense
$ 175,000,000 
 
$ 175,000,000 
 
Partnership Equity and Distributions (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
0 Months Ended 9 Months Ended
Nov. 30, 2015
Jul. 17, 2015
May 27, 2015
Feb. 27, 2015
Sep. 30, 2015
Partnership equity and distributions
 
 
 
 
 
Annual cash distribution (per unit)
 
 
 
 
0.68 
Minimum cash distributions to trigger unitholder and general partner distributions
 
 
 
 
$ 0.1955 
Cash distribution declared
$ 0.2050 
$ 0.1900 
$ 0.1800 
$ 0.0943 
 
Total Distribution
$ 36,333 
$ 28,858 
$ 27,338 
$ 14,322 
 
General Partner
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
Total Distribution
295 
 
 
 
 
Common units |
Limited Partner (Common units)
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
Total Distribution
20,470 
14,429 
13,669 
7,161 
 
Limited Partner (Subordinated units) |
Limited Partner (Common units)
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
Total Distribution
$ 15,568 
$ 14,429 
$ 13,669 
$ 7,161 
 
Above $0.1955 up to $0.2125
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
Unitholders marginal percentage interest in distribution
 
 
 
 
85.00% 
General Partners marginal percentage interest in distribution
 
 
 
 
15.00% 
Above $0.2125 up to $0.2550
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
Unitholders marginal percentage interest in distribution
 
 
 
 
75.00% 
General Partners marginal percentage interest in distribution
 
 
 
 
25.00% 
Above $0.2550
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
Pro rata cash distribution to the holders of common and subordinate units
 
 
 
 
0.2550 
Unitholders marginal percentage interest in distribution
 
 
 
 
50.00% 
General Partners marginal percentage interest in distribution
 
 
 
 
50.00% 
Minimum
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
Minimum quarterly cash distribution (per unit)
 
 
 
 
0.17 
Minimum |
Above $0.1955 up to $0.2125
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
Pro rata cash distribution to the holders of common and subordinate units
 
 
 
 
0.1955 
Minimum |
Above $0.2125 up to $0.2550
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
Pro rata cash distribution to the holders of common and subordinate units
 
 
 
 
0.2125 
Maximum |
Above $0.1955 up to $0.2125
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
Pro rata cash distribution to the holders of common and subordinate units
 
 
 
 
0.2125 
Maximum |
Above $0.2125 up to $0.2550
 
 
 
 
 
Partnership equity and distributions
 
 
 
 
 
Pro rata cash distribution to the holders of common and subordinate units
 
 
 
 
0.2550 
Net Income Per Limited Partner Unit (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
0 Months Ended 3 Months Ended 9 Months Ended
Nov. 30, 2015
Jul. 17, 2015
May 27, 2015
Feb. 27, 2015
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Earnings Per Share, Basic and Diluted [Abstract]
 
 
 
 
 
 
 
 
Net income allocable to common units - basic and diluted
 
 
 
 
$ 17,561 
 
$ 35,110 
 
Net income allocable to subordinated units - basic and diluted
 
 
 
 
16,951 
 
34,499 
 
Limited partner interest in net income - basic and diluted
 
 
 
 
34,512 
 
69,609 
 
Net income
 
 
 
 
42,648 
34,290 
110,097 
71,977 
Pre-IPO net income attributed to parent
 
 
 
 
 
(34,290)
 
(71,977)
Pre-Water Acquisition net income attributed to parent
 
 
 
 
(7,841)
 
(40,193)
 
General partner interest in net income attributable to incentive distribution rights
 
 
 
 
(295)
 
(295)
 
Limited partners' interest in net income
 
 
 
 
34,512 
 
69,609 
 
Weighted average units outstanding:
 
 
 
 
 
 
 
 
Common units - basic
 
 
 
 
78,018,037 
 
76,640,925 
 
Subordinated units - basic
 
 
 
 
75,940,957 
 
75,940,957 
 
Common units diluted
 
 
 
 
78,034,156 
 
76,657,439 
 
Subordinated units - diluted
 
 
 
 
75,940,957 
 
75,940,957 
 
Net income attributable to Antero Midstream Partners LP subsequent to IPO
 
 
 
 
 
 
 
 
Common units - basic
 
 
 
 
$ 0.23 
 
$ 0.46 
 
Subordinated units - basic
 
 
 
 
$ 0.22 
 
$ 0.45 
 
Common units - diluted
 
 
 
 
$ 0.23 
 
$ 0.46 
 
Subordinated units - diluted
 
 
 
 
$ 0.22 
 
$ 0.45 
 
Cash distribution declared
$ 0.2050 
$ 0.1900 
$ 0.1800 
$ 0.0943 
 
 
 
 
Quarterly cash distribution
36,333 
28,858 
27,338 
14,322 
 
 
 
 
Minimum
 
 
 
 
 
 
 
 
Net income attributable to Antero Midstream Partners LP subsequent to IPO
 
 
 
 
 
 
 
 
Limited partner minimum quarterly distribution per partnership agreement
 
 
 
 
 
 
0.17 
 
Minimum quarterly cash distribution (per unit)
 
 
 
 
 
 
0.17 
 
Restricted and phantom unit award
 
 
 
 
 
 
 
 
Weighted average units outstanding:
 
 
 
 
 
 
 
 
Weighted average units outstanding - diluted
 
 
 
 
16,119 
 
16,514 
 
Antidilutive securities excluded from computation of earnings per share
 
 
 
 
2,309,580 
 
2,314,388 
 
General Partner
 
 
 
 
 
 
 
 
Net income attributable to Antero Midstream Partners LP subsequent to IPO
 
 
 
