Welcome to the Antero Midstream 2020 Fourth Quarter Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. At this time I'll turn the conference over to Michael Kennedy, Senior Vice President of Finance. Mr. Kennedy you may now begin.

Thank you for joining us for Antero Midstream's Fourth Quarter and Full Year 2019 Investor Conference Call. We'll spend a few minutes going through the financial and operating highlights and then we'll open it up for Q&A. I would also like to direct you to the homepage of our website at www.anteromidstream.com where we've provided a separate earnings call presentation that will be reviewed during today's call. Before we start our comments, I'd first like to remind you that during this call Antero management will make forward-looking statements. Such statements are based on our current judgments regarding factors that will impact the future performance of Antero Resources and Antero Midstream and are subject to a number of risks and uncertainties many of which are beyond Antero's control. Actual outcomes and results could materially differ from what is expressed implied or forecast in such statements. Today's call may also contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures including reconciliations to the most comparable GAAP financial measures. Joining me on the call today are: Paul Rady, Chairman and CEO of Antero Resources and Antero Midstream; and Glen Warren, President and CFO of Antero Resources and President of Antero Midstream. With that I'll turn the call over to Paul.

Thanks Mike. I'd like to start by discussing the 2020 outlook and development plan at AR that supports Antero Midstream's 2020 capital budget and financial guidelines. Yesterday, Antero Resources announced a drilling and completion capital budget of $1.15 billion that is expected to generate 9% net production growth in 2020 as compared to 2019. AR's 2020 capital budget utilizes an average of 4 drilling rigs and 3 to 4 completion crews consistent with 2019 levels. This development program is approximately free cash flow neutral at AR and results in leverage, trending toward the mid 2 times range, assuming execution of its previously announced asset sale program. For those that were able to listen into the AR call we just finished, I highlighted that we remain focused on achieving our cost reduction strategies and achieving our asset sale target at AR. The ability to continue growing production in the current commodity price environment is supported by AR's continued capital efficiencies, liquids-rich focus and industry-leading hedge portfolio. Let me move to Slide number 3 in our investor presentation titled Marcellus Well Cost Reductions, which illustrates the significant momentum in well cost reductions at AR. Last quarter, AR announced a well cost savings initiative that targeted a 15% to 18% reduction in well costs on a per lateral foot basis or approximately $1.7 million to $2 million per well. The left-hand side of the page illustrates, AR's, January 2019. So, a little over a year ago, well costs of $970 per lateral foot that was assumed in AR's 2019, capital budget. During the fourth quarter of 2019, AR's actual well costs were $840 per lateral foot. This was driven primarily by lower costs for flowback water, as AM implemented flowback water blending and localized storage operations. The coordinated effort between AR and AM…

Thank you, Paul. I'll begin my AM comments by highlighting the recently announced AM cash dividend of $0.3075 per share for the fourth quarter. The dividend at AM was the 20th consecutive distribution or dividend paid since the IPO of Antero Midstream Partners in 2014. In addition, during the fourth quarter we purchased 19.4 million shares from AR. To-date we have repurchased 22.9 million shares for $125 million resulting in $175 million of remaining capacity under our $300 million share repurchase program. Now let's move on to the fourth quarter operational results beginning with slide number 7 titled: Year-Over-Year Midstream Throughput. Starting in the top-left portion of the page low-pressure gathering volumes were 2.6 Bcf per day in the fourth quarter, which represents a 1% increase from the prior year quarter. Compression volumes during the quarter averaged 2.4 Bcf per day, a 9% increase compared to the prior year. Our 50-50 JV gross processing volumes averaged 1.2 Bcf per day a 51% increase compared to the prior year quarter. Processing capacity was $0.92 utilized during the quarter. Joint venture gross fractionation volumes averaged 31,000 barrels per day a 63% increase from the prior year. Freshwater delivery volumes averaged 148,000 barrels per day a 9% increase over the prior year quarter. Moving on to financial results. Adjusted EBITDA for the quarter was $203 million a 6% increase compared to the prior year quarter. Distributable cash flow for the fourth quarter was $159 million resulting in a DCF coverage ratio of approximately 1.1 times. Capital expenditures during the quarter were $125 million or $30 million below the midpoint of our revised guidance range. As a result, full year capital investments totaled $646 million or $130 million lower than our original capital budget at the beginning of 2019. This highlights the capital flexibility…

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question is from the line of Jeremy Tonet with JPMorgan. Please proceed with your question.

