Greetings, and welcome to the Antero Midstream 3Q 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Brendan Krueger, Finance Director. You may begin.

Thank you for joining us for Antero Midstream’s third quarter investor conference call. We will spend a few minutes going through the financial and operating highlights, and then we will open it up for Q&A. I would also like to direct you to the homepage of our website at www.anteromidstream.com, where we have provided a separate earnings call presentation that will be reviewed during today’s call. 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; Brendan Krueger, CFO of Antero Midstream, and Michael Kennedy, CFO of Antero Resources and Director of Antero Midstream. With that, I will turn the call over to Paul.

Thanks, Dan. First and foremost, the third quarter was one of the more momentous quarters for Antero Midstream since our IPO in 2014. During the quarter we generated $30 million of free cash flow after dividends and began paying down debt. We have been talking about this critical inflection point for several quarters and it has finally arrived. Second, we announced our first organic acquisition of gathering and compression assets in the Marcellus Shale, which are highly complementary to our current assets. This acquisition is not only a strategic fit for AM, but further enhances our free cash flow profile, as Brendan will discuss in his remarks. To take a closer look at the acquisition, I will direct you to Slide number 3 titled Marcellus bolt-on acquisition. We closed this $205 million acquisition from Crestwood earlier this week, and we have started integrating the asset and a number of former Crestwood employees into the AM platform. As you can see on the map, the primarily dry gas gathering and compression system is highly complementary to AM’s existing footprint in the core of the Marcellus Shale. The acquisition increases Antero Midstream compression capacity by 20%, and gathering pipeline mileage by 15%. Importantly, the assets have significant available capacity for growth without material capital investment. As we look at the asset, today, we have identified over $50 million of discounted future capital avoidance, through connecting the system to AM’s assets and rerouting the volumes to fill underutilized compression capacity. We also plan to move and reuse underutilized compressor units into the liquids rich midstream corridor, similar to the reuse opportunity we discussed on last quarter’s conference call. This results in both capital and operating expense synergies. Most importantly, the acquisition includes approximately 425 undeveloped drilling locations held by AR that will be…

Thanks, Paul. I will start my comments by briefly highlighting our ESG achievements, and then move on to the quarterly results and outlook at AM. Slide 5 illustrates our ESG achievements. First, Antero Midstream was recently named to the top 100 Best ESG Companies by Investors Business Daily, highlighting the significant strides we have committed to on the ESG front. Moving to our high safety standards, last year represented the 7th straight year without an employee loss time incident. We are incredibly proud of our employees and their relentless dedication to the health, safety and well-being of our workforce. This year, we also added Scope 1 and Scope 2 GHG emissions to our net zero goals. We anticipate achieving a 100% reduction in pipeline emissions by 2025 and net zero Scope 1 and Scope 2 emissions by 2050, through increasing operational efficiencies, carbon reduction initiatives and the purchase of carbon offsets. I will finish my ESG comments with some impressive statistics from AM’s water system and operations, which is the largest in Appalachia. In 2021, we reused or recycled 87% of the water used in completion. This, along with our integrated freshwater delivery system, allowed us to eliminate 16 million truck miles and 34,000 tons of CO2 equivalent compared to trucking the water. This approach is not only environmentally friendly, but reduces the impact to our local communities and is incredibly cost efficient. Now let’s move on to the quarterly results on Slide 6, titled year-over-year -. During the third quarter, AM’s low pressure gathering volumes were nearly 3 Bcf a day, a 3% increase year-over-year. Compression volumes were 2.8 Bcf a day a 1% increase year-over-year. The year-over-year volume growth was driven by the gross production growth from the drilling partnership. Looking ahead, we expect mid single digit sequential…

[Operator Instructions] Our first question comes from the line of Marc Solecitto with Barclays. Please proceed with your question.

Hi good morning. So with this Shell ethane cracker starting up in August, curious your views around whether that potentially allows for a modest acceleration in drilling activity in the Northeast with more ethane coming out of the residue gas stream, and how that potentially affects your outlook for next year if at all?

Yes, I mean, I think when you when you break it down in terms of overall incremental capacity for gas in the northeast, it is about 250 a day of incremental capacity. So not really material in our view to the just overall macro environment on gas supply.