 
 
 
 
 
Quarterly cash distribution
295 
 
 
 
 
 
 
 
Common units
 
 
 
 
 
 
 
 
Weighted average units outstanding:
 
 
 
 
 
 
 
 
Weighted average units outstanding - diluted
 
 
 
 
78,034,156 
 
76,657,439 
 
Common units |
Limited Partner (Common units)
 
 
 
 
 
 
 
 
Net income attributable to Antero Midstream Partners LP subsequent to IPO
 
 
 
 
 
 
 
 
Quarterly cash distribution
20,470 
14,429 
13,669 
7,161 
 
 
 
 
Limited Partner (Subordinated units) |
Limited Partner (Common units)
 
 
 
 
 
 
 
 
Net income attributable to Antero Midstream Partners LP subsequent to IPO
 
 
 
 
 
 
 
 
Quarterly cash distribution
$ 15,568 
$ 14,429 
$ 13,669 
$ 7,161 
 
 
 
 
Fair Value Measurement (Details) (USD $)
3 Months Ended 9 Months Ended 0 Months Ended 0 Months Ended
Sep. 30, 2015
Recurring Member
Level 3
Sep. 30, 2015
Recurring Member
Level 3
Sep. 17, 2015
Contribution Agreement
Contingent Consideration Period One
bbl
Sep. 17, 2015
Contribution Agreement
Contingent Consideration Period One
Sep. 17, 2015
Contribution Agreement
Contingent Consideration Period Two
bbl
Sep. 17, 2015
Contribution Agreement
Contingent Consideration Period Two
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
 
 
 
 
 
 
Contingent consideration
 
 
 
$ 125,000,000 
 
$ 125,000,000 
Threshold number of barrels of water to trigger contingent consideration payment
 
 
176,295,000 
 
219,200,000 
 
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
 
 
 
 
 
 
Initial estimate upon acquisition
174,716,000 
174,716,000 
 
 
 
 
Ending balance
$ 174,716,000 
$ 174,716,000 
 
 
 
 
Reporting Segments (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
segment
Sep. 30, 2014
Dec. 31, 2014
Reporting Segments
 
 
 
 
 
Number of reportable segments
 
 
 
 
Revenues:
 
 
 
 
 
Revenue - affiliate
$ 81,039 
$ 68,913 
$ 254,815 
$ 162,885 
 
Revenue – third party
665 
2,671 
816 
2,671 
 
Total revenues
81,704 
71,584 
255,631 
165,556 
 
Operating expenses:
 
 
 
 
 
Direct operating
1,609 
12,579 
38,830 
32,532 
 
General and administrative expense (before equity-based compensation)
8,558 
5,532 
20,260 
13,795 
 
Equity-based compensation expense
5,284 
2,111 
17,663 
7,392 
 
Depreciation
21,561 
14,617 
63,515 
35,739 
 
Total operating expenses
37,012 
34,839 
140,268 
89,458 
 
Operating income (loss)
44,692 
36,745 
115,363 
76,098 
 
Segment assets
1,882,791 
1,467,965 
1,882,791 
1,467,965 
1,816,610 
Capital expenditures for segment assets
102,572 
215,787 
335,912 
587,133 
 
Acquired water handling assets
28,560 
 
28,560 
 
 
Gathering And Compression
 
 
 
 
 
Revenues:
 
 
 
 
 
Revenue - affiliate
59,220 
26,282 
168,056 
54,978 
 
Revenue – third party
38 
 
38 
 
 
Total revenues
59,258 
26,282 
168,094 
54,978 
 
Operating expenses:
 
 
 
 
 
Direct operating
(3,164)
3,525 
19,817 
6,661 
 
General and administrative expense (before equity-based compensation)
7,060 
3,956 
16,467 
9,710 
 
Equity-based compensation expense
4,205 
1,562 
14,218 
5,365 
 
Depreciation
15,076 
10,227 
44,748 
24,991 
 
Total operating expenses
23,177 
19,270 
95,250 
46,727 
 
Operating income (loss)
36,081 
7,012 
72,844 
8,251 
 
Segment assets
1,395,057 
1,071,273 
1,395,057 
1,071,273 
 
Capital expenditures for segment assets
82,751 
162,482 
282,826 
428,036 
 
Water Handling
 
 
 
 
 
Reporting Segments
 
 
 
 
 
Number of independent fresh water systems
 
 
 
 
Revenues:
 
 
 
 
 
Revenue - affiliate
21,819 
42,631 
86,759 
107,907 
 
Revenue – third party
627 
2,671 
778 
2,671 
 
Total revenues
22,446 
45,302 
87,537 
110,578 
 
Operating expenses:
 
 
 
 
 
Direct operating
4,773 
9,054 
19,013 
25,871 
 
General and administrative expense (before equity-based compensation)
1,498 
1,576 
3,793 
4,085 
 
Equity-based compensation expense
1,079 
549 
3,445 
2,027 
 
Depreciation
6,485 
4,390 
18,767 
10,748 
 
Total operating expenses
13,835 
15,569 
45,018 
42,731 
 
Operating income (loss)
8,611 
29,733 
42,519 
67,847 
 
Segment assets
487,734 
396,692 
487,734 
396,692 
 
Capital expenditures for segment assets
19,821 
53,305 
53,086 
159,097 
 
Acquired water handling assets
$ 28,560 
 
$ 28,560 
 
 
Contingencies (Details) (Environmental matters litigation, Minimum, USD $)
3 Months Ended
Sep. 30, 2015
Environmental matters litigation |
Minimum
 
Loss contingencies
 
Possible monetary sanctions
$ 100,000