Hey, guys. This is James on for Jeremy.

Hi, James.

Hi. Just looking at the high-pressure gathering fees it looked like a step-down sequentially and year-over-year, maybe, I missed this in the K, but what's the driver there for that?

The high-pressure fee stayed the same at $0.21. We just had some prior period adjustments that we caught up in the fourth quarter. So that's the reason it shows the decline, but the $0.21 is still applicable to high-pressure fees.

Okay. So for 2020, $0.21 would be a good model.

Yes, $0.21.

Okay. All right. Great. And then, just moving to CapEx, what was really the driver for the coming under budget in 4Q 2019? And then looking out to 2020 as well, what were kind of the biggest cuts in terms of segments for just lower CapEx there?

The lower capital in 2019, we just continued to defer projects and focus on Antero's current development plan, which has become more concentrated in Tyler County, which is where our infrastructure build-out occurred earlier in the year, so just leveraging existing infrastructure. That continues in 2020. On that map, it showed deferring the Wetzel build-out. It's really just focusing on that Tyler County in 2020 and then 2021 and 2022 having the capital associated with the Wetzel build-out.

All right, Great. Thanks. That’s it for me.

[Operator Instructions] Thank you. Our next question is from the line of Gregg Brody with Bank of America. Please proceed with your question.

Hey, guys.

Hi, Gregg.

Just a few questions for you. Your share repurchase program, how are you thinking about that today? And sort of the cadence of what we should expect this year in terms of how much you think about buying back?

Yes. So there's still $175 million of purchasing power authorized by the Board at AM just as a reminder. And AM has certainly expressed an interest in repurchasing shares from AR. So that's kind of an ongoing dialogue subject to coming together on price. I wouldn't anticipate anything in the near-term there at these prices. But the sooner you buy in shares, obviously you eliminate those dividends and it's great for AM. So I think AM will execute on that throughout the year in one fashion or another it may buy some in the open market as well.

Got it. I think – so in the AR presentation showed some incremental gathering processing and transportation improvements since the end of December. Just wanted to clarify was any of that at AM, or was it all incremental third-party or not really the third party?

In 2020 that $48 million of it was AM. There is an additional $27 million with a total of $75 million from that GP&T that were third parties.

From the third party. And that's – I mean that was realized after you made the December nine announcement?

No that was all December 9.

The December 9 announcements was $350 million total over four years and $250 million of that $350 million was – is AM – is anticipated to be from AM rebates. The rest is other third parties.

Got it. So there – was there – just maybe – I know this is an AM call. Was there anything on AR that was incremental then?

There was nothing incremental on that.

No.

Okay. And then it looks like you changed your targeted year-end leverage metrics for year-end. Actually they're improving a bit versus what you've provided on December 9. Just a slight change. What's driving that?

I think the mid-3s is where we were in December. There hasn't been a material change from that. EBITDA is exactly as we expected in capital is at the same levels too. So I don't see any change to the announcements that we had in December.

And probably being just too little with – so that’s helpful. All right. Thank you for the time. I appreciate it.

Sure. Thanks, Gregg.

Thank you. Our next question is from the line of Sunil Sibal with Seaport Global. Please proceed with your question.

Hi, good morning, guys. A couple of questions for me. First on the cost reduction side. You guys have done a pretty good job so far on the AM cost side. I was wondering if there are more levers available to pull for bringing that down further? And how should we be thinking about that?

I would just say Sunil that we've got a lot of things always working there incremental things and we just continue to push things lower as we get better and better at all parts at logistics and sand supply at the drilling and so on the completions, the rate of completions. So it's pretty much the laundry list that you've heard out already but just continue to make improvements in all of that.