Got it. And then recognize it might be a bit early for this, but with the reference capital savings as part of the recent bolt-on acquisition, and last quarter, you identified some capital savings associated with compressor relocations. So just wondering if there’s any context that you could provide around the CapEx outlook for next year?

I think, it will certainly provide more formal guidance. I don’t think from what we provide earlier, I think 215 to 225, was the earlier guidance. Hopefully some tailwind behind that, but we will certainly come out with more formal guidance as we get further along in the year.

Got it and then maybe if I could just squeeze one last one in here. Looks like third-party water revenues ticked up in 3Q. Just wondering if you could elaborate on that. Would you expect that to continue and/or are there more opportunities out there?

No, that was a great opportunity, I think for AM. We certainly are looking for additional opportunities like that where you have operators that have a pad in the vicinity, where we can deliver freshwater volume to them. So we will certainly look to continue. I think given ARs large, contiguous acreage position out here, there is not a lot of third-party water opportunities. But we will certainly continue to look for some of those.

Next question comes from the line of John Mackay with Goldman Sachs. Please proceed with your question.

Hey everyone. Thanks for the time. I want to start on 2022 guidance maybe and I know you guys don’t typically update kind of annual numbers quarter-to-quarter. Just wondering the close of the deal - are you looking at any offsets for EBITDA this year maybe on OpEx side that would kind of leave you in the current range or is the kind of original range intact and then we think of any deal contributions this year, just on top of that?

Yes, I think, we did not update the range. But we do expect to get those additional contributions. And as we talked about, do expect sequential growth as a result of that acquisition. So no changes the guidance, but certainly would add the incremental contributions on top of the guidance we provided.

Got it. Okay, thanks for that and then maybe just looking forward, actually, maybe one in the - here, sorry. Just on the Smithburg to sale or reimbursement, whatever we want to call it. Is that a broader change in how you guys are thinking about this JV or is it really just a reflection of the fact that, we are probably not going to see much more from you guys capital in that direction? Just trying to figure out if there is a bigger thing going on here?

No, that is bigger. I think that was, it was the equipment related to refer to we still have all the sites available, should we elect to move forward with another plant down the road, but this was one. As you look in the outlook with AR and a maintenance capital plan, you just don’t need that plant. The other plants can run at about 110% of capacity. And so you have got incremental capacity, should you need it without the need for some effort to so it was non productive capital on AM’s balance sheet. So it is good to get that reimbursement of that capital in the quarter.

Good, okay it makes sense. I will leave it there. Thank you.

Our next question comes from the line of Jeremy Tonet with JP Morgan. Please proceed with your question.

Just wanted to kind of figure some stuff out maybe at a high over the base, and we are hearing about a number of, I guess, midstream issues in the quarter in impacting a number of producers and just wondering. Is there any impact on your system that happened this quarter or might be happening in the future? And are there any mitigation plans if so or just any color I guess in general in the midstream outlook for the basin? Is there any downstream issues that might impact you?

No, I think on the issues that we have certainly heard about have been more related to the gathering and water side of the business in basin. I think they are very unique and strong distinction with AM and it is primary Customer AR is having that integration between the two parties. We have not seen any of those issues. AR has never to defer well as a result of AM being late with infrastructure. So very unique that we can continue to predictably operate in and deliver I think the development plans that we have laid out where you are seeing a lot of issues with others that have more difficult to put it nicely I think relationships between the upstream and midstream operator.

Sorry. So just to clarify then, as far as - there is no like NGL pipelines downstream of your system, no issues on any of those assets that might impact your outlook?

No. We haven’t had issues during.

We did have one day in early October that we referenced in the AR, but it was just a 20 hour downtime. That is maybe what you are - it would be less than 10 million a day or so.

Got it. That is helpful. Thanks. And then pivoting I guess to the balance sheet to the conversations at the agencies here. Just wondering if you could update us a little bit on outlook there and AM’s rating vis-à-vis where AR is and if AR is getting to a net cash position, how might that impact their road to IG and AM’s credit outlook as well?

Yes. So on the AR side, we did get a Fitch investment grade rating recently in early September. We were on the S&P and Moody’s front continue to push there for the IG rating as well. So depending on when you get an upgrade there, you should see some follow through at the AM level. But it certainly is difficult to predict when you will get those rating upgrades from S&P and Moody’s, but we do expect that to happen at some point, just don’t know when that timing will occur.

Got it. And just a last one, if I could, with the lawsuit deal loss. Just wondering any color there and timeline going forward?

Yes. No update from what we provided before. Just waiting on feedback from the court at this point.

Okay. I will leave it there. Thank you.

Thanks Jeremy.

Thanks Jeremy.

Our next question comes from the line of Michael Cusimano with Pickering Energy Partners. Please proceed with your question.

Hey, team. Thank you for taking my questions. I just wanted to start if you can comment on how the AR completion schedule that I believe was accelerated in the fourth quarter affects AM’s run rate in 2023?

Yes. So there is one pad that AR talked about accelerating into the fourth quarter. So really it is about a month of move up and when that would be placed to say, also you will see some sequential growth, further sequential growth in first quarter than what of that otherwise.

Okay, got it. And then one follow on second one too. Can you comment on where the buyer intends to use that equipment? Is it saying in basin or is it somewhere else or another basin?

Yes, I don’t think we can comment on where that is going in particular.

Alright. That is all for me. Thank you.

Thanks.

Thanks Michael.

And our next question comes from the line of Michael Bradley with Tudor, Pickering, Holt. Please proceed with your question.

Hey good morning guys. Just on the OpEx front, now that you all spoke on the AR call around the expectation that unit costs should come down in Q4 and into 2023. Is variable costs related to power and fuel, normalize a bit. I just wanted to get your thoughts on how much of a pullback and these kind of costs you are expecting it to AM level over the next couple of quarters and whether we should think kind of as Q1 as a good reference point, as we look to Q4 or if we could see something kind of more in between the Q1 and what we have seen over Q2 and Q3?

Yes, I think overall at AM and OpEx has been relatively consistent, so I would expect what you have seen in Q3 would, you would maintain into Q4. AR is more driven by commodity prices driving the fuel there AM, I would just assume consistency from Q3 going forward.

Okay, got it. And then just following up on Michael’s question, on the incremental AR pass that you are expecting, is there any possibility that those freshwater volumes could at least partially hit in Q4? Or would you expect substantially all to materialize in Q1 just given the late December timeframe?

Yes, I mean, I think a lot of those volumes you already had coming in Q4. So you may see a little bit of incremental in Q4, but not in the material manner. You weren’t going to complete most of those, those wells during Q4 to begin with, it is just being accelerated slightly.

Okay, got it. Thanks for all the time.

Sure.

Thanks Michael.

And our next question comes from the line of Ned Baramov with Wells Fargo. Please proceed with your question.

Hi, thanks for taking the questions. Maybe one on cash taxes, I believe in the past, you have stated you do not expect to be a cash taxpayer until the 2030s. So can you provide your updated timeline in light of the 15% alternative minimum corporate tax provision in the Inflation Reduction Act?

Yes, so we have given our targets out through 2026 and continue to not expect to be a material cash taxpayer over that time period. I think as we as we continue to roll forward targets, will provide more updates, but no expected material cash taxes as a result of that change. In AM you would be below that million dollar threshold anyway. So no expectation for that to be applicable there for the AM free threshold.

Got it. And then a quick question on maybe if you can talk about the expected synergies from the acquisition of Crestwood Marcellus assets. So how much of the 50 million of net present value is CapEx avoidance? I think Paul’s comments noted that all of this is CapEx avoidance, but I thought there is maybe some operating synergies embedded in there. And also what is the timeline for the realization of the full suite of synergies? Thank you.

The 50 million, the vast majority of that is CapEx avoidance, not having to build a compressor station as a result of the compression capacity that we are acquiring here and being able to connect to AMs current system. And then there is a little bit in terms of just OpEx savings as a result of being able to shut down some of the capacity that was running and direct elsewhere. So of the 50 call it 10% OpEx, 90% is capital avoidance.

Got it. Thank you.

Thanks.

And we have reached the end of the question-and-answer session. I will now turn the call back over to Dan Katzenberg for closing remarks.

Thank you everyone for joining us in the call today. If you have any further questions, please reach out. Have a good afternoon.

And this concludes today’s conference and you may disconnect your line at this time. Thank you for your participation.