We think there could be more to come in AR. And as far as AM goes, it's really just getting more efficient about planning and logistics and where we're spending capital in front of the drill bit. As Mike mentioned earlier, it was a bit of concentrating the drill bit more and utilizing existing infrastructure. So that's really what's going on there. I mean, you try to -- you certainly bit everything out and try to improve on construction costs and all that. But I think this is really more about building what was really needed and could be highly utilized.

Okay. Got it. And then one, kind of, broader question. You highlighted the returns on invested capital as an important criteria. I was wondering if you talk -- can talk a little bit about broader capital allocation policy. And, obviously, it seems like leverage will tick up a bit in 2020. Considering all that's going on, what is the leverage target that you guys have in mind ultimately for AM?

Yes, mid-three’s leverage target. Our leverage doesn't inflate going forward. We have EBITDA growth every year in the high single digits. So you've got cash flow growth and your capital continues to come down. So the leverage stays flat in the mid three times range.

And then on the broader capital allocation side, obviously, equity markets don't seem to be rewarding for the dividend payout. How do you think about that in terms of your broader capital allocation philosophy?

Similarly like I mentioned, you've got growing cash flow capital coming down -- it came down over 50% this year. So your leverage is staying flat in the mid three times. It's very attractive for a midstream company. And so at today's dividend rate assuming holding it flat you're at 1.1 times. That grows over the next year or two to 1.2 times, and then a couple of years you actually have cash flow, free cash flow before return of capital in excess of the dividend. So we don't see any reason right now that the dividend isn't sustained at today's levels.

No, we think the equity market will come back to the dividend so to speak, so no need to have a knee-jerk reaction over the last few quarters.

Okay. Got it. Thanks guys.

Thank you.

Our next question is a follow-up from the line of Jeremy Tonet with JPMorgan. Please proceed with your question.

Hi, good afternoon. Thanks for taking another question. Just wanted to see on the processing JV side, it seems like the CapEx pulled back a bit there or is a bit later I guess going forward at this point. And just wondering, if you could refresh us as far as would you expect any cadence to new plants, or what type of activity for future CapEx we should expect there?

Yeah, we have $30 million in the budget for 2020. Paul mentioned we just put onshore with 12 and 13 in the fourth quarter. So kind of a pre-build and grow into those processing plants in the first part of the year and then Smithburg 1 comes on and utilize that in the back half of the year. So we only have $30 million. So invested a lot in those processing plants and now we have the ability to form and then just build a plant or two each year from here on now.

So that still is the current plan then I guess building a plant or two per year going forward?

Yeah.

That's correct.

Got it. And then, maybe I'm looking at this too finally here, but it looks like on the -- for ARs lateral length that had been kind of coming in recently and was a bit shorter in subsequent quarters over the course of 2019. And I think the guide you laid out here talks about 12,000 foot lateral. So just wondering if there's any kind of shift here that we would expect?

No, there's no shift. I mean when you look at the 2020 plan for Antero, the completions average 11,400 feet to drilling average over 12,500 feet around that. So, it's just timing. And they're still trying to drill longer laterals and our type well is 12,000 foot lateral well.

Got it. Great. And maybe just the last one if I could. It sounds like the current dividend level you're looking to sustain here didn't want to have a knee-jerk reaction to the market, but is there a certain length of time where things don't change might kind of re-evaluate the approach here given kind of the elevated yield, or any other thoughts that you could share on that?

Yeah. No thoughts to share on that. That's something that the Board discusses over time, but no inside thoughts there. No.

Got it. That’s it for me. Thank you.

Thank you.

Thanks, Jeremy.

Our next question is from the line of Ned Baramov with Wells Fargo. Please proceed with your question.

Hi. Thanks for taking the question. Just one for me. Could you maybe provide an update on your discussions with Veolia regarding the idled Clearwater facility? And then as part of that, are there any other expenses related to the idling of the plant expected in 2020? Thank you.

Yeah. What we can say is that discussions continue with Veolia, and that's about all we can say. We can't comment further. But -- and then on the...

No material expenses going forward.

Yeah, no material expenses. It's been mothballed.

Thank you.

Yeah. Thank you, Ned.

Thank you. At this time, I'll turn the floor back to management for further remarks.

Thank you for joining us on our conference call today. If you have any further questions, please feel free to reach out to us. Thanks again.